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Financial Rules of Thumb: 100 Minus Age

Does this old rule of asset allocation still stand?

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Over the next few weeks, I’m going to spend some time talking about all the financial rules of thumb we’ve all heard, and exploring whether or not these soundbites and platitudes apply as universally as we’ve been led to believe. Last week we talked about emergency funds. This week, I want to address the old rule that the percentage of stocks in your portfolio should equal 100 minus your age.

An example to clarify: According to the 100-minus-age rule, a 30-year-old investor should keep 70 percent of his or her portfolio in stocks (100-30=70). A 50-year-old would keep a portfolio split 50/50 between stocks & bonds, and a 70-year-old would only keep 30 percent in stocks.

This is an old rule and I don’t know where it came from, but I don’t like to apply it universally. My main issue with this rule is that it assumes everyone at a certain age is in the same financial situation, which is rarely the case. Different factors to consider include timeline to retirement, individual goals, risk tolerance/risk capacity, and income needs from the portfolio.

Let’s take a 50-year-old who is getting ready to retire, but doesn’t plan to take withdrawals until the required age 72. For this client, I might recommend a more aggressive investment approach than a 50/50 split. On the other hand, a 60-year-old who is starting to use money from a portfolio might want to move more into an income-based approach.

The bottom line is that no two investors are alike, which makes me hesitant to apply these types of sweeping rules. If you have questions about your portfolio allocation or want to make some changes, give us a call. Our team will take a look at your unique situation and create a long-term plan that works for you. Let’s talk.

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