Asset Allocation & Age of Person

The basic principle behind age-based asset allocation is that your exposure to portfolio risk needs to reduce with age.

As a person grows old he is willing to take the lesser risk. Hence a person approaching his retirement may wish to invest in Assets having lower risk and assets having higher liquidity. This way he may wish to invest very little into equities and a large sum into debt or cash.

As against that, a young person who has ample time at his disposal can invest a large sum in high risk and high return instruments like equity or equity mutual funds and a small amount in other asset classes like debt or cash.

Similarly, a person in the middle of his age would prefer to have Equity, debt, and cash in the right quantity in his investment portfolio.

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