Asset Allocation: The Only Investment Decision That Matters
Where you put your money matters more than which stock or fund you pick.
Why Allocation Beats Selection
Whether you pick Fund A or Fund B within equity matters. But whether you have 30% or 70% in equity matters much more.
The difference between best and average equity fund: 1-2% per year. The difference between 30% and 70% equity allocation: 2%+ per year.
A Practical Framework
When is money needed? - Within 3 years: primarily debt - 3-7 years: 40-60% equity - 7-15 years: 60-80% equity - 15+ years: 70-90% equity
A Starting Point
For someone in 40s, stable job, moderate risk tolerance:
| Asset Class | Allocation |
|---|---|
| Equity | 50-60% |
| Debt | 25-35% |
| Gold | 5-10% |
Most investors spend 90% of time on fund selection, 10% on allocation. Flip that ratio.