If you do not write down your Investment Philosophy, and you do not know what you are investing, where, and what is the goal, chances are that you have got your AA wrong.

When it comes to asset allocation, whether you are a fresh out of college kid, a 34 year old father of 2 kids, a 45 year old or a senior citizen, – the steps can be daunting. So the mind uses its famous short cuts and says “I know where the money is” and you do an AA. For some this can mean ‘100 minus age’ or something like that. Sadly, even this may not be followed diligently UNLESS all the assets are entered on to one website for the whole family, and monitored annually. We hate recording and keeping proper track. Its boring.

One of the biggest things people miss out is the time horizon. So you see even so called smart investors investing in FMP. Now if you are a 34 year old with some appetite for bond funds, and you think you need this money only when you are 65, there is no harm in buying a GOI bond with a 30 year maturity. Or even better investing in a Gilt fund with a long maturity and treating it like a buy and hold bond. Do not worry about the day to day fluctuation – you have a long term horizon. Yes, interest rates will fluctuate – but you are eliminating the credit risk, but holding on to interest rate risk.

Your portfolio has to consider inflation risk, credit risk, reinvestment risk, etc. not just ‘debt or equity’. Even in equity people wonder how much to put in large cap, mid cap, small cap……and then take a call. Scientifically done, it is AA.

Also when a 55 year old says “i want to invest for 5 years”. I refresh his memory and tell him ‘Your wife is 9 years younger, in better health than you, and could live to 100’ So for him the time frame is “5” and for me it is “60”. Nudging friends and clients is a job I do on a regular basis.

Whatever your situation, your savings  and investments must last a long while – at least for your own lifetime. How long will you live? Well without much fuss add 20 years to how long your grandfather lived…or maybe 10 to how long your parents lived. Not scientific, but some basis. Now estimate. If you are 60, chances are that you will live till the age of 90. Chances are that your kids will cross 100 or even touch 125. My advice is to a few years onto whatever your personal  estimate is, just in case! And that is just an estimate – at best a guess!