Asset Allocation by Age: How to Balance Your Portfolio

"I'm 32. How much of my portfolio should be in stocks vs. bonds?"

You've Googled this question at least three times. You've read conflicting answers. Some articles say 80% stocks. Others say 90%. One financial advisor says "it depends." Another says "use the 110 rule."

And you still haven't actually adjusted your portfolio.

Here's why: Asset allocation feels like a test you can fail. Your brain translates "what percentage should be in stocks?" into "what's the one correct answer that will prevent me from being poor at 70?"

That question doesn't have a single answer. But your paralysis has a cost.

According to Empower data, investors in their 20s hold 33.88% of their portfolios in cash - the highest of any working-age group. Translation: They're so afraid of "getting it wrong" that they're guaranteeing they lose to inflation [1].

Meanwhile, investors in their 60s often maintain 60-70% stock allocations when they should be transitioning to more conservative positions - because they're anchored to portfolios that worked in their 40s.

The problem isn't finding the perfect allocation. The problem is the psychological barriers preventing you from implementing any allocation at all.

This article will give you age-based asset allocation frameworks, explain the psychology preventing you from using them, and provide concrete portfolios for every decade of your life.

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What is asset allocation? (And why it matters more than stock picking)

Asset allocation is how you divide your money among different types of investments: stocks, bonds, cash, real estate, and alternative assets.

Example:

• 80% stocks

• 15% bonds

• 5% cash

Why it matters: Asset allocation determines 90% of your portfolio's performance over time. Stock picking determines maybe 10% [2].

Translation: Obsessing over "should I buy Apple or Microsoft?" while having no allocation strategy is rearranging deck chairs on the Titanic.

The three primary asset classes

1. Stocks (equities)

• What they are: Ownership shares in companies

• Expected return: 8-10% annually (historical average)

• Volatility: High - can drop 30-50% in crashes

• Role: Growth [2]

2. Bonds (fixed income)

• What they are: Loans to governments or corporations that pay interest

• Expected return: 3-5% annually

• Volatility: Low-moderate - typically drop 5-15% in bad years

• Role: Stability and income [3]

3. Cash (cash equivalents)

• What they are: Savings accounts, money market funds, CDs

• Expected return: 0-4% (currently ~4% with high-yield savings, historically much lower)

• Volatility: None

• Role: Safety and liquidity

The fundamental trade-off: Risk vs. reward

Higher returns require higher risk. There's no way around this.

• 100% stocks = highest expected return, highest volatility

• 100% bonds = lower expected return, lower volatility

• 100% cash = guaranteed purchasing power loss to inflation

Your job: Find the balance between "growth I need" and "volatility I can tolerate" without panicking and selling during crashes.

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Why age determines your allocation (the glide path concept)

When you're 25, you can afford to take risk. When you're 65, you can't.

The logic is simple:

Young investors (20s-30s): Maximum risk tolerance

• Time horizon: 30-40 years until retirement

• Recovery time: Decades to recover from market crashes

• Income: Decades of future contributions to buy during crashes

• Need: Aggressive growth to build wealth from scratch

Optimal allocation: 80-100% stocks [4]

Mid-career investors (40s-50s): Balanced growth

• Time horizon: 15-25 years until retirement

• Recovery time: Still substantial but shrinking

• Income: Peak earning years = largest contributions

• Need: Continue growing while starting to protect accumulated wealth

Optimal allocation: 60-80% stocks [5]

Pre-retirees and retirees (60s+): Capital preservation

• Time horizon: 0-30 years (retirement can last 30+ years)

• Recovery time: Limited - can't wait 10 years for recovery

• Income: Withdrawing instead of contributing

• Need: Protect principal while generating income, but still need some growth for longevity

Optimal allocation: 30-60% stocks [6]

This progression is called a "glide path" - gradually moving from aggressive to conservative as you age [6].

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The classic allocation formulas (and why they're starting points, not gospel)

Financial advisors love simple rules. Here are the three most common:

Formula #1: The "100 minus age" rule

Formula: 100 - your age = % in stocks

Examples:

• Age 25: 100 - 25 = 75% stocks, 25% bonds

• Age 50: 100 - 50 = 50% stocks, 50% bonds

• Age 70: 100 - 70 = 30% stocks, 70% bonds

History: Popularized by Benjamin Graham and John Bogle in the mid-20th century [5].

