Optimal Finance Daily - Financial Independence and Money Advice

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

Jan 8, 2025

Explore the intriguing 'minus your age' rules for asset allocation, adjusting stock-to-bond ratios to fit personal risk and age. Discover how consistent strategies contribute to financial stability while avoiding frequent changes. Learn about the critical role of bonds in managing risk and why younger investors should focus on growth before shifting to bonds as retirement approaches. This flexible approach emphasizes re-evaluating asset allocations over time, adapting to market changes and individual circumstances.

12:12

AI Summary

AI Chapters

Episode notes

Podcast summary created with Snipd AI

Quick takeaways

The 'minus your age' rule provides a flexible approach to asset allocation, adapting stock-to-bond ratios based on personal risk tolerance and age.

Different variations of the rule, such as 100 and 120, reflect evolving investment strategies that account for increased life expectancy and market performance.

Deep dives

Understanding the Minus Your Age Rule

The minus your age rule is a formula used to determine an appropriate stock-to-bond ratio for investment portfolios. By subtracting your age from 130, you get a suggested percentage of stocks in your portfolio, with the remainder allocated to bonds. For instance, a 49-year-old would calculate 130 minus 49, resulting in an allocation of 81% stocks and 19% bonds. This method provides a simple starting point but allows for adjustments based on individual risk tolerance and investment time horizon.

Intro

8min

Strategies for Stable Asset Allocation and Financial Management Tools

2min

Understanding Bonds and Risk Tolerance in Asset Allocation

2min

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

Get the Snipd
podcast app

Unlock the knowledge in podcasts with the podcast player of the future.

AI-powered
podcast player

Listen to all your favourite podcasts with AI-powered features

Discover
highlights

Listen to the best highlights from the podcasts you love and dive into the full episode

Save any
moment

Hear something you like? Tap your headphones to save it with AI-generated key takeaways

Share
& Export