Your goal is to build a portfolio that matches your investment risk tolerance and creates balance.  

Key Concepts Explained

1. Risk Tolerance 

A risk tolerance measure shows your capacity to handle investment losses without making hasty decisions.  

– Factors Influencing It: 

  Younger individuals can pursue riskier investments thanks to their extended future investment period.  

  People who earn money predictably take more investment risks because of their secure financial foundation.  

  Short-term buying a car needs secure investment choices because of its purpose.  

Example:  

The 25-year-old IT professional should put money into aggressive equity funds because of their stable job.  

At 55 years old near retirement age a person would often select either fixed deposits (FDs) or debt mutual funds as investment tools.  

2. Asset Allocation 

You achieve risk protection and enhanced earnings by splitting your investments between different asset groups.  

Diversifying assets helps you reduce protection risks through equity holdings with bonds acting as stability elements.  

Sample Indian Portfolios:  

Indian Asset Examples:  

The portfolio includes large-cap Nifty 50 index funds and small-cap Tata Motors stocks as equity investments.  

A PPF and corporate bonds like Tata Capital bonds belong to the debt category.  

– Gold: Sovereign Gold Bonds (SGBs), gold ETFs. 

3. Volatility

– Definition: How sharply an investment’s value fluctuates over time.  

– High Volatility: Stocks (e.g., Zomato or Paytm).  

– Low Volatility: FDs, government bonds (e.g., SBI FD).  

Why It Matters:  

– High volatility = Higher potential returns (but bigger short-term losses).  

– Low volatility = Stability (but slower growth).  

Tasks for you  

1. Assess Your Risk Tolerance:  

Test your investment risk appetite through the profile quizzes at Groww or Kuvera websites.  

  At a Moderate risk level you should invest 60% in Stocks and plans to distribute remaining 30% equally among Corporate Bonds and Gold.  

2. Create Your Asset Allocation Plan:

   Use ET Money’s Asset Allocator service at its website.  

   – Example for a Moderate Investor:  

     – Equity: 50% in Axis Bluechip Fund (large-cap).  

     – Debt: 40% in SBI Corporate Bond Fund.  

     – Gold: 10% in Sovereign Gold Bonds (SGBs).  

3. Analyze Volatility:

   – Compare the 1-year price chart of  Reliance Industries (stable) vs. Nykaa (volatile) on [Moneycontrol](https://www.moneycontrol.com/) or at any broker plateform.  

 Key Takeaways:

1. Match Risk Tolerance to Investments:

   Keep minimal exposure to stocks that substantially impact your sleep quality during market movements.  

2. Diversify Across Assets:  

   To grow your wealth you should split your investment between stocks (growth), bonds (safety) while adding some gold (for inflation protection).  

3. Volatility ≠ Risk:  

   During market plunges invest in top-quality stocks because they become cheaper.