Asset Allocation Framework for Equity Markets
The importance of asset allocation frameworks is only understood at times when the market has fallen, when one can see the bargains in equities all around them but doesn’t have the necessary meaningful amount of liquid capital to deploy. What is asset allocation you ask? It is simply the decision one makes at different time periods, on what % of capital to deploy in different asset classes. For a simple investor, liquid asset classes could include, cash, gold, debt, and equity. Notice that I do not include real estate into the mix as it is not easily liquifiable to raw capital. One can use the table below, to make such asset allocation decisions across different market cycles. Countercyclical asset allocation decisions in equities and other lesser volatile asset classes can yield improved long term results for any investor. Don’t believe me, look at how Warren Buffett invests, he always keeps cash handy for big market falls. He currently has $ 140 Bn in liquid assets to
