I am going to explain you about how to allocate your assets for your financial investments. It is important to take stock of your financial needs and goals and assess you risk appetite. Based on that you can decide how much you can invest in bonds, stocks & mutual funds etc.
There is something called risk pyramid, which shows that the more risk you are willing to take the more returns you may expect to target and vice versa. For example you are investing a major portion of your money in anticipation of greater returns. Also you are willing to lose that entire money in the face of a crisis. The reasons could be different. May be you could earn that money easily or may be you are so young that you need to bother. Whatever it is, that kind of investment is proper if you are willing to take risk.
On the other hand if you do not wish to lose all of your money but only a partial amount then you should invest most of your money in either balanced mutual funds or bonds. The rest, which you could afford to lose without any loss to your normal financial life, can be invested high risk equity funds or directly in stocks.
Stocks when invested in a particularly fast growing company could give a boost to your capital. But if you enter at wrong time or if you controlled greed and fear then it can land in ditch.
Knowing your risk vs. return attitude really helps you do proper asset allocation for investments to meet your financial goals.
After deciding a top level allocation like bonds, mutual funds and stocks, you should also decide to invest how much in certain type of bonds, balanced funds, equity funds, small cap stocks, mid cap stocks and large cap stocks. This division is important as it makes you disciplined and well planned in your investments. Often it is said that it is not important what your plan is but that you have a plan for your investments is very important.
Doing this, in the beginning of your journey of investing, will not make you regret later.
