Financial Literacy Series

Diversification and Asset Allocation explained using the Analogy of a Car and a Journey

1. When you have driving to a destination you need a car.
2. The Car is like a Portfolio.
3. You need to accelerate for some part of the journey
4. Acceleration is provided by Equity.
5. Then at times you need to brake during some distance.
6. Braking is provided by Debt funds.
7. Then you need to cruise along for some time using the gears to good effect.
8. Cruising along using Accelerator, Gears and Brakes is similar to Asset Rebalancing.
9. The destination hence cannot be reached only using Accelerator or Brake or Gears.
10. All are needed and they represent the different asset classes like Equity, Debt, Arbitrage and Gold etc…

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