ssQuestion / Claim
Asset allocation should be driven by goal timelines rather than market movements.
Key Assumptions
- Time reduces equity risk over long horizons(high confidence)
- Sequence risk is the main threat near goal completion(high confidence)
- Commodities hedge uncertainty but do not generate long-term compounding returns(medium confidence)
- Commodities hedge regime and inflation risk independent of goal time horizons(high confidence)
- A fixed percentage allocation to commodities avoids market timing and behavioral errors(high confidence)
- Total long-term investable assets (excluding emergency cash) is the correct base for commodity allocation(medium confidence)
Evidence & Observations
- Historical equity returns outperform inflation over long periods while showing high short-term volatility(data)
- Major drawdowns near withdrawal periods materially impact outcomes(data)
Open Uncertainties
- How much benefit commodities add after accounting for opportunity cost
- Optimal speed and structure of the equity-to-debt glide path
- Whether 5% or closer to 7–10% commodities is optimal across different inflation regimes
Current Position
Asset allocation should be driven by goal timelines rather than market movements. Long-term goals can be equity-heavy, short-term goals should be debt-focused, with a gradual equity-to-debt glide path in the last 3–5 years to manage sequence risk. Commodities should be held as a constant 5–10% of total long-term investable assets (excluding emergency cash), regardless of whether the portfolio is equity- or debt-heavy, because they hedge regime and inflation risk rather than fund specific goals.
This is work-in-progress thinking, not a final conclusion.
Engage with this Thought
Comments
No comments yet. Be the first to share your thoughts!