One of the fundamental elements that go into Financial Planning is Asset Allocation. Asset Allocation means bifurcating your investment portfolio between different asset classes, like Equity, Debt, Gold and Real Estate. The idea is to arrive at an allocation which helps the investor achieve his/her life goals, and also is in line with his/her Risk Profile, this ratio is called ideal asset allocation.

To arrive at this asset allocation, your financial advisor will take your existing assets as the base. So, your existing stock investments will go into the Equity component, your real estate investments will go into the real estate component and so on. And then you develop a strategy to liquidate some assets and invest in some other assets to arrive at and maintain the Ideal Asset Allocation.

Here, one common error that most investors commit is they misjudge their existing asset base. We tend to skip a lot of our existing, often valuable assets. Even when an investor says he/she is 100% invested in Equity, it may not be the case. It means that 100% of his/her liquid assets are invested in Equity. The house you live in, if you own it, or your ancestral property these are are your assets. India is the largest consumer of gold, it's there in our houses or in our bank lockers, it's a part of our portfolio. The innumerable Fixed Deposits, RD's, PPF's, EPF's that you hold are your Investments. When you take investment decisions take into account all your assets. We don't even mention these assets to our financial advisor who is helping us in defining our ideal asset allocation. So, what happens is the advisor does not get a clear picture of our portfolio, and we are eventually tampering with our ideal asset allocation and overall financial planning.

If you skip one asset, let's say if you ignore your FD's, then your Portfolio's inclination towards debt will be more than required. And at times the asset that you are skipping may be of substantial value. Like you may have missed some kgs of silver and few gold coins which were left to you by your grandmother, and the value of this hidden treasure is Rs 20 Lacs. The Gold component in your ideal Portfolio is just 5%, and if you omit telling about these riches to your advisor, then your Portfolio is significantly bent towards Precious Metals, which should have been ideally invested in Equity.

Hence it is critical to to count all your assets when you begin with Portfolio Allocation and Financial Planning.

However, in most cases, investors miss to count an asset because they do not realize that it is an asset.

So, before moving further, let's understand what exactly is an Asset?

An asset is a product or property that you own, either tangible or intangible, which fulfills the following characteristics:

> Value

> Liquidity

Anything which has value, and can be liquidated to fulfill your goals or discharge an obligation, is an Asset. While determining your asset allocation, it is important that you take into account all that you have which fulfills the above criteria.

Now, it's relatively easy to calculate the value of financial assets, like FD's, stocks, EPF, etc. You can also get an approximate value of your gold. Real Estate is the tricky one here. One, the valuation of real estate is complicated, and secondly, your stance property on the property may be complicated. Say for instance, there is an inherited property which is jointly owned by 10 cousins of yours apart from you, and you know you cannot get an affirmation for sale at least in this life. Or a family farmhouse, which will never be sold, or the house which you plan to gift to your children, and have no intention to sell. Such properties, that is, which cannot be liquidated to fulfill a goal, cannot be construed as an asset.

Similar is the case with inherited jewelery, in fact, any piece of jewelery in most cases. Jewelery cannot be construed as an asset, if you are emotionally connected to it, and have no intention of selling it.

So, assets which are valuable, but cannot be liquidated, must not be counted on for your future goals.

The bottomline, Asset Allocation is one of the preliminary procedures in your overall financial planning, each of your investments is dependent upon your Asset Allocation. Your financial plan is flawed if you omit revealing a full account of the assets that you own, to your financial advisor. The advisor will be able to deliver quality advise, if only he has a holistic view of your existing asset base.