Asset Allocation by Age: Is Your Portfolio Optimized?

Bob HaegeleBy: Bob Haegele

July 5, 2021July 5, 2021

Your asset allocation is a delicate balance. More risk means the potential for higher returns, but it also means a greater risk of a decline in your portfolio’s value. Thus, this article will take a deep dive into the asset allocation different age groups currently have. The general rule is that your allocation should be heavier in bonds, cash, and other less volatile assets as you move closer to retirement. However, seeing what different age groups have will help you know where you stand.

Asset Allocation at a Glance

  • Asset allocation refers to the percentage of different assets contained in an investment portfolio. It may include stocks, bonds, cash, and more.
  • Different factors may determine asset allocation, such as time horizon and risk tolerance.
  • You can reduce your risk by holding total-market index funds in your portfolio, both for stocks and bonds. Stocks will still be riskier, but a total-market fund will reduce risk somewhat.

What is Asset Allocation?

Asset allocation refers to the percentage of different types of investments in a portfolio. The most common assets held in a portfolio include stocks, bonds, fixed income, and cash. However, there are many other assets people may hold today, including REITs, Cryptocurrency, and other alternative investments.

The “100 Minus Age” Rule

A rule of thumb that is often thrown around in the world of asset allocation is the “100 minus age” rule. The way it works is you simply subtract your age from 100, and the result is the of your portfolio that should be allocated to stocks. The remaining amount should go to bonds, Treasury bills, and other safe assets.

So a 30 year-old would allocate 70 percent of their portfolio to stocks, and a 70 year-old would allocate 30 percent of their portfolio to stocks. Thus, the older you get, the less of your portfolio you allocate to stocks.

Although this is a commonly-referenced rule of thumb, an easier way to think about it is age in bonds: if you are 30 years old, you have 30 percent bonds. If you are 40, 40 percent bonds, and so on.

The Problem With This Rule

The biggest problem with the 100 minus age rule? People are living longer than they used to. If people are living longer than they were when this rule was created, people might be making their portfolios too conservative too soon. That could put them in danger of running out of money before the end of their lives.

To remedy this situation, some people are now using a modified version of this rule. Instead of 100, they start with 110 or 120. So our 30 year-old would have 80 percent or even 90 percent stocks.

You might be wondering whether you should use 110 or 120. Unfortunately, there is no “definite” answer to this question; whichever number you are more comfortable with is the one you should use. Of course, the trouble is this brings back into the equation the very dilemma this rule of thumb was meant to help prevent.

Granted, whether you pick 110 or 120, you are still on the right track and likely doing much better than the average person. After all, 45% of people have nothing saved for retirement.

Now, we’ll also consider a couple of other methods that may work better for those who like a more aggressive approach.

Age Minus X Equals Bonds

Another easy rule of thumb to use is “age minus X” to determine your bond allocation. That number can be 10, 15, 20; whatever you prefer. However, you should of course keep the number consistent over the years. Either way, since the rule of thumb above makes your age the same as your bond allocation, this second rule of thumb is more aggressive. That’s because you are subtracting a number from your age, meaning your bond allocation is less than your age, not the same.

If this sounds complicated, it really isn’t. For example, if you wanted to use this rule of thumb and you are currently 35, just subtract 10 from your age to get 25. There you go—your portfolio is 25 percent bonds and 75 percent stocks. Or you could go more aggressive and subtract 20, resulting in 85/15. Whatever you decide, the point here is to use a more aggressive asset allocation. Remember, that means greater potential returns, but also more volatility in the short run.

Why is Asset Allocation Important?

Asset allocation is important because it can have a large impact on the overall growth of your portfolio. For example, let’s compare the performance of two popular Vanguard funds, VTSAX and VBTLX. If you aren’t familiar with Vanguard funds, VTSAX and VBTLX are Vanguards total stock market fund and total bond market fund, respectively.

As you can see on the linked pages, Vanguard has a nice little feature that shows how much $10,000 would have grown had it been invested in the fund you are viewing. It shows you graphs for the past one, three, five and 10 years. Since investing is a long game, we’ll focus on the 10-year graphs. $10,000 invested in VTSAX would have grown to $39,407.83, while $10,000 invested in VBTLX would have grown to just $13,915.39.

Of course, if this is all we take into consideration, you would immediately put all of your money into stocks and ignore bonds. However, we gain a greater context by checking the historical returns tables for VTSAX and VBTLX.

As it happens, stocks have had an amazing run since the Great Recession. Still, VTSAX did have a -5.17% return in 2019 compared to -0.03% for VBTLX. And if we check 2008, the year that went down in infamy, we see a grim -36.99% for VTSAX compared to a 5.15% (positive) return for VBTLX.

Imagine if you retired in 2008 and had all your investments in stocks. Although the Great Recession was an anomaly to put it lightly, recessions happen more often than you might realize. Thus, it’s good idea to protect yourself with the right asset allocation, especially if you are nearing retirement.

Asset Allocation by Age

Asset allocation is not publicly-available data, so we can’t give you the real numbers in terms of what the real-world asset allocation for different age groups. However, for the purpose of this exercise we dove into some forum discussions to find how some real people allocate their portfolios.

