In the first part of this article, we got to know about Asset Allocation. In this article, we will discuss the benefits of implementing Asset Allocation. The benefits are as follows:

1. Risk Diversification

Investing in a variety of asset types has the most obvious advantage of protecting the investment portfolio from significant losses in any one asset type. However, it is essential that the Asset Allocation process includes a suitable method for selecting assets for the portfolio.

2. Reduced Portfolio Volatility

Having multiple asset types in the portfolio means that when one asset type yields negative returns, another type may provide positive returns. Overall, this can lead to less volatility in returns, making it suitable for investors who prefer not to have their investments fluctuate too much.

3. Availability of Funds to Invest in Undervalued Assets

Imagine if we only invested in one type of asset, such as Thai stocks. If Thai stocks were to drop significantly, we would lack the capital to purchase more shares. However, if we held other assets, we could sell those assets and use the funds to invest more in Thai stocks.

4. Investment Discipline

Having a clear investment plan and goals helps investors maintain high discipline and focus on long-term objectives. Sticking to the plan consistently over the long term is crucial for successful investing.

5. Ability to Hold Financial Assets for Extended Periods

Without a systematic plan, it can be challenging for investors to endure holding high-volatility assets (such as Thai or international stocks) during periods of fluctuation or bad news. Even though these assets may offer higher returns than bank interest in the long run, it can be difficult to maintain that position without a solid plan.

As discussed, implementing Asset Allocation has numerous benefits. In the next article, we will delve deeper into how large funds implement Asset Allocation.

Dr. Tanapoom Damraks, CFA.

Article by เทอร์ร่า บีเคเค Dr. Tanapoom Damraks, CFA.

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