Ever asked yourself why everybody keeps talking about importance of diversification? Or to begin with, what is diversification? Watch the video to learn about asset allocation and how it helps you protect against low performing financial assets and lower your risks.
So what is asset allocation?
We all have heard the proverb - “Don’t put all your eggs in one basket”! Similarly, Asset Allocation diversifies an individual’s investments amongst different asset classes, to help reduce investment risk.
So what is diversification?
It’s the same thing. Put simply, it’s the practice of spreading a person’s savings across many instruments, like cash, equities, bonds, real estate, gold, etc. to make sure that the investments are not at the mercy of the performance of any one asset class. The importance of diversification is that it provides a massive benefit that people don’t often appreciate. That is the benefit of ‘Lowering Risk.’ Risk is easy to understand. It’s the possibility of there being multiple outcomes, and often those that we have no control over. And there are many ways to measure such risks, not just in terms of returns. Lack of liquidity is one kind of risk, as is the risk of a borrower or issuer defaulting. An investor can even face an opportunity risk by losing out on better returns elsewhere.
Diversification basically involves deciding what percentage of investible funds is to be invested in different asset classes. Because different asset classes perform differently, asset allocation is of utmost importance, and is key to determining your overall investment performance. Asset allocation works best when asset classes that move in opposite directions are combined, by lowering the fluctuations in the investment returns. Because when one asset class underperforms, the other often compensates for it.
To sum it up, a few important things to remember are:
• Importance of asset allocation is that it reduces the risk on investment
• Diversification refers to the process of spreading the investment across many instruments
• Importance of diversification is that it lowers risk

So plan wisely, and use Asset Allocation to diversify risk among different asset classes and generate stable returns over your investment period. Remember! Different Baskets! Safer Eggs
You can read more about it here:
https://www.franklintempletonindia.com/investor/distributor-zone/adviser-education/asset-allocation-and-systematic-investing
We hope you enjoyed watching this video! Watch more, and we’ll help you learn about different investing concepts. You can also write to us with your feedback ([email protected])
View more such videos in the playlist Franklin Templeton Academy:
https://www.youtube.com/playlist?list=PLpDLpRd877mRvP2fuzG7Bby1cwuLQ6i3W
Invest in Mutual Funds with Franklin Templeton.
Official Website:https://www.franklintempletonindia.com/
Facebook: https://www.facebook.com/FranklinTempletonIndia/
Instagram: https://www.instagram.com/ftiindia/?hl=en