Asset allocation is no longer an alien word to the Investor community. Whether they follow the process or not, at least they are aware that it makes sense to distribute the Investments into different asset classes, to diversify the risk and optimizing of returns.

Asset allocation is generally decided on the basis of risk profile of the investor and goals targeted. The allocation is rebalanced at regular intervals so that the portfolio should not be overboard on a single asset class due to its recent performance.

Generally, the two important distribution stages, where the money usage is divided into different years and calls for a specific and different strategy are the Child education and Retirement. Child higher education years are generally of 4-6 years, and one should be ready for those at least 2 years before the goal starts, thus one needs to plan and allocate the money for 6-8 years’ time frame with annual withdrawal.

Same way in the case of Retirement, one should not park the complete money in debt oriented investments to seek out the safety only, and to manage the Inflation part one cannot avoid equity completely. Since retirement is quite a sensitive stage, so one needs to have a balanced approach in allocating the money to take care of regular income requirement of the retiree.

Distribution cum Investment strategies for child education

Saurav’s daughter’s education is due 3 years from now. She would be going for Engineering and then MBA. Saurav has saved enough money for this goal and followed strategic asset allocation of 70 Equity and 30 debt. (How to decide Asset Allocation Mix?)

He can divide the complete education cost into different years of requirements and invest the money into different products, looking at the product structure and risk prevalent

(Read: What is Equity?)

Distribution cum Investment strategies for Retirement

Coming to retirement, which is spread across many years, and one may not sure where is the end, so in those years the laddering strategy may not work. One needs to follow a completely different Investment allocation strategy, called as Bucketing.

(Read more on Bucketing strategy)

The complete Retirement corpus to be divided into 3 buckets with different Investment products, so that the Requirement of monthly income can be met with ease adjusted to inflation.

The first Bucket is meant for immediate monthly requirements, which is invested in products giving regular interest payouts like Post office schemes or bank FDs or which can be used for SWP.

The second bucket is meant to feed the first bucket as and when required, but is not invested in the regular Interest bearing instruments and also not in highly volatile instruments. So Hybrid funds suit this bucket.

The Third Bucket is meant for the overall growth of the portfolio, and thus the corpus is invested in Equity instruments for the long term.

Conclusion:

Investment strategies based on Allocating with purpose works best in the distribution years of the Investor, and there has to be well thought of approach while selecting investments for different strategy.

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