AgeEquities (%)Bonds (%)Fixed Income (%)Cash (%)Other (%)

The above is just a small sampling of those who responded. However, the table is sortable, which you can do by clicking on each of the column headings. As you sort the table, you will notice that (as expected), those with a higher percentage of equities tend to be younger, while the older respondents tend to have more bonds, cash, and fixed income.

These responses came from the Bogleheads forum. If you aren’t familiar with it, Bogleheads is named for John Bogle, the founder of Vanguard. Bogleheads users naturally have a preference for Vanguard funds, but they also tend to be savvier investors than the average person. So perhaps our Bogleheads users are a bit more aggressive than the overall population, but their responses still provide a nice picture of asset allocation as people age.

Asset Allocation and Risk Tolerance

When thinking about your asset allocation, it’s also important to consider risk tolerance. This is because success in mining requires staying committed for several years or even decades. Thus, while we all want the best performance possible, it is also important to understand your risk tolerance and invest accordingly. If your asset allocation is too aggressive based on your risk tolerance, you could hurt your investment portfolio in more ways than one

  1. Losing investment returns due to selling stocks. Some people check their portfolio performance frequently, and if they see it drop too much, they sell all of their stocks to get out of the market. The problem? The market ends up rebounding and even going higher than it was before it started dropping. Then they end up buying back into the market, effectively selling low and buying high. This is, of course, the opposite of we want to do. Thus, it’s best to stay committed; a rebound is more likely than not.
  2. Taxes and other fees. If you frantically sell your stocks, you could end up paying a lot in fees that can easily be avoided. If you sell stocks in a brokerage account you owned for less than one year, you might be on the hook for short-term capital gains taxes, which are higher than taxes levied on shares held longer than a year. Worse still, if you withdraw from a retirement account before age 59 & 1/2, you might be hit with a 10% penalty. And if it is a traditional retirement account, such as a 401(k), you’ll also be hit with income tax.

Examples of Asset Allocations

The simplest (and most common) asset allocations involve a mixture of stocks and bonds, both with percentages that are multiples of 10. However, this is too simple for a lot of real-world investors. Many have cash, real estate, and even alternative investments like gold or cryptocurrency. Thus, this section will give a few examples of how some real world portfolios might look. These will use some generalizations about which types of asset might interest each of them. But, again, they are just examples.

  • 30 year-old investor. Portfolio includes 95 percent securities. 85 percent US stocks, 15 percent international. Other five percent is in cryptocurrency.
  • 50 year-old investor. 70 percent stocks, 30 percent bonds. 65 percent of their stocks are US stocks; other 35 percent international. Also has a separate portfolio of real estate investments.
  • 67 year-old investor. 30 percent stock, 70 percent fixed income. Fixed income includes total bond fund, short term TIPSI-bonds, and high-yield savings.

These are just a few examples, but they give you an idea of how priorities change over time. Naturally, we start out in our more aggressive, wealth-building phase. As we age, we move into the wealth-presevering phrase.

Asset Allocation Near Retirement

Priorities change as we inch closer to retirement. Once you build up a certain amount of wealth, you will have enough to last you a lifetime—as long as you set yourself up the right way. This is why it is wise to move to a more conservative strategy close to the end of your career. In doing so, your assets are still generating a return, but much less chance of losing all of your money.

One twist to this is that everyone has a different investing journey. Perhaps this is why the IRS allows catch-up contributions, which allows people who are close to the retirement age to contribute extra to their portfolios. But while those who are nearing retirement may contribute more to their portfolios, it is still wise to stick with an allocation that has less potential for a loss in value at this stage.

As you can see in the table above, those who are beyond the traditional retirement age have even more conservative portfolios. The 71 year-old investor has just 21 percent of their investments in stocks. Whether you use your age as your bond allocation, subtract some from your age, or add fixed income and/or cash, it is important as you get closer to retirement to add those safer investments.

The Bottom Line

There is no one size fits all for asset allocation. Your allocation must take into account your time horizon, risk tolerance, and overall investing goals. As we begin our careers, the most important thing is wealth-building. That’s because time is on our side, both in terms of having the ability to ride out the various bear markets, but also due to long-term growth. After all, compounding interest is a very powerful concept, but it needs time to work its magic.

Of course, we are also earning money early in our lives. As we near retirement, it is more important to have money saved, when it will be more difficult to produce income. For that reason, it’s necessary to adjust your strategy over time.

If you still feel overwhelmed and aren’t sure where to get started, we recommend using Betterment to set up your retirement account. They’ll take care of everything for you (including time horizon and risk tolerance) so you don’t have to be an expert to set yourself up for success.

Bob Haegele
Bob Haegele

About the Author:

Bob Haegele is a personal finance writer, entrepreneur, and dog walker. He's a money management expert and investing connoisseur. Bob has been writing about personal finance for three years and now manages several personal finance sites, including The Frugal Fellow and Modest Money. You can also find him contributing to popular websites such as GOBankingRates, Bankrate, and You can see more of his work on Muck Rack and Contently, or connect with him on LinkedIn.

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