Tailoring portfolio diversification: Strategies for different phases of life

livemint.com:

Asset allocation and portfolio diversification are key principles for any investor creating a long-term financial plan. This involves splitting investments across various asset classes, ensuring they do not move in the same direction or to the same extent simultaneously. 

The aim is to include assets that are uncorrelated or have low correlation with each other. Equities, debt, cash and gold are the most common asset classes in a portfolio, each providing a distinct flavour and benefit. 

Equities, while having the potential for higher returns, can be volatile in the short term, triggering concerns over capital erosion, and uncertainties over the availability of the target amount for a specific future goal. Cash is mainly meant for day-to-day needs and emergency expenses.

Debt may give the comfort of safety with consistent and predictable returns, but hardly grows capital in real terms after adjusting for inflation, while gold can hedge against inflation, but the real returns can also be meager and unpredictable in the short term. 

 Some other assets can be added to the four broad assets, such as currencies, global equities, private equity, real estate, commodities, collectibles and crypto. However, these may not always be practical for all investor types owing to complexities like minimum amounts and product availability.

An ideal financial plan involves carefully blended allocations to a diverse range of asset classes to meet long-term goals. It is a combination of art and science, where multiple factors, including financial and behavioral, play a role in decision-making. 

Factors include your stage of life, financial goals (both amount and timing), current and future income, existing portfolio, past investing