Question

1. In practice, 99% of people are confused about how they should allocate their regular retirement contributions among various funds available to them in their 401(k) accounts (or similar accounts). The 'menu' of available funds is often bewildering: stocks, bonds, real estate, commodities, money markets, international, and on and on.
2. In your opinion, how should a typical investor approach this allocation problem? What should be his/her guiding principles. How did you solve this problem (or are going to solve this problem if you don't have yet a retirement account)?

Answer 1

The answer is very subjective and hope to put things in the right perspective.

The very first thing is to list down the goals you want to achieve and the total estimated corpus required for the same.

Then the next thing is planning on how to arrange funds for the same. For that, estimate the net annual income(after deducting expenses) and calculate the percentage growth on your income(considering annual incremental growth and bonuses)

Depending on Level of Income, Age and Family Background, Estimate your risk appetite. This will help in determining the Asset allocation that will help in meeting your goals.