Asset Allocation for Beginners

"Where should I put ₹10 lakh?" has no answer while the money is one pot. It becomes answerable once each part has a job and a date, because the date decides what that part can be held in. Each kind of asset, such as shares, deposits and bonds, gold or cash, is an asset class: show the note on Asset class (what you can buy maps them all).

Maya's savings have four jobs: show the note on Maya's ₹10 lakh in ₹500 notes. Her base, six months of essentials at ₹45000 a month, is ₹2.7 lakh, needed any day, and it cannot be lower on that day. Her outlet fund, for a second outlet, is ₹3.3 lakh, needed in about 3 years, and it cannot be lower either: the date is fixed. Her long-term money, for a home and then retirement, is ₹3 lakh, needed in 10 years and more, and it can be lower for a while. Her learning budget is ₹1 lakh with no date, and it can fall, even to zero.

Add them back: ₹2.7 lakh + ₹3.3 lakh + ₹3 lakh + ₹1 lakh = ₹10 lakh, nothing counted twice. ₹6 lakh, 60%, must not fall; ₹4 lakh, 40%, can.

Name the total every time you give a percentage: "60% of her ₹10 lakh of savings", never a bare "60%". The same rupees are a different share of a different total, and the lesson uses three totals: her savings, her long-term money and everything she owns.

Where the base and its six months come from is the lesson before investing; here it is simply the first job. That lesson priced her goals at their dates, the outlet at about ₹11.9 lakh and the home's down payment at about ₹35.8 lakh. The amounts here are what she sets aside now; the rest of each goal will come from what the restaurant earns her.

Between orders, Maya pictures a slow month, with fewer diners and fewer delivery bags. Her income would shrink, and so would what her restaurant is worth: one risk, hitting both at once.

That is concentration risk: show the note on Concentration risk: when a large part of your money depends on one holding, or on holdings that move together, one bad event reaches most of it. Maya's whole picture shows it. The new buyer paid ₹1.5 lakh for 10% of her restaurant, which values it at ₹15 lakh; her 90% is about ₹13.5 lakh on paper, about 57% of the ₹23.5 lakh she owns, and it pays 100% of her income. It cannot be sold in a day. Her restaurant is already her largest, most concentrated holding: a good one, which is exactly why her savings should not add to it.

First, the same risk twice. Listed restaurant shares would face her own risks, diners cutting back and food costs rising, at the same moment as her income. The same is true of a job and the employer's shares. At Enron, an American energy company, 62% of the staff retirement plan was in Enron's own shares at the end of 2000. The company filed for bankruptcy on 2 December 2001; the next day about 4000 Houston staff were let go, and shares that had traded above $80 in January 2001 were worth under a dollar. The same collapse took their jobs and their savings.

Second, one company on its own. On 7 January 2009, Satyam Computer Services' chairman resigned, admitting that the company's accounts had been inflated for years. Four months earlier, in September 2008, Satyam had won a Golden Peacock: show the note on From a governance award to the confession award for excellence in corporate governance; it was withdrawn after the confession. On NSE (the National Stock Exchange of India) the share closed at ₹40.25, down 77.5% from ₹178.95 the day before. ₹1 lakh held in Satyam alone was worth about ₹22492 by the close. ₹1 lakh spread like the Nifty 50, which counted Satyam among its 50 companies that day, was worth about ₹93819: it lost 6.18%, because most shares fell with it that day. How a company's books can hide a problem is a later lesson.

That day teaches two things. Spread across 50 companies, the same ₹1 lakh lost 6.2%, not 77.5%; but spreading did not stop the whole market falling. Diversification means spreading money across many holdings so that one company or event has less pull; it lowers one-company risk, never all risk.

What Maya decides: the part of her savings that will own shares goes into many businesses through a broad fund, and none into listed restaurant shares. Her learning budget caps everything she puts into single shares at ₹1 lakh.

Time horizon is how long until a part of the money is needed. Shares have grown faster than deposits over long stretches (where that growth comes from). The price of that growth is falls, and the waits after them.

A wait here is the time from a record close until the index closed above it again. The real waits, on the Nifty 50's official closes: from its 11 Feb 2000 high: show the note on The longest wait since 1995, 46 months, after a fall of 51.4% at the deepest; from 8 Jan 2008, 34 months (59.9%); from 5 Nov 2010, after a smaller fall (28.0%), 36 months; from 14 Jan 2020, 10 months (38.4%). From 2 Jan 2026 it was still 12.7% below on 15 Oct 2026, 15.6% at the deepest so far, on 8 Oct 2026.

Two things the list shows. Depth and length are different: a 28% fall took longer to mend than a 60% one. And a three-year deadline can land inside any of them. Put Maya's outlet date three years after a peak: from the 2008 peak, the index was back two months before her date; from the 2010 peak, only in the month itself; from the 2000 peak, it was still below for ten more months. These are price-index waits, before dividends; counting dividends would shorten them. The past gives no timetable for the next one.

