Asset allocation: the one decision that matters most

Asset allocation is the percentage of your money in different categories: typically stocks, bonds, and cash. Studies suggest this mix explains roughly 90% of how a portfolio behaves over time. Stock picking and timing explain almost none of it.

The classic frameworks

These are educational examples, not personal recommendations. Real allocations depend on your goals, time horizon, income, taxes, and emotional tolerance.

• Aggressive: roughly 90% stocks, 10% bonds. Long horizon, can stomach big drops.
• Balanced (60/40): 60% stocks, 40% bonds. The most-quoted classic mix.
• Conservative: 30% stocks, 70% bonds. Closer to retirement or low risk tolerance.

Common rule of thumb

An old guideline: percent in stocks ≈ 110 minus your age. So a 30-year-old might hold roughly 80% stocks, while a 65-year-old might hold 45%. This is a starting point, not a personal rule.

Rebalancing

Over time, the winners drift up and the losers drift down. If your target is 70/30 and after a strong year stocks are now 80% of your portfolio, you sell some stocks and buy bonds to get back to 70/30. This forces you to sell high and buy low, automatically.

Most people rebalance once or twice a year. Some do it whenever a category drifts more than 5 percentage points from target.

What this lesson is NOT

The rules of thumb here, like holding a stock percentage near 110 minus your age, are starting points, not a personalized target. This lesson explains how the mix drives your results; it does not set the right mix for your situation.