Asset class is a term used to define the category of investment opportunities like Equities, Fixed Income / Debt instruments, Commodities like oil / gold etc.
As part of the goal you will have determined the tenure you want to invest for and the required rate of return to reach the goal’s target value.
Using the tenure and required rate of return you now need to determine the asset classes that will give you most optimal return to your goal.
Each asset class has its own risk and return profile. Example equities are generally considered highly risky and consequently give higher return. You could use the table below to populate
| Asset class | Past year’s return | Projected return for next year | Perceived risk (update as you see fit) |
| Equity | High | ||
| Fixed Income instruments | Medium | ||
| Short term fixed income like Sweep-in-deposits | Low | ||
| Gold | Medium |
Once you have this table, you can determine the asset classes that best suit your tenure goal’s tenure and the return requirements.
The next step is to determine the ratio in which you want to allocate your investments to balance the risk and the return.
The objective here is to determine the appropriate mix of assets called asset allocation such that you get your required return at an appropriate risk level you are comfortable with.
There are two scenarios that will emerge once you determine the appropriate asset allocation.
Next step: determine the individual stocks or investments in each asset class to build your portfolio.