What follows for each of Maya's jobs (her choices, made up). Base, ₹2.7 lakh, any day: bank savings and deposits she can reach within a day. Outlet, ₹3.3 lakh, about 3 years: fixed deposits that mature by her date (certificates of deposit, or CDs, in the US); their rupee value does not swing with share prices. Long term, ₹3 lakh, 10 years and more: ₹2.4 lakh in a broad index fund (how an index fund works) and ₹60000 in gold, 80 and 20. Learning budget, ₹1 lakh, no date: for single shares once she has learned how; until then it waits in her bank account. So ₹6 lakh sits where share prices cannot reach it, and ₹4 lakh can move: ₹2.4 lakh in the index fund, ₹60000 in gold and, once she starts, up to ₹1 lakh in single shares.

As a date gets closer, its money shifts. From about five years before the home, Maya plans to move that money into deposits, a part each year, so a late fall cannot land on the year she buys. Five years is the line the US Securities and Exchange Commission (the SEC, America's market regulator) draws: with "five years or less, you don't want to choose risky investments". It also leaves room beyond the longest wait above, because the past sets no limit on the next one.

The opposite mistake is real too. Long-term money kept only in deposits can fall behind rising prices; in the SEC's words, without enough risk your investments "may not earn a large enough return to meet your goal".

A longer wait is room, not a promise: some companies never come back, as Satyam showed, and the index's long climbs and its long waits were both real.

The arithmetic, step by step: rupees in shares × the fall = the rupees lost on paper. Maya's shares, from chapter 3's placement: ₹2.4 lakh in the index fund plus the ₹1 lakh learning budget, counted as if all of it were in shares, make ₹3.4 lakh. Her gold (₹60000) and the ₹6 lakh in the bank are held steady for the arithmetic. The learning budget is counted as falling with the index; single shares can fall much further, as Satyam did, and chapter 7 tests the case where all of it goes.

Real falls on her rupees: show the note on Her ₹10 lakh in a 60% market fall: a 2008-size fall (59.9%) takes ₹203510, so her ₹10 lakh shows about ₹7.96 lakh, 20.4% less; a 2000-01-size fall (51.4%) takes ₹174608 (17.5%); a 2020-size fall (38.4%), ₹130696 (13.1%); 2026 so far (15.6%), ₹52904 (5.3%). Because ₹6 lakh never touched shares, a 60% market fall is a 20% fall in her savings, and no date moves.

Make the number felt: ₹203510 is about four and a half months of her ₹45000 essentials, gone from the screen. In her packets of ₹500 notes it is about 4 of her 20, while the 12 packets in the bank do not move.

Risk capacity is your money's ability to take a loss without missing a bill or a date. Question one: would any bill or date be missed? Maya's answer is no. Her next six months of bills and her outlet money sit in the bank, which is exactly what lets her answer question two calmly.

Risk tolerance is your willingness to sit through the fall without selling. Question two: would you sell at the low? Only Maya can answer, and selling at the bottom turns a paper loss into a real one. FINRA, the body that oversees US brokers, also treats being able and being willing as two different things, and this lesson keeps them apart because each is answered differently.

The lever if either answer is no: hold less in shares. With ₹2 lakh in shares instead of ₹3.4 lakh, the same 2008-size fall takes ₹119712. Her age, a quiz score or a hoped-for return cannot set this for her. Try yours: multiply what you hold in shares by 0.6, about the 2008 fall, and ask both questions of that number.

This is arithmetic, not a forecast: the next fall may be smaller, larger or longer, and gold and deposits have their own risks (what each asset can do).

The real check uses each index's factsheet, the short monthly summary an index maker or a fund publishes, and each company's weight, the share of the index's money that sits in it. On 30 September 2026 the ten largest companies in the Nifty 50 and in the Sensex were the same ten: HDFC Bank, ICICI Bank, Reliance, Bharti Airtel, L&T, SBI, Axis Bank, Infosys, Kotak Mahindra Bank and M&M. All 30 Sensex companies are also in the Nifty 50 (the official lists of 30 September and 28 October 2026). Financial services were 37.45% of the Nifty 50 and 40.04% of the Sensex.

In rupees: show the note on Of ₹2 lakh, in the four largest (an index fund tracks its index before costs): say Maya put a round ₹2 lakh in a Nifty 50 fund alone (her plan has ₹2.4 lakh). About ₹104540 would sit in those ten companies, ₹20760 of it in HDFC Bank. Split the same ₹2 lakh, ₹1 lakh in each fund, and about ₹115970 sits in the ten, ₹22970 in HDFC Bank and ₹65430 in five banks (HDFC Bank, ICICI Bank, SBI, Axis Bank and Kotak), a third of the whole. The second fund adds no company she would not already own; it only moves more of her money into the largest ones. Either way she owns the same 50 companies; only the weights change.

Three steps to look through: open each fund's latest factsheet or portfolio list (how to read one); write down the top holdings and sectors; then add your rupees in each company across funds and single shares, and ask what the second fund adds that the first lacks. The SEC's investor site gives the same advice: even with several funds, "check the top holdings of the funds" to see that they differ.

