Question

Identify an appropriate asset allocation to apply for diversification for a scenario. (40 y/o male who's willing to take risks)

Answer 1

Answer: Its very subjective as a lot of factors comes in to play when you go for asset allocation for diversification.

As the Person is ready to take risks we can have high beta stocks which reacts aggressively to the market scenarios. when it goes up they will go more up and if it goes down they go more down.

As the age is 40 yrs around 40% investment should be in debt and the rest 60% should be in equity for the person. (100 yr age rule) we can dither away as well reason being person is ready to take higher risks.

The 60% equity stock should also be in high beta stocks as the person is ready to take higher risk to get higher returns. Small caps would be more preferable rather than Blue chip companies.

One of the important factors in asset allocation is the goal of the person as well, that when will he be needing the money invested. if he needs after short period of time 3-5 yrs than stable stocks( blue chip companies) would be preferable if time period is 7-10 yrs we can go for risky small cap stocks.