Investing October 28, 2025 0 Comments

Unlock the Surprising Asset Allocation Hacks Hidden in Classic Rules of Thumb That Could Change Your Financial Future Forever

Ever find yourself tangled up in the old classic: “Is my asset allocation really right for me?” It’s like trying to pick the perfect outfit for a party without knowing if it’s a black-tie affair or a backyard barbecue. Here’s the kicker — most advice just eyeballs your age and calls it a day. But honestly, pinning your portfolio’s fate on a single number? That’s like judging a book by its cover… or worse, a stock by its ticker symbol alone. Your peace of mind when the market throws a tantrum hinges on way more than just your birth year. How much risk can *you* stomach? Where are you on your financial journey? When will you need that cash in hand? And, most intriguingly — how do you behave when the market’s on a rollercoaster? Buckle up, because I’m about to walk you through some smart, practical investing rules of thumb that dig deeper than age — rules that’ll help you tailor your strategy to fit you, not just some dusty guideline. After all, there are 70-year-olds out there standing tall, shrugging off market storms like Easter Island statues. Ready to see if your allocation can weather the storm? Let’s dive in. LEARN MORE

If you’re wondering whether your asset allocation is right for you, then running it through our favourite investing rules of thumb is a great way to test your thinking.

Too often asset allocation is reduced to a single variable – age – whereas in reality a portfolio that lets you sleep at night also depends on:

How much risk you can take
How close you are to achieving your objective
When you actually need the money
Your individual response to market turmoil

Each of the heuristics below helps you reexamine your asset allocation along one of those dimensions. All are more directly relevant than your age alone.

After all, there are 70-somethings capable of weathering a stock market storm like Easter Island statues.

Before we start – Each rule of thumb offers a maximum equity allocation. The remaining percentage of your portfolio is divided among your defensive holdings. Choose wisely and you should be appropriately diversified in other asset classes whenever stocks take a dive, as they inevitably do.

Okay, let’s have at it.

What’s your timeline?

How long do you think you’ll invest for? The closer you are to needing the cash the less Larry Swedroe thinks you should hold in stocks:

Investment horizon (years)	Max equity allocation
0-3	0%
4	10%
5	20%
6	30%
7	40%
8	50%
9	60%
10	70%
11-14	80%
15-19	90%
20+	100%

This heuristic highlights how we’re better able to bear the risk of holding equities when we’ve got more time to recover from a stock market setback.

Or – to look at it from the other end of the telescope – it’s sensible to switch to wealth preservation rather than growth when time is short.

A retiree might adopt a minimum stock floor if they intend to remain invested for the rest of their life. Whereas it makes sense to be entirely in cash in the last few years if you’re investing to buy something specific, such as a house, annuity, or child’s education.

Tim Hale provides a simpler version of this rule in his UK-focused DIY investment book Smarter Investing:

Own 4% in equities for each year you will be investing. The rest of your portfolio will be in bonds.

What’s your target number?

This rule is great for budding FIRE-ees and anyone else charging towards a defined financial target. Jim Dahle shows how you might sync your equities with the amount of your goal achieved:

Percentage achieved	Max equity allocation
0-10%	100%
11-30%	80%
31-60%	70%
61-90%	60%
91-110%	50%
111-150%	40%
151%+	20%

Once you’ve gained some experience, you can easily adjust these numbers to suit your individual risk tolerance. I also like the way Dahle’s guideline nudges an investor to:

Take more risk off the table if you over-achieve. (That is, to stop playing when you win the game)
Increase your stock allocation if a crash knocks you back

Most people will probably feel burned in that latter scenario, and may struggle to buy more beaten-up shares. However there’s a strong chance that stock market valuations will be indicating it’s a good time to load up on cheap equities.

How big a loss can you take?

So far we’ve looked at asset allocation strategy from the perspective of our need to take risk. This next rule considers how much risk you can handle.

Swedroe invites us to think about how much loss we can live with before reaching for the cyanide pills:

Max loss you’ll tolerate	Max equity allocation
5%	20%
10%	30%
15%	40%
20%	50%
25%	60%
30%	70%
35%	80%
40%	90%
50%	100%

I’m always amazed by how many people believe that their investments should never go down. It’s a valuable exercise to be confronted with the idea that you are likely to be faced with a 30%-plus market bloodbath on more than one occasion over your investment lifetime.

Personally I found it next to impossible to imagine what a 50% loss would feel like – even when I turned the percentages into solid numbers based on my assets.

At the outset of my journey, my assets were piffling. So a massive haemorrhage didn’t seem all that.

