Asset allocation by goal horizon, not by personality

Risk tolerance questionnaires ask how you'd feel if your portfolio dropped 20% in a month. The honest answer changes depending on what that money is for. A 20% drop is a footnote if the money isn't needed for fifteen years — there's ample time to recover. The same 20% drop is a crisis if the money is due in four months for a school admission deposit.

That's the core principle behind allocation by goal horizon: time to the goal is the dominant variable, not a personality trait fixed once and applied everywhere. An investor who is genuinely comfortable with volatility for a 20-year goal should still hold a conservative mix for a goal that's 18 months away — not because their risk appetite changed, but because volatility and a short horizon are a bad combination regardless of temperament.

None of the numbers below are fixed rules — they're reasonable defaults to adjust against your own comfort with volatility and your goal's flexibility (a goal you could delay by a year if markets are down can afford to run hotter than one you can't). As a starting point:

You can turn this into an actual number using a goal-based SIP calculator, which lets you set an expected return appropriate to the mix you choose rather than one generic assumption for every goal you're funding.

Staying equity-heavy right up to the goal date is a specific and avoidable risk called sequence-of-returns risk: if a downturn happens to land in the year or two before you need the money, you're forced to withdraw at depressed values with no time left to recover. The fix is a glide path — gradually shifting a goal's allocation from equity toward debt as the date approaches, rather than flipping it all at once.

A common approach: start the shift two to three years before the goal date, moving a portion of the equity allocation into debt or liquid funds each year, so that by the time the goal arrives, most of the corpus sits in low-volatility instruments and is simply waiting to be used — not still exposed to a market that could move against you in the final stretch.

This applies just as much to retirement as it does to a house down payment. A retirement goal 25 years out can run equity-heavy today, but the allocation should already be de-risking in the years immediately before retirement, not still fully in equity on the day you stop earning a salary.