ASSET ALLOCATION BOOSTS EFFICIENCY.

Byline: Pamela Yip Houston Chronicle

The steady drumbeat resounding in financial advice today is that young people saving for retirement need to put most of their money in stocks because of the time value of money and the firepower that stocks pack against inflation.

But as you get older, your investments must mature as well. It may be time to tinker with your asset allocation.

Asset allocation is a fancy term for how you divvy up your money among stocks, bonds and other investments.

The secret to planning successfully for retirement isn't so much picking the right individual stock or bond as having the right mix of investments.

``The whole theory behind asset allocation is, you increase the efficiency of your portfolio, and as you increase the efficiency, you reduce the price fluctuations and the volatility,'' said David Hanson, a certified financial planner and vice president at Financial Synergies in Houston.

``Every year, you ought to rebalance your portfolio,'' said David Lampe, president of Houston Asset Management, a financial planning firm. ``As you get older, begin to scale down the percentage you have in the more volatile sectors of the investment.''

When you start investing when you're young, you should aim for aggressive growth, because you won't need the money for a long time.

That length of time enables you to stack up lots of money and helps you recoup market losses.

But as you build up your pile of money, gradually move toward income-producing investments. Your goal should be a portfolio heavy in income-earning investments. Bonds provide steady income, if you can stomach the price fluctuations triggered by interest-rate movements.

When you retire, you can't afford to lose as much money investing as you could when you were working. ``You place more emphasis on your portfolio to provide income for your daily needs,'' Hanson said. One general guideline for asset allocation is to subtract your age from 100. That will tell you what percentage of your money should be in stocks. The balance should be in bonds and other forms of investments, such as real estate and cash.

Houston Asset Management breaks the numbers down according to age group:

20s to early 30s - You're just starting out, so shoot for maximum growth of your investments. Consider putting 40 percent to 60 percent of your money in growth stocks; 30 percent to 50 percent in growth and income investments; and 10 percent to 20 percent in taxable or tax-free bonds.

Late 30s to early 40s - You're going for growth and some income.

Consider putting 30 percent to 50 percent in growth investments; 30 percent to 50 percent in growth and income; and 20 percent to 40 percent in taxable or tax-free bonds.

Late 40s to late 50s - Your target is income and some growth.

Think about putting 25 percent to 40 percent of your money in growth; 30 percent to 40 percent in growth and income; and 30 percent to 50 percent in taxable or tax-free bonds.

Over 60 or retired - At this stage of the game, your goal is making income and protecting it against inflation. Consider putting 10 percent to 20 percent in growth investments; 10 percent to 30 percent in growth and income; and 50 percent to 70 percent in taxable or tax-free bonds.How you spread your money among investments when you get older depends on how you answer these key questions: How much income do you need coming in, and how much risk can you tolerate?