Stocks vs. Bonds
Estimate stock/bond allocation by age and risk profile.
About the Stocks vs. Bonds
A rule-of-thumb split between stocks and bonds based on your age and how much volatility you are willing to sit through. It is a starting point for a conversation, not investment advice.
How to use it
- Enter your age.
- Pick the risk profile that sounds like you.
- Read the suggested split.
The formula
Allocation rules of thumb all do the same thing: they reduce your exposure to shares as the time available to recover from a bad year shrinks.
Stocks % = 110 − your age (moderate)
Stocks % = 120 − your age (aggressive)
Stocks % = 100 − your age (conservative)
The older rule used 100. It was written when retirements were shorter and bond yields higher; with a retirement that may run thirty years, holding too little in shares creates its own risk — running out of money slowly rather than losing it quickly.
None of these is a law. They are a starting point that encodes one genuinely useful idea: your capacity to take risk depends mostly on how long you can leave the money alone.
Worked examples
| Age | Conservative (100) | Moderate (110) | Aggressive (120) |
|---|---|---|---|
| 25 | 75% / 25% | 85% / 15% | 95% / 5% |
| 40 | 60% / 40% | 70% / 30% | 80% / 20% |
| 55 | 45% / 55% | 55% / 45% | 65% / 35% |
| 70 | 30% / 70% | 40% / 60% | 50% / 50% |
The spread across a single row is the part worth noticing. At 40, the three rules differ by twenty percentage points of shares — which is a much larger difference in outcomes than most people assume a rule of thumb can contain. Your age sets the rough zone; your temperament decides where in that zone you sit, and the right answer is the allocation you will not abandon during a bad year.
Common mistakes
- Treating the output as advice. It is arithmetic on your age, and it knows nothing about your job security, your pension, your debts or your nerve. Those matter at least as much as the birth date.
- Setting an allocation and never rebalancing. If shares outperform for five years, a 70/30 portfolio drifts to 80/20 and you are taking more risk than you chose. Rebalancing annually restores the split you intended.
- Confusing willingness to take risk with ability. Ability is about time horizon and financial cushion. Willingness is temperament. The lower of the two should generally win, because a portfolio you sell in a panic performs worse than a cautious one you keep.
- Assuming bonds are safe in every sense. They are less volatile than shares and they are not risk-free. Rising interest rates push bond prices down, and over long periods inflation is a serious threat to a bond-heavy portfolio.
Terms explained
- Asset allocation
- How a portfolio is divided between share and bond exposure. The decision that explains most of the variation in outcomes.
- Rebalancing
- Selling what has grown and buying what has lagged to restore your target split. It enforces selling high and buying low mechanically.
- Risk tolerance
- How much decline you can live through without selling. Best measured by what you actually did in the last downturn, not by what you predict you would do.
- Time horizon
- How long before you need the money. The main determinant of how much volatility you can responsibly accept.
- Glide path
- The gradual shift from shares to bonds as you approach retirement. What target-date funds automate.
- Sequence risk
- The danger of poor returns arriving just as you begin withdrawing. It is the main reason allocations get more conservative near retirement.
Common questions
- Where does the 110 minus age rule come from?
- It is a modernised version of the older 100 minus age guideline, raised because retirements now last longer and a portfolio that is too conservative can be outlived. It is a convention, not a finding.
- Should I really hold bonds in my twenties?
- Under an aggressive reading, very few — you have decades to recover from any downturn. A modest bond holding mainly serves as ballast that makes it easier to stay invested through a bad stretch.
- How often should I rebalance?
- Once a year is plenty for most people, or whenever your allocation drifts more than about five percentage points from target. Rebalancing more often adds cost and trading without adding much benefit.
- What about cash?
- Emergency savings should sit outside this calculation entirely. This split is for money you have already decided to invest for the long term.
- Does this apply to my whole portfolio or each account?
- Look at everything together. Individual accounts can hold different things — often for tax reasons — as long as the total lands where you intend.
- Are target-date funds a substitute for this?
- Broadly yes. They pick an allocation from your retirement year and shift it automatically. The trade-off is that they use their own glide path rather than yours.
- What if I have a pension?
- A guaranteed income stream behaves somewhat like a large bond holding, which is an argument for holding more shares in the portfolio you control. How much more depends on how secure the pension is.
- Does international exposure count as stocks?
- Yes — this split is between shares and bonds, not between countries. How you divide the share portion between domestic and international is a separate decision.