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Any textbook on capital markets will tell you that asset allocation is the key to realising one's financial goals. In practice though, very few people think that way. Investors generally swing between extremes.

Before the equity bull run started, it was all fixed income; then it was all equity, and now we have arrived at another inflexion point. Today investors are worrying once again about asset allocation, primarily because stocks have not been delivering great returns of late and interest rates have shot up.

It may be the right time to spread one's money out a bit. Sure, in the long run equities will remain the best performing asset class. Right now though, the picture is a bit uncertain and equity fund managers have been struggling to generate good returns.

So maybe it is not a bad idea to put some money into fixed income again. You are getting nearly 10 per cent on a bank fixed deposit and probably up to 10 per cent post tax on a fixed maturity plan (FMP) mutual fund.

That is not bad at all. It lets you sleep at night. Also, keep some cash handy. Uncertain times present great opportunities. Keep some money parked in a liquid instrument, even at a lower interest rate. If the stock market corrects significantly later in the year, you may want to use some cash to buy into good businesses, or funds.

You know our market, it has a habit of overreacting. You must be ready to buy any irrational dips. Even on real estate, if the correction deepens, interesting opportunities could come up later this year. This market gets even more illiquid at bad times and sometimes you get really good bargains. Be ready.

Now this is not to say you need to exit all your equity investments. Far from it. Which of us can ever predict where the stock market will go? Maybe a bit of equities, a bit of fixed income and a bit of liquid/cash is the right mix.

That way, you cut risk, put your money to work yet stay nimble to cash in on opportunities. I truly think prudent asset allocation will be the key to making money this year, since we do not seem to be in a secular trending market.