When I was in my late 20’s I started planning for my retirement. I was not afraid of risk and so I purchased several mutual fund accounts focused mostly on foreign and domestic stocks. When I retired from teaching at the age of 55 my investments were in a bit more conservative portfolio which included bonds. I had followed the “Rule of 100,” which is a measure whereby you subtract your age from 100 to determine the approximate percentage your assets could be invested in stocks (more risk). The rest should be invested conservatively (less risk). For example, I am now 57 years old; 100 minus 57 is 43. So the Rule of 100 would suggest I have 57 percent invested in lower risk accounts (cash and bonds) and 43 percent could be placed in higher risk accounts (stocks). Therefore, the older you are the more conservative your portfolio should be since you don’t have time to make up any losses due to a downturn in the stock market.
This is my current asset allocation in my retirement investment portfolio at age 57:
- 13% Cash
- 37% Bonds
- 28% Large Cap Stock
- 15% Mid/Small Stock
- 7% International Stock
So, you can see I have 50% of my portfolio in cash and bonds (low risk) and 50% in stocks. Pretty close to the Rule of 100 suggestion. However, my online financial advisors at VOYA Financial suggest I put less in bonds (24%) and more in international stock (23%) since I have time to recoup any losses and current interest rates are low. Their investment strategy does not follow the Rule of 100. That Rule is no longer suggested due to low interest rates. Read more about this and other common investment rules which no longer apply.
I may consider adding more international stock to my portfolio in the near future, making it a bit more risky, as our economy appears to be changing. What is your current asset allocation? Do you still follow the Rule of 100?