All the recommendations are provided by the author of the book Let's Talk Money. They are the author's personal opinion
- Each of your goals need their own asset allocation ratio
- Closer you are to the goal, lesser should be the equity part of the portfolio
Short-term goals (<3 years)
- No pure equity products
- Recommended products are similar to that for emergency fund
- You could also use ultra-short-term debt fund or conservative hybrid mutual funds
- Keep maximum equity exposure to 25% and keep the rest in bonds. Why?
- Because equity is volatile and we want certainty about the availability of the money
Medium term goals (3-7 years)
- Aggressive hybrid mutual funds
- Diversified equity funds
Medium-long term goals (7-10 years)
- Mix of more or less aggressive equity
- Mutli-cap funds with a smaller proportion of mid-cap, small-cap and sector funds
Long term goals (>10 years)
- 100% equity
- Increase the proportion of mid and small cap funds
- Largest part of the equity fund portfolio must remain in lower-risk diversified equity or multi-cap mutual funds
Retirement fund
- Core is your debt products
- Rest of your portfolio can be in equity funds
- Further away from retirement you are, the more risk you can take
- People in 30s can choose a larger allocation to mid-cap, small-cap and sector funds
- People in 40s should choose conservative funds with large-cap, diversified equity and multi-cap funds
- Evaluating your retirement portfolio periodically. The frequency can be quarterly to annually based on your situtation.