Situational Asset Allocation

There’s a saying that younger people should invest more in equities (stocks) and older people should buy more bonds. Some like to use the “100 minus your age” rule to determine asset allocation. Start with the number 100 and subtract your age. The resulting figure is the percentage you should allocate to equities, and the rest should be invested in bonds. For example a 30 year old investor could have the following portfolio:

70% = Vanguard Total World Stock Index Fund Investor Shares (VTWSX)
30% = Vanguard Total Bond Market ETF (BND)

This simple yet balanced portfolio should benefit from the long term growth of the U.S. and global markets, while providing fixed income stability 🙂 But should everyone follow this rule of thumb? Probably not. Age should not determine our asset allocation. Consider the following situations.

Economic Situation:

U.S. government 10-year bonds today only pay about 2.5% interest a year. But ten years ago they were paying twice as much. This means in order to achieve an adequate return on a fixed income portfolio today we would have to mix in higher risk investments such as non-investment grade bonds and mortgage backed securities. However at some point the risks will not be worth the expected returns. So in a low interest rate environment it may be prudent to lower our exposure to bonds, and stock up on more equities instead, at least until interest rates move higher.


Three decades ago those 10-year government issued bonds were paying 15% interest a year due to a more robust economy and higher interest rates. In that kind of situation we want to be overweight in bonds because the 15% annual return is virtually risk free since it’s guaranteed by the U.S. federal government 😀

Personal Situation:

If a young person in his late twenties has $50,000 in savings, what should he invest in? We see questions like this on Reddit all the time, but it’s impossible to give a categorical answer without knowing the individual’s personal situation. If he plans to buy a home in a couple of years using his savings as a down payment then he should probably avoid risky investments and be 100% in bonds. On the other hand if he has no plans to purchase a big ticket item, and he works for a State university that offers a generous fixed income retirement plan, then he should probably invest most of his own savings into growth stocks.

What about seniors? They have their own set of circumstances to deal with.


If a senior widow in her seventies has $500,000 to invest, the knee jerk assumption is she should load up on bonds and other conservative, income producing assets. But if she can already live comfortably on the income she receives from insurance benefits, a private pension, and social security, then maybe she should invest 100% of her personal savings into S&P 500 dividend aristocrats instead, which are blue chip stocks that have a long history of steady dividend growth. Stocks tend to outperform bonds in the long run so a longer time horizon benefits stock investors. If her grandson is expected to receive a part of her inheritance eventually then she may as well put the money to work in the stock market right now to begin with, because he would just invest his eventual inheritance in blue chip companies anyway, and not in low yielding bonds. Furthermore, the dividends can provide her with some extra spending money right now, and she can always dip into the capital for emergencies. Dividend aristocrats can weather recessions quite well. Everybody wins 😀

At the end of the day investment decisions should not be based on our age. It’s our own circumstances that should dictate our risk tolerance and propensity to favor one asset class over another. It just so happens that in many cases the younger we are the more risk we can afford to take on. But causation does not imply correlation and it’s important to understand the reasons behind why we should do the things we do, especially when it comes to our finances.

My personal allocation in terms of liquid assets is 10% fixed income, and 90% equities at the moment. I believe this is the optimal ratio for myself given my situation 🙂 What’s yours?

Random Useless Fact:


Notify of

Inline Feedbacks
View all comments
08/01/2014 3:20 pm

Funny that we both mentioned asset allocation in our respective posts today 😀

And agreed, investing is far too personal and unique for each individual. One must reach their own conclusions.

Asset Grinder
08/01/2014 10:48 pm

49% equities
41% investment real estate
10% investment business
0% bonds

I feel I am well diversified in asset classes to skip bonds at this time. Every individual is so unique and the whole bond % ratio really doesn’t fit with many of today’s investors. If i were entirely in equities I would definitely up bond allocation probably towards the 20-30% range.

08/02/2014 10:25 am

Good conclusion, F35. Each investor needs to figure this out for themselves and theres no one-size-fits-all when it comes to asset allocation….although they would have you believe that. I have my bond allocation minimized and down to 7-8% and I am happy with that allocation.


The Wallet Doctor
The Wallet Doctor
08/02/2014 10:33 am

I haven’t heard the rule for the younger versus older people investments. I can see some logic to it, but these sorts of situations are generally pretty individual. I think basing it on what makes sense in your situation is better.

04/28/2016 1:37 am

[…] But is this recent market rally sustainable or is it on borrowed time and we’re past due for a correction? I think it doesn’t hurt to be cautious when stocks are trading beyond their fundamentals, so I’m preparing for a potential pull back by keeping some cash around. My immediate plan for April is to save more money, pay down some debt, and fight any urge to buy a new stock that happens to catch my attention. I realized that I should probably divest away from the stock market a bit as it’s taking up too much of my asset allocation. […]

11/17/2016 6:45 am

[…] It’s also important to consider real estate, geographical diversification, taxation, idiosyncratic circumstances, and other factors when building a balanced portfolio. The 100 minus your age rule isn’t […]


[…] Last year about 50% of my portfolio was real estate. But purchasing the house naturally shifted my asset allocation. So now real estate makes up about 75%. Holding that much of one’s wealth in a single asset […]

Liquid Net Worth Update – Happy New Year! – Loonie
01/19/2021 10:57 am

[…] Last year about 50% of my portfolio was real estate. But purchasing the house naturally shifted my asset allocation. So now real estate makes up about 75%. Holding that much of one’s wealth in a single asset class […]