The fact that one must strategize their investments to reap higher returns is beyond doubt. But how do we understand what these strategies are? Which of these strategies may be suitable for our personal situation? Are some of these strategies uniformly applicable to all kinds of investors?

Many questions run in our mind as we think about investing. While it is recommended that we consult a Financial Planner for our investments, we must always be aware about some common investment strategies, concepts and terminologies.

Let us start by understanding Asset Allocation in greater detail.

Asset Allocation, simply defined, is a model approach that we follow to benefit from the different available asset classes. Asset Allocation is an evergreen strategy that should be thoroughly practiced by one and all. Rather than investing the entire surplus in one asset class, its best to adopt the middle approach and invest across the suitable asset classes. It is a broad term that gives a generic overview of investment strategies. It is based on the premise that one should not put all his eggs in one basket.

Why Asset Allocation Is Important?

By including asset categories with investment returns that move up and down under different market conditions within a portfolio, an investor can protect against significant losses.

Historically, the returns of the three major asset categories have not moved up and down at the same time. Market conditions that cause one asset category to do well often cause another asset category to have average or poor returns. By investing in more than one asset category, youll reduce the risk that youll lose money and your portfolios overall investment returns will have a smoother ride.

If one asset categorys investment return falls, youll be in a position to counteract your losses in that asset category with better investment returns in another asset category.