Asset allocation calculator

How to think about asset allocation

Asset allocation - your split between stocks and bonds - is the single biggest driver of both your expected return and how bumpy the ride will be. Stocks offer higher long-run returns with bigger swings; bonds are steadier but grow slower. The right mix depends mostly on your time horizon and risk tolerance. This calculator gives a rule-of-thumb starting point.

The rule of thumb

A classic guideline sets your stock percentage at a base number minus your age, with the rest in bonds. This calculator shifts the base by risk tolerance:

• Conservative: 110 − age
• Moderate: 120 − age
• Aggressive: 130 − age

Worked example

A 35-year-old, moderate risk tolerance:

• Stocks: 120 − 35 = 85%
• Bonds: 15%

The same person, feeling aggressive, would land near 95/5; feeling conservative, near 75/25. As you age, the formula gradually shifts you toward bonds to reduce risk as your investing horizon shortens.

Why younger investors hold more stocks

A longer horizon means more time to ride out - and recover from - market downturns, so younger investors can accept more stock volatility in exchange for higher expected growth. As retirement approaches, shifting toward bonds protects against having to sell stocks in a slump.

Important caveats

This is an educational rule of thumb, not personalized advice. Real allocation should also reflect:

• Your other assets and income (a pension or stable salary acts like a bond).
• Your goals and timeline for the money.
• Your honest risk tolerance - the best allocation is one you can hold through a crash without panic-selling.

Common mistakes

• Holding far more stock risk than you can stomach, then selling in a downturn.
• Never updating the allocation as you age.
• Treating a rule of thumb as a precise, one-size-fits-all answer.

Once you have a target, use the portfolio rebalancing calculator to keep it, and the FIRE calculator to project where it takes you.