Asset Allocation Across Life Stages

Ninety percent of long-run portfolio return variance comes from asset allocation, not from stock selection or market timing. This is the single most robust finding in modern investment research, first quantified by Brinson, Hood and Beebower in 1986 and replicated across markets since. Yet most Indian investors spend their time choosing funds and almost none of it choosing a mix.

Allocation is a function of two variables: horizon and temperament. Horizon decides how much volatility you can afford to sit through; temperament decides how much you can actually stomach. Under-30 with a 30-year horizon: 75–85% equity, 10–15% debt, 5–10% gold. 30–45 accumulation: 65–75% equity, 20–25% debt, 5–10% gold. 45–55 pre-retirement: 55–65% equity, 30–35% debt, 5–10% gold. Post-retirement: 35–45% equity, 45–55% debt, 5–10% gold, kept alive against longevity.

Within equity, split domestic and international. India is 3% of global market cap; a 15–25% international allocation (US and developed markets) hedges rupee depreciation and single-country risk. Within debt, prefer G-Sec, high-quality corporate bond funds and target-maturity funds over credit-risk funds. Within gold, sovereign gold bonds and gold ETFs — never jewellery as investment.

Rebalance annually to the target mix. When equity has run hard, rebalancing forces you to sell high; when it has fallen, to buy low. This is one of the few free lunches investing offers. Do not chase last year's best asset class — that is how families end up buying tops.

Ignore neither extreme: a 100% equity portfolio near retirement is negligence, and a 100% FD portfolio at 35 is a slower kind of negligence. Allocation is the single decision that survives every market cycle.