By Adam Jusko, ProudMoney.com, firstname.lastname@example.org
You’ve got money to invest but you’re not sure how much to put in stocks vs. bonds. Plus, how much to keep in cash? Or, maybe you’ve been investing for a long time but you’re not exactly young anymore. Should you be lowering the amount of stocks you own?
The best asset allocation at any age is going to strike a balance between being aggressive enough to get the upside of the stock market while also protecting some of your money through bonds or other fixed-income assets. The more risk tolerance you have, the more you should put in stocks. If you are leery of putting too much in stocks, you can dial back a bit on those and still have a portfolio that performs well.
Common Asset Allocation Formulas
The 100 Minus
In the past, a suggested formula for how much of your investing dollars to put into the stock market was this:
100 – your current age = % in stocks
In other words, if you were 25:
100 – 25 = 75% of your portfolio in stocks
If you were 55:
100 – 55 = 45% of your portfolio in stocks
The 110 Minus or 120 Minus
These days, few investment advisors would suggest the 100 Minus formula. With people living longer and their investments needing to last longer in retirement, it’s necessary to be a bit more aggressive in terms of exposure to the stock market. At the very least, most would suggest you change the formula to 110 Minus. If you are age 25, that of course means:
110 – 25 = 85% in stocks
If you are age 55, that means:
110 – 55 – 55% in stocks