Among the most common questions TMF Money Advisor members put to the experts at Ayco's AnswerLine are those regarding asset allocation. There seems to be something about the concept that makes people skittish -- as if having too small of a percentage of their money in bonds or stocks or gold bullion could result in financial disaster.

If you do have a high percentage of your portfolio invested in bullion, you could be headed for disaster. But that's not the case for most of us. We're worried that if our money is not invested according to some arcane allocation formula derived by men in lab coats at MIT, we'll be -- somehow -- doing it all wrong.

The reality, in fact, is otherwise. While many sources routinely tout some idealized percentage (a common model suggests that investors should, ever and always, keep 55% of their assets in stocks, 35% in bonds, and 10% in cash), you are probably far better served by setting aside such rules of thumb. That's because your own success in managing your financial assets is determined not by how well you were able to conform to some arbitrary formulation, but according to how well your choices help you reach your financial goals.

The Fool's Formula
If there is a simple Foolish Allocation Formula for all investors, it goes something like this: Money you can invest for the long term -- five to seven years, at a minimum -- should be in stocks. That's because, over the long term, stocks have consistently proven to be the most rewarding investment vehicle. A simple index fund will be more than adequate for this purpose. (It didn't take an MIT brainiac to come up with that one.) Money that cannot be left untouched for that period should be held in safer, less volatile instruments: bonds, money market funds, certificates of deposit, and the like. (We cover all of these short-term savings vehicles in our Savings Center.)

From this perspective, the allocation ratios favored by so many become more or less irrelevant. In fact, for many people -- such as those who are still paying off credit card debt, or saving for a down payment on a home, or trying to establish an emergency fund -- that means that the percentage of funds that should be committed to stocks could be zero. If that sort of investor is anxious because his own assets don't match an expert's idealized portfolio, then that anxiety is misplaced.

As TMF Money Advisor members know, things generally seem to go better when you have very specific goals, and a well-considered plan for achieving them. More often than not, simply having specific goals will tell you a great deal about what you need to do in order to achieve them. That's what the Direct Advice planning tool helps you get at. If one of your goals is a prosperous and rewarding retirement, and you are giving yourself a couple of decades in order to build up the resources to achieve that, you'll know that the best way to get there is by committing your capital that fits squarely in the sweet spot between risk and reward: the stock market. If your goals are more immediate, like coming up with the cash to send your kids to college in three years, you'll want that money in a safer, more accessible place.

Suddenly, we've made two major investment decisions, and we haven't even had to look at a slide rule. Funny how smart goals can focus the mind, yes?

The point is, when you think about purpose rather than percentage, the Asset Allocation Riddle tends to evaporate. It becomes a question that isn't necessary to answer, because goals have a way of letting your mind dispense with matters that are irrelevant.

In defense of those who tout the rules of thumb, percentage models for asset allocation do make sense for those who are charged with managing other peoples' money. Their job is to make sure that wealth is maintained and brings a respectable return. Allocation models are one approach to doing that. For the vast majority of us, though, these models can distract us from our real aim: to live a good life, regardless of how well we matched the models described in the pages of a business school textbook.

Rules For Allocation
To this end, here are a few more tips to consider as you develop the allocation model that works best for you:

1. Are you enjoying the process? Let's face it -- some people are really jazzed when they practice the fine art of money management. Others would simply rather be spending their time chewing crushed glass. If you are in the latter group, a stock index fund might be as involved as you ever want to get with your money.

For others, though, an investment of time and study, as well as money, can bring rewards far beyond those that can be measured by a number with a dollar sign in front of it. In that case, you might want to move beyond index funds and invest some portion of your assets in individual stocks. Those who are excited about stock investing might want to (shameless plug) sign up for our Panning For Gold: Find Great Stocks. As a bonus, those of you who become TMF Money Advisor members before then can enroll for free.

2. Are you sleeping at night? Different people have different levels of risk tolerance. Just as there is no reward in heaven for those who matched the standard asset allocation model throughout their lives, there is little sense in having your money invested in places that make you nervous. It's easy to adjust your portfolio balance to safer investments accordingly. You might not see a great a return in the long run, but the peace of mind is worth it.

3. Be aware of your changing risk profile. Events in your life will affect the choices you make, and should make you think twice about the risks you're willing to take. For example, if you get married or have children, suddenly it makes a whole lot more sense to be much more careful with your money. Also, simply aging -- moving closer in time to those events, like retirement or home ownership that you've been planning for all along -- means that we should all periodically reexamine our asset allocation choices. Once a year should be often enough.

Jerry Thomas is a mean motor-scooter and a bad go-getter. The Motley Fool is investors writing for investors.