Even as there was shock and indignation at the hacking of emails of
popular public figures recently, I was astounded at the amount of idle
money that lay in the savings bank account of an aggrieved person.
Another case of a busy professional whose asset allocation is so wrong.
Asset allocation is the most important investment decision we will ever
make, and sadly, most of us do not give that decision the importance it
deserves.
We are adamant about seeking predictability with our future. We tend to
think of investing in risky assets as extremely volatile and value eroding.
We also dislike the fluctuating returns and the loss of control. We freeze
and fail to act when we hear stories of risk and think that our money is
best left idle. Unproductive but safe, we presume.
There is simply no asset that is risk-free.We could lose our jobs, and the income that we earn as human assets can stop. Or
worse, we could die and fade away . Our homes can also lose value, our banks can go bankrupt, our bonds can default, the
government can collapse and companies we chose fondly may cease to exist. But we cannot live life assuming that all these
extreme events are waiting to happen, and all at the same time. All these extreme forms of risks we know will not manifest at
the same time. That is why asset allocation works wonderfully for our wealth.
In a world where inflation is falling and rates are going down, entrepreneurs will find it worthwhile to make investments in new
businesses. If private businesses are failing from risks in their balance sheets, governments will step in to support the economy
. If commodity prices are falling from lack of demand, producers will cut back investments, which will lead to reduced supply
and an eventual turnaround in prices. In a normally functioning world that is not in the grip of a world war or multi-country crisis