Asset allocation — how you divide your portfolio among stocks, bonds, and cash — is the single most important investment decision you make. It determines more of your long-term return variability than any individual fund or stock you pick. Getting it roughly right matters enormously; optimising the last 2% doesn't.

The Classic Rule of Thumb: 110 Minus Your Age

The oldest allocation rule is "100 minus your age in stocks." The updated version, reflecting longer life expectancies, is "110 minus your age." A 35-year-old would hold 75% stocks, 25% bonds. A 60-year-old would hold 50% stocks, 50% bonds.

This rule is a starting point, not a prescription. It was calibrated for a world with lower life expectancy and higher bond yields than we have today. Many financial economists now recommend staying more aggressive (stock-heavy) into the 50s, particularly for those with stable employment income and pension or Social Security as a bond-like income source.

The Glide Path Concept

Accumulation phase (20s–50s): Maximise long-term growth — high stock allocation (80–95%)

Transition phase (55–65): Gradually reduce volatility — shift toward 60–70% stocks

Distribution phase (65+): Preservation and income — 40–60% stocks depending on spending needs

Target-date funds automate this glide path. A 2050 fund holds ~90% stocks today and will gradually shift toward bonds as 2050 approaches. They are an excellent default for people who don't want to manage allocation manually.

Why Stocks at All in Retirement?

A 30-year retirement requires growth. At 2% inflation, $1 million becomes $550,000 in real terms over 30 years if not invested. A portfolio that's 100% bonds or cash will almost certainly fail to sustain withdrawals. Most financial planners recommend at least 40–50% stocks even in retirement for this reason.

The Sequence-of-Returns Risk Exception

The one scenario where a lower stock allocation matters most: the first 5–10 years of retirement. A severe market decline in early retirement (when you're withdrawing, not contributing) has a disproportionately large impact on long-term sustainability. This is sequence-of-returns risk. A 60–65% stock allocation at retirement, rather than 80%, provides a buffer for exactly this scenario.

Practical Allocation by Life Stage

These are evidence-based starting points, not rules. Your allocation should reflect your actual risk tolerance (can you sleep through a 40% decline?), income stability, and whether you have other income sources (Social Security, pension) that function like bonds:

  • Ages 20–35: 90–95% stocks, 5–10% bonds/cash
  • Ages 35–50: 80–90% stocks, 10–20% bonds
  • Ages 50–60: 65–80% stocks, 20–35% bonds
  • Ages 60–70: 50–65% stocks, 35–50% bonds
  • Ages 70+: 40–55% stocks, 45–60% bonds/stable assets

The right allocation is the one you'll actually stick with through a bear market. A 90% stock portfolio that you panic-sell during a crash is worse than a 70% stock portfolio you hold through the decline.