2998: The “Minus Your Age” Rule of Thumb for Asset Allocation by Craig Stephens of Retire Before Dad

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Investing, Business, Education, Self-improvement

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🗓️ 8 January 2025

⏱️ 13 minutes

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Summary

Discover all of the podcasts in our network, search for specific episodes, get the Optimal Living Daily workbook, and learn more at: OLDPodcast.com. Episode 2998: Craig Stephens explores various "minus your age" rules for determining a balanced stock-to-bond portfolio allocation. By adjusting the formula constants (100, 120, 130, or up to 140), investors can align their strategy with personal risk tolerance and investment horizons. With a flexible and data-backed approach, Stephens emphasizes that these rules of thumb serve as guidelines rather than strict laws, highlighting the importance of adjusting allocations over time as circumstances change. Read along with the original article(s) here: https://www.retirebeforedad.com/minus-your-age-rule-asset-allocation/ Quotes to ponder: “Personal finance is littered with rules of thumb but devoid of concrete laws.” “Age should influence stock-to-bond allocation, and we should increase bond holdings as we age.” “Even if you reach your target asset allocation, the next day it will change when the market opens.” Episode references: The Little Book of Common Sense Investing by Jack Bogle: https://www.amazon.com/dp/0470102101 Vanguard Research: https://investor.vanguard.com Learn more about your ad choices. Visit megaphone.fm/adchoices

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1:00.3	This is Optimal Finance Daily. The Minus Your Age Rule of Thumb for Asset Allocation by
1:07.2	Craig Stevens of Retire Before Dad.com.
1:16.6	The minus your age rule of thumb is a simple math formula used in personal finance to help DIY investors and advisors determine a suitable stock-to-bond ratio for an investment portfolio.
1:24.8	I've always referred to this as the 130 minus your age rule of thumb on this website,
1:30.5	but that only tells part of the story. The 130 value is the formula constant. Then we subtract our
1:38.5	age to get a ballpark target stock allocation for our investment portfolios. The remaining percentage goes to bonds.
1:47.0	As I dug into the origins of this rule of thumb for this article, I found a lot of wiggle room
1:52.9	and how we can use it. The 130 minus your age rule of thumb. Here's how I've always used the rule of thumb.
2:02.1	130 minus your age equals the percentage of portfolio in stocks. I'm 49, so my calculation looks like
2:10.4	this. 130 minus 49 equals 81% stocks and 19% bonds.
2:20.9	The 130 value is an aggressive place to start,
2:23.9	but I've consistently tweaked the outcome further to match my risk tolerance, which is a bit higher.
	...

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