Stocks vs. Bonds: The Rule of Thumb

A simple rule that can make you rich.

Here’s an excerpt from the posting 4 Rules that Can Save You $40,000: A Beginner’s Guide to Investing. Click the title for the full story.

Stocks vs. Bonds: The Rule of Thumb

The simple rule of thumb is 110 minus your age = the percentage of your portfolio that shoul d be in stocks. If you’re 35, this means 110-35= 75% of your portfolio in stocks, and 25% in bonds.

If you have a high risk tolerance, increase that to number to 120 minus your age. So if you have the stomach to withstand more volatile returns, and you’re 35 years old, put 120-35= 85% of your portfolio in stocks, and 15% in bonds.

If your risk tolerance is low, drop the number to 100 … so if you’re 35, 100-35 =65% of your portfolio goes to stocks, and the rest to bonds.

What is your risk tolerance? Take this quiz.

Related Posts Plugin for WordPress, Blogger...

Tags: , , ,

7 Responses to “Stocks vs. Bonds: The Rule of Thumb”

  1. Doktortitel
    28. Mar, 2011 at 11:01 am #

    Do you mind if I quote a few of your articles as long as I provide credit and sources back to your blog? My website is in the very same area of interest as yours and my visitors would genuinely benefit from some of the information you present here. Please let me know if this okay with you. Regards!

    • AffordAnything.org
      28. Mar, 2011 at 5:22 pm #

      Sure, this is fine with me — just include a link (trackback) to this site. Thanks!

  2. jo
    31. Jul, 2011 at 12:02 am #

    i used to agree with that but now i think you can have more stocks if they pay dividends or income like reits and trusts. even telecom stocks pay high dividends so you could have them instead of some bonds and do better overall. goverment bonds right now in the us are not worth the risk because if interest rates rise the price of them falls and they pay very little right now.

    • AffordAnything.org
      01. Aug, 2011 at 7:11 am #

      @Jo — Dividends are a great way to invest; much of the stock market gains over the past several years is largely thanks to reinvested dividends. But I don’t think that means you should ignore bonds. If you hold a bond until maturity, then it doesn’t matter if the price of the bond rises or falls; when it matures, you’ll get the return that you expected to get.

      That said, I’m not in bonds (at all!), but I’m also in my late twenties, so I don’t feel the need to be in bonds at this age. But I also have a high risk tolerance and I love bear markets. A person with low risk tolerance who is prone to selling when the market dips should have more bonds and fewer stocks. I write about the relation between risk tolerance and strategy here: http://afford-anything.com/2011/03/08/key-to-riches/ and offer a risk-tolerance quiz here: http://afford-anything.com/2011/03/07/risk-tolerance-qui/

Trackbacks/Pingbacks

  1. Get Rich Simply By Dividing Your Cash Correctly | Afford-Anything.com: Yes, YOU can afford it! - 03. Mar, 2011

    [...] do you decide based on age and appetite for risk? This simple rule of thumb will tell [...]

  2. Quiz: What’s your risk tolerance? | Afford-Anything.com: Yes, YOU can afford it! - 07. Mar, 2011

    [...] you should do: Divide your investment between stocks and bonds using this rule of thumb, following the rule for people with a low risk tolerance. Put your bonds in a broad-market bond [...]

  3. Become Filthy Rich By Dividing Your Money Correctly: 3 Rules on Asset Allocation | Afford Anything - 22. Oct, 2013

    […] « Stocks vs. Bonds: The Rule of Thumb Quiz: What’s your risk tolerance? » […]

Leave a Reply