The same applies to single shares later: a bank share bought with the learning budget may already sit at the top of the index fund (how an index is built).

What Maya decides: one broad index fund for her long-term money, and a second fund only if it holds different things.

A target weight is the share of a pool you chose for each part: here 80% index fund and 20% gold, of her ₹3 lakh of long-term money. Rebalancing brings the pool back to it after prices move.

First, why hold two things at all. Say Maya had set up this mix on 15 Oct 2025. In the real year to 15 Oct 2026, the Nifty 50 fell 9.19% while gold rose 18.81%, measured by the Reserve Bank of India's price for one gram of 99.9% pure gold, the price it pays to repay its gold bonds early (the RBI is India's central bank). The same ₹3 lakh all in the index fund would have been ₹272442 (9.19% less); the 80/20 mix, ₹289238 (3.59% less). The two did not move together, which is the point of holding both. Gold has its own falls, though: the RBI's issue price for new gold bonds, set from the same gold price, went from ₹5334 a gram in August 2020 to ₹4662 in March 2021, 12.6% lower, while the Nifty 50 rose about 31% over the same dates.

The same year moved her mix. ₹240000 in the index fund became ₹217954; ₹60000 of gold became ₹71284. The weights are now 75.35% and 24.65%: 4.65 percentage points off target, so the pool carries less of the part she chose for growth and more of the part that just rose. Nothing was added to either side. Her gold was about 4.84 grams: show the note on Her gold, on both dates on both dates; only its price per gram moved, from ₹12394 to ₹14725. Drift is what prices do to a mix you leave alone.

Two roads back to 80/20, before costs and tax. Road 1, sell and move: sell ₹13437 of gold and buy ₹13437 of the index fund, which leaves ₹231391 and ₹57847; in grams, about 0.91 of her 4.84, leaving about 3.93. Road 2, new money: add ₹67184 of new savings to the index fund, for a total of ₹356422. Why not add just ₹13437? Because new money grows the total, and 80% of a bigger total is a bigger amount: the index fund would reach only 76.45%. New savings come first because nothing is sold: no tax on a gain, no exit load (a fee some funds charge when units are sold within a set time) and no selling charge. The catch is that it takes more money. Either way, the rule makes her trim what grew and add to what fell, without guessing what comes next.

Maya's written rule, her example and not a standard: every October she brings the pool back to 80/20, new savings first; between reviews she acts only if a part drifts 5 points or more, and never because of a headline. The SEC's guide reports that many experts suggest a regular interval, "such as every six or twelve months", and others a band set in advance; FINRA suggests considering it once a year.

What it costs: a sale may bring charges and tax or a fund's exit load. Changing a target because life changed, the home date coming near, is a new plan, not rebalancing.

Rebalancing controls risk. It does not promise a better return, and it does not pick tops and bottoms.

A learning budget is a fixed amount set aside for buying single shares while you learn. The lesson before investing called it risk money; here it is sized.

Maya's is ₹1 lakh: 10% of her savings and about 4% of everything she owns, the restaurant included. If it went to zero, her base, her outlet money and her long-term money would be untouched, and every date would be met. Sizing yours takes two steps. First, give the base and every dated goal its money. Then, from what is left, take only an amount you could lose all of without changing a date, your sleep or anyone's care. It may be less than what is left; it is never more.

The check, each question a yes or a no. Does it come only from money with no job and no date? If it all went, would every date in the plan still be met? Is it set once, and never refilled from the base, the outlet or the long-term money? Do I say what a percentage is of?: show the note on ₹1000 of the learning budget (₹1000 is 1% of the budget and 0.1% of her savings; risk management turns the budget into a limit for each trade.) Is no borrowed money in it (margin and pledging)?

When it grows, Maya's rule moves anything above ₹1 lakh to her long-term money at the October review, so the fence keeps its size.

The fence is the point: the budget can go to zero and no date in the plan moves. Why keep it small: what studies found about beginner traders is the next lesson's evidence.

Professionals call such a page an investment policy statement: show the note on Investment policy statement. The CFA Institute, a global association of investment professionals, describes it as a guide for "periods of market disruption when emotional or instinctive responses might otherwise motivate less prudent actions", and warns that templates "almost inevitably sacrifice" what matters to the investor. Investopedia's description adds the reasons to change it, such as financial or lifestyle changes, and the reasons not to, such as short-term market performance.

Explain it back, aloud. Why isn't the outlet money in shares? What would a 2008-size fall cost her on paper, and what would she do? When will she rebalance, and how? Maya reads her page the way she tastes a sauce before service: a line she cannot explain in her own words is not ready.

Your own page is the sheet in the figure: the same columns, plus one box on each row, "how much of this is in shares?", because without it the page cannot know which amounts a fall touches. Your own 2008-size fall line is then worked out from your own amounts. It stays on your device; nothing is sent anywhere. For a plan built around your own situation, an adviser registered where you live can help (how to check one).

One line of Maya's page still waits for a decision. The ₹1 lakh learning budget has its fence, but not yet its use: will she trade with it, or invest? That is the next lesson's question.