Experience is a good teacher though, and it’s worth reapplying this rule when your assets add up to a more sizeable wad. You may feel differently about loss when five- or six-figure sums are smoked instead of merely four.

The Oblivious Investor, Mike Piper, uses a slightly more conservative version of this rule:

Spend some time thinking about your maximum tolerable loss, then limit your stock allocation to twice that amount — with the line of thinking being that stocks can (and sometimes do) lose roughly half their value over a relatively short period.

Just remember that stock market losses can exceed 50%. It doesn’t happen often but it does happen.

Read about the worst collapses to hit UK, Japanese, German, and French investors if you really want to ~~scare~~ educate yourself.

How do you respond in a crisis?

It’s hard to know how painful a serious market crunch can feel until you’ve been run over by one yourself. It’s never fun, but at least you can put the ordeal to good use afterwards.

William Bernstein formulated the following table to guide asset allocation adjustments after your portfolio has dropped 20% or more, based on what you did while it was busy slumping:

Reaction during crisis	Equity allocation adjustment
Bought more stocks	+20%
Rebalanced into stocks	+10%
Did nothing but didn’t lose sleep	0%
Panicked and sold some stocks	-10%
Panicked and sold all stocks	-20%

Bernstein believes actions speak louder than words. If you didn’t sell up but you also didn’t feel comfortable buying into a falling market then your asset allocation is probably about right.

If the setback made you feel miserable or panicked, adjust your stock allocation downwards. It’s probably too risky for you at current levels.

Reapply this test throughout your life. Your risk tolerance may well change over time – especially with greater assets.

If you’re worried the market is too expensive

Another technique advocated by William Bernstein is overbalancing. He recommends it as a method of gradually reducing your exposure to a market that may be overvalued.

Here’s Bernstein’s explanation:

If the stock market goes up X%, you want to decrease your asset allocation by Y%.

What’s the ratio between X and Y?

If the market goes up 50%, maybe I want to reduce my stock allocation by 4%. So there’s a 12.5 ratio between those two numbers.

Well, that’s what it really all boils down to: What’s your ratio between those two numbers?

Bernstein is indifferent as to whether your allocation changes by 2%, 4% or 5% in response to the big market shift.

Like most heuristics this one is based on intuition-driven experience. It’s not a scientific formula, hence you can adjust it to suit yourself or ignore it entirely.

Keep in mind that usefully predicting market valuations is extremely difficult.

The Harry Markowitz ‘50-50’ rule of thumb

If all that sounds a bit complicated then consider the oft-quoted approach of the Nobel-prize winning father of Modern Portfolio Theory.

When quizzed about his personal asset allocation strategy, Markowitz said:

I should have computed the historical covariance and drawn an efficient frontier. Instead I visualized my grief if the stock market went way up and I wasn’t in it – or if it went way down and I was completely in it. My intention was to minimize my future regret, so I split my [retirement pot] 50/50 between bonds and equities.

The ‘100 minus your age’ rule of thumb

This rule of thumb is so old it belongs in a rest home. But it’s still got legs because it’s very simple:

Subtract your age from 100. The answer is the portion of your portfolio that resides in equities.

For example, a 40-year-old would have 60% of their portfolio in equities and 40% in bonds. Next year they would have 59% in equities and 41% in bonds.

A popular spin-off of this rule is:

Subtract your age from 110 or even 120 to calculate your equity holding.

The more aggressive versions of the rule account for the fact that as lifespans increase we will need our portfolios to stick around longer, too. That often means a stronger dose of equities is required.

Following this rule of thumb enables you to defuse your reliance on risky assets as retirement age approaches.

As time ticks away, you are less likely to be able to recover from a big stock market crash that wipes out a large chunk of your portfolio. Re-tuning your asset allocation strategy away from equities and into bonds is a simple and practicable response.

The Accumulator’s ‘rule of thumb’ rule of thumb

Here’s my contribution:

Rules of thumb should not be confused with rules.

I have to say this, of course, lest the pedant cops shoot me down in flames, but it’s true that rules of thumb are not fire-and-forget missiles of truth.

They are exceedingly generalised applications of principle that can help us better understand the personal decisions we face.

(Hopefully Monevator’s long grapple with the 4% rule has seared that into our brains!)

The foundations of a proper financial plan are a realistic understanding of your financial goals, your time horizon, the contributions you can make, the likely growth rates of the asset classes at your disposal, and your ability to withstand the pain it will take to get there. (Amongst other things…)

But rules of thumb can help us get moving and, as long as they’re tailored to suit, can start to tackle questions to which there are no real answers such as: “What is my optimal asset allocation strategy if I wish to be sitting on a boatload of retirement wonga 20 years from now?”

Take it steady,

The Accumulator