Following the Asset Allocation Rule of Thumb

Asset allocation is a very important part of developing a retirement portfolio. You need to be able to know how much of your assets to allocate to a certain type of investment class. When doing this, there is a common rule of thumb that you can use to determine how much do devote to each type of asset class.

Rule of Thumb

This rule of thumb is used differently, depending on your retirement planner. Some planners start out with 100 while others start out with 110 or 120. With this rule you subtract your age from 100, 110, or 120 depending on your financial planner. For example, let's say that you were 30 years old and your financial planner recommends using 100. You would subtract 30 from 100 and get 70. This means that you would need to put 70 percent of your money into stocks and put the remaining 30 percent into the bond market. 


With this strategy, you are basically going to be changing the asset allocation of your portfolio every year. As you get older, you are going to put more and more of your assets into the bond market and less into stocks.