One of the first things you learn when you start investing is that you're supposed to gradually reduce your risk as you get older. That makes sense since retirees may not have the money or the time to wait for the market to bounce back after a major fall. The challenge is figuring out the appropriate balance of risk and reward as you age.

The need to simplify this balancing act is behind a popular rule of thumb: What you allocate to stocks in your portfolio should be a percentage equal to 100 minus your age. So, if you're 40 years old, you would put 60% of your portfolio in stocks and the rest in more conservative investments like bonds. The logic is straightforward—as you age, the number will decrease, and you'll need to shift more into bonds and other safe investments to protect your nest egg.

Howeve❀r, longer life spans and long periods of historically low interest rates have led many financial experts to argue that this decades-old formula needs an update. With Americans living well into their 80s and bonds offering lower returns than a generation ago, they suggest a more aggressive approach might better serve investors today.

Reasons To Retire the Old Rule

While simple rules of thumb can be helpful, today's financial landscape looks very different from when the guideline of subtracting your age from 100 was created. Several significant shifts since then mean it might be time for an update.

First, Americans are living much longer than they used to. In the 1950s, as Harry Markowtiz's work was giving rise to modern portfolio theory, the life expectancy was about 70. Today, that number has jumped to about 75 for men and 80 for women.

These longer life spans have two important implications: You'll need your retirement savings to last lꦉonger, and you'll have more time to r🔴ecover from market downturns.

Another significant shift is the dramatic change in bond yields. In the early 1980s, investors could count on 澳洲幸运5官方开奖结果体彩网:U.S. Treasury bonds paying interest rates of 10% or more—making them an attractive "risk-free" investment. Those same bonds have yielded less than 5% for most of the past quarter century. This means that if you're parking too much money in traditionally safe investments, you might be putting retirement plans at risk, as your money might not grow enough to keep up with inflation.  

Thus, if you're 65 and following the traditional rule, you'd have just 35% of your portfolio in stocks. With potentially 20-plus years of retirement ahead, that conservative mix might not generate enough for your needs.

Revising the Old Rules

While the traditional "100 minus your age" rule served past generations using 110 or 120 as your starting number offers a more aggressive—and potentially more realistic—approach for today's investors. It would also put your money into potentially riskier assets should a downturn come—that's the tradeoff.

Here's how these different rules would work for a 50-year-old investor:

• Traditional rule (100 minus age): 50% stocks
• Modified rule (110 minus age): 60% stocks
• Aggressive rule (120 minus age): 70% stocks

Target-date funds, w🅺hich automatically adjust their investment mix based on your planned retirement date,꧙ are an easy way to see how the pros think about age-based allocation. And it's clear that professional money managers are leaning toward more aggressive allocations.

🅺 Below are three target-date funds designed for someone planning to retire in 2035 (thꦗey would be around age 55 in 2024):

• Vanguard's Target Retirement 2035 Fund holds almost 70% in stocks.
• T. Rowe Price's Retirement 2035 Fund keeps 65% in stocks.
• Fidelity Freedom 2035 Fund typically holds between 70% and 75% in stocks.

Beyond Age: Other Factors to Consider

Your age ꦛis just one piece of the allo𓃲cation puzzle. Here are other crucial factors that might influence your stock allocation:

• Income sources: Having a pension or enough expected in Social Security benefits might let you take on more investment risk.
• Health: Family health history and your personal medical needs might affect how aggressively you invest. In addition, women typically live about five years longer than men, which is another major consideration.
• Career stability: A secure job that you can continue to work later into what would be your retirement might allow you to handle more investment risk.
• 澳洲幸运5官方开奖结果体彩网:Risk tolerance: Your emotional comfort with market swings matters more than mathematical formulas.

Matching Your A💛llocation to Your Retirement ♚Plans

The lifestyle you want for your retirement will greatly influence your 澳洲幸运5官方开奖结果体彩网:investment approach. Someone looking to hand in the keys at work one day and be at the start of a three-month cruise the next needs a different s🏅trategy than someone whose main goal is to be near their f😼riends and family.

Here's how different retirement goals might affect your stock allocation:

Active Early Retirement

If you're planning significant spending in your early retirement years—perhaps for travel, relocating, or starting a new business—you might need a more 澳洲幸运5官方开奖结果体彩网:conservative allocation than the standard rules suggest. Why? You'll be withdrawing more money during the 💯crucial early years of retirement, leaving less time for your portfolio to recover from any market downtu๊rns.

A Staged Retirement

Many retirees plan a "go-go, slow-go, no-go" retirement, with higher spending in early retirement, moderating in their mid-70s, then increasing again to cover healthcare in later years. This pattern might suggest different stock allocations for the different phases rather than one overall percentage to use all the way through.

Legacy Goals

If your primary goal is maximizing wealth for the next generation, you might maintain a higher stock allocation throughout retirement. Since you're investing for multiple generations, not just your retirement years, you might take on more risk in a larger portion of your portfolio.

Healthcare Considerations

Those with a family history or other reasons to suggest they might face significant healthcare costs in later retirement might also have to adjust. For example, you might maintain a higher stock allocation to keep your portfolio growing even as you withdraw funds. This is particularly important given that 澳洲幸运5官方开奖结果体彩网:healthcare costs typically rise faster than inflation, a🉐s can be seen i𝓰n the chart below.

How To Adjust Your Portfolio To Meet Your Needs

Instead of making dramatic changes to your portfolio as you hit certain age milestones, you might c꧂onsider these approaches:

• Regular rebalancing: Review and adjust your portfolio annually to maintain your target allocation. Below is a simplified example of what rebalancing entails:

• Gradual transitions: In line with a steady rebalancing schedule, you can also make minor adjustments every couple of years rather than significant shifts—say, by putting more bonds in your portfolio.
• Bucketing: Bucket strategies take your assets and put them in different pools, each with a different timing for when you'll need the funds. For example, your first bucket might have 澳洲幸运5官方开奖结果体彩网:cash and cash equivalents that you'll need in the next few years, another might have a mix of stocks and bonds for the medium term, and the last bucket may have your riskier investments like growth stocks that you don't plan to sell for a decade or more.
• Core and explore: This strategy sounds like it involves robust stomach exercises, but it's simply keeping most of your investments in line with your age-based allocation but putting a bit aside for more aggressive investments.

The Bottom Line

When allocating the mix in your portfolio, age-based rules of thumb like "100 minus your age" can be a helpful starting point, but they aren't a one-size-fits-all solution and might be outdated. Today’s longer life spans and changes in the investing world—as well as shifts in inflation and rising healthcare costs—might require changing the rule of thumb you use.

Modern guidelines like "110 or 120 minus your age" might provide more growth potential, especially with bond yields far lower in recent decades, but they also come with higher risk. Your choice of allocation should reflect not just your age but also your 澳洲幸运5官方开奖结果体彩网:risk tolerance, financial goals, and lifestyle plans. Remember, the most effective strategy isn’t just♑ about following a f෴ormula—it’s about continuously revisiting and tailoring your portfolio to meet your needs.