Asset Allocation by Age: How to Adjust Your Portfolio as You Get Older

One of the most important investing decisions you'll make is how to split your portfolio between stocks and bonds. This split — your asset allocation — should change as you age.

The reason is simple: when you're young, you have decades to recover from market crashes. When you're near retirement, a 40% portfolio drop right before you stop working could be devastating. Your allocation should reflect your time horizon and your ability to tolerate volatility.

Here's how to think about asset allocation at every life stage.

The Core Principle: Stocks for Growth, Bonds for Stability

Stocks (equities): Higher expected returns over the long term, but more volatile. The S&P 500 has dropped 30-50% multiple times in history — but always recovered and made new highs over the following years. If you have 20+ years until you need the money, short-term drops don't matter much.

Bonds (fixed income): Lower expected returns than stocks, but more stable. When stocks crash, bonds often hold their value or even rise. They act as a cushion.

The trade-off: The more bonds you hold, the more stable your portfolio but the lower your expected long-term growth.

Asset Allocation Rules of Thumb

The "100 Minus Your Age" Rule

The classic rule: your stock allocation equals 100 minus your age.

• Age 30: 70% stocks, 30% bonds
• Age 45: 55% stocks, 45% bonds
• Age 65: 35% stocks, 65% bonds

This rule was designed for an era when life expectancy was shorter and bond yields were higher. Most financial advisors now consider it too conservative for modern investors.

The "110 or 120 Minus Your Age" Rule

More common today: use 110 or 120 instead of 100.

• Age 30 (120 rule): 90% stocks, 10% bonds
• Age 45 (120 rule): 75% stocks, 25% bonds
• Age 65 (120 rule): 55% stocks, 45% bonds

This accounts for longer life expectancies (needing your money to last 30+ years in retirement) and lower expected bond returns.

The Vanguard / Bogleheads Approach

For most investors, a simple stock/bond split works well:

These are starting points. Adjust based on your personal risk tolerance and other income sources.

Allocation by Life Stage

In Your 20s: Aggressive Growth (90-100% Stocks)

Why: You have 40+ years until retirement. Market crashes are irrelevant — they're buying opportunities. A 40% drop followed by a 50% recovery puts you ahead of where you were. Time is your greatest advantage.

What to hold:

• 70-80% US total stock market index fund (VTI, FZROX)
• 10-20% International stock market index fund (VXUS, FSPSX)
• 0-10% Bonds (optional at this age)

What to avoid: Don't hold much in bonds in your 20s. The drag on returns compounds significantly over 40 years for minimal risk reduction benefit.

In Your 30s: Still Aggressive (80-90% Stocks)

Why: You still have 30+ years. Maybe you're buying a house, having kids, building an emergency fund. Your investment portfolio can stay aggressive.

What to hold:

• 60-70% US total stock market
• 20% International stocks
• 10-20% Bonds

Key this decade: Make sure you have 3-6 months of expenses in cash (emergency fund) before going heavy on investments. Don't use your investment portfolio as emergency cash.

In Your 40s: Starting to Moderate (70-80% Stocks)

Why: Retirement is 20-25 years away — still a long time, but you're entering the phase where market timing starts to matter somewhat more. You have more to lose in absolute dollar terms.

What to hold:

• 50-60% US total stock market
• 15-20% International stocks
• 20-30% Bonds

Key this decade: Review your target date and consider whether your allocation matches your actual risk tolerance. Some 40-year-olds are aggressive by nature; others lose sleep when markets drop 20%. Know yourself.

In Your 50s: Preparing to Decelerate (60-70% Stocks)

Why: Retirement is 10-15 years away. A large market crash could take 5-7 years to fully recover, which could delay your retirement if you're not prepared.

What to hold:

• 40-50% US total stock market
• 15-20% International stocks
• 30-40% Bonds

Key this decade: Start thinking about the "sequence of returns risk" — the danger of a major market crash happening right as you retire. Adding bonds reduces this risk.

In Your 60s (Pre-Retirement): Defensive (50-60% Stocks)

Why: If you retire at 65, you might need this money starting in 3-5 years. You need to reduce the risk that a market crash right before retirement significantly damages your portfolio.

What to hold:

• 30-40% US total stock market
• 10-20% International stocks
• 40-50% Bonds
• Consider adding: Short-term bonds or Treasury Inflation-Protected Securities (TIPS)

Key this decade: Shift gradually, not all at once. Don't jump from 80% stocks at 59 to 40% stocks at 60. Reduce 2-3% per year.

In Retirement (65+): Balanced and Income-Focused

Why: You need your portfolio to last 25-30 years, so you still need growth. But you also can't afford a 40% crash when you're actively withdrawing money. Most retirees need a balanced portfolio, not an ultra-conservative one.

What to hold:

• 40-60% stocks (for continued growth)
• 40-60% bonds (for stability and income)

The 4% rule suggests you can withdraw 4% of your portfolio per year without running out of money over a 30-year retirement. To make this work, you need enough stocks to generate the growth that offsets withdrawals.

An ultra-conservative 90% bonds portfolio is often too conservative — it may not generate enough growth to sustain 30 years of withdrawals.

The Simplest Solution: Target-Date Funds

If managing your asset allocation sounds overwhelming, target-date funds do it for you automatically.

A target-date fund is a single fund designed for someone retiring in a specific year. If you plan to retire around 2050, you buy a "2050 Target Date Fund."

• When you're young: The fund holds mostly stocks.
• As you approach the target year: It automatically shifts toward more bonds.
• After the target year: It continues adjusting to a stable "landing" allocation.

Popular target-date fund families:

• Vanguard Target Retirement Funds (VTIVX for 2045, etc.) — Expense ratios: 0.08-0.15%
• Fidelity Freedom Index Funds — Expense ratios: 0.12%
• Schwab Target Date Index Funds — Expense ratios: 0.08%

Target-date funds are the right choice for most people investing in a 401(k) or IRA who don't want to manage their own allocation. They're professionally designed, automatically rebalanced, and appropriately diversified.

Adjusting for Your Personal Situation

The age-based guidelines above are starting points. Your actual allocation should consider:

Your risk tolerance: If a 30% market drop would cause you to sell everything in panic, reduce your stock allocation to whatever level lets you sleep at night and stay invested.

Other income sources: If you have a pension, Social Security, or rental income that covers your basic living expenses, you can afford to be more aggressive with your investment portfolio.

Your time horizon: Planning to retire at 55? Shift more conservatively earlier. Working until 70? You can stay more aggressive longer.

Health and life expectancy: If you have reason to expect a shorter-than-average lifespan, you may prioritize access to funds over long-term growth. The reverse is also true.

One Final Note

Getting your asset allocation "exactly right" matters less than most investors think. The difference between 75/25 and 80/20 stocks/bonds is minimal over long periods.

What matters enormously: actually investing consistently, keeping expenses low, and not panic-selling during market downturns.

The best asset allocation is the one you'll stick with through bull and bear markets alike.

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