Pros: Simple, conservative, age-appropriate risk reduction

Cons: Too conservative for modern life expectancies

Formula #2: The "110 minus age" rule

Formula: 110 - your age = % in stocks

Examples:

• Age 30: 110 - 30 = 80% stocks, 20% bonds

• Age 55: 110 - 55 = 65% stocks, 35% bonds

• Age 70: 110 - 70 = 50% stocks, 50% bonds

History: Modern update recognizing longer lifespans [7]

Pros: More appropriate for longer retirements, still systematic

Cons: Still might be too conservative for aggressive savers

This is the most popular formula today and is embedded in most target-date funds from Vanguard and Fidelity [5].

Formula #3: The "120 minus age" rule

Formula: 120 - your age = % in stocks

Examples:

• Age 30: 120 - 30 = 90% stocks, 10% bonds

• Age 55: 120 - 55 = 65% stocks, 35% bonds

• Age 70: 120 - 70 = 50% stocks, 50% bonds

History: Most aggressive modern formula [5]

Pros: Maximizes growth potential, appropriate for long retirements

Cons: Requires high risk tolerance and discipline during crashes

The alternative: Target-date funds

Don't want to calculate anything? Buy a target-date fund that matches your retirement year.

Examples:

• Vanguard Target Retirement 2060: For someone retiring around 2060 (currently ~age 25-30)

• Fidelity Freedom 2040: For someone retiring around 2040 (currently ~age 45-50)

• T. Rowe Price Retirement 2030: For someone retiring around 2030 (currently ~age 55-60)

How they work: These funds automatically adjust your allocation as you age, becoming more conservative over time [5][7].

Pros: Zero decisions, automatic rebalancing, professionally managed glide path

Cons: Less control, slightly higher fees than DIY indexing, doesn't account for individual risk tolerance

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Asset allocation by age: Decade-by-decade breakdown

Here's what your portfolio should look like at each stage of life:

20s: The aggressive growth decade (80-100% stocks)

Recommended allocation:

• 90% stocks (70% US stocks, 20% international stocks)

• 10% bonds

• 0% cash (beyond 3-6 month emergency fund)

Specific portfolio example:

• 50% VTI (Vanguard Total Stock Market)

• 20% VXUS (Vanguard Total International Stock)

• 10% VB (Vanguard Small-Cap)

• 10% VNQ (Vanguard Real Estate)

• 10% BND (Vanguard Total Bond Market)

Why this allocation:

• You have 40+ years until retirement

• You can stomach 40-50% crashes because you're buying during them

• Compounding works best when given maximum time + growth assets

• Every dollar invested now becomes $10+ by retirement at 8% returns [2]

Critical behaviors:

• Automate contributions immediately - don't wait to "save up"

• Never check your balance during crashes - pretend your 401(k) doesn't have a login

• Increase contributions with every raise - lock in 50% of raises before lifestyle inflation hits

What data shows: Investors in their 20s hold 33.88% cash on average - this is a massive mistake costing them millions in compound growth [1].

30s: The momentum decade (80-90% stocks)

Recommended allocation:

• 85% stocks (65% US stocks, 20% international stocks)

• 15% bonds

• 0% cash (beyond 6 month emergency fund)

Specific portfolio example:

• 50% VOO (Vanguard S&P 500)

• 15% VXUS (Vanguard Total International Stock)

• 10% VB (Vanguard Small-Cap)

• 10% VNQ (Vanguard Real Estate)

• 15% BND (Vanguard Total Bond Market)

Why this allocation:

• Still 30-35 years to retirement

• Peak earning years beginning - maximize contribution amounts

• Small bond allocation (15%) provides psychological comfort during volatility without sacrificing much growth

• You're building on the base established in your 20s

Critical behaviors:

• Max out tax-advantaged accounts first: $23,000 to 401(k), $7,000 to Roth IRA

• Resist the temptation to buy individual stocks - you're not as smart as you think

• Rebalance annually - sell what's up, buy what's down (forces "buy low, sell high")

Common mistake: Reducing stock allocation too early because "the market feels high." The market always feels high. Stay the course [4].

40s: The balance decade (70-80% stocks)

Recommended allocation:

• 75% stocks (55% US stocks, 20% international stocks)

• 25% bonds

• 0% cash (beyond 6-12 month emergency fund)

Specific portfolio example:

• 40% VTI (Vanguard Total Stock Market)

• 15% VXUS (Vanguard Total International Stock)

• 10% VB (Vanguard Small-Cap)

• 10% VNQ (Vanguard Real Estate)

• 25% BND (Vanguard Total Bond Market)

Why this allocation:

• 20-25 years to retirement

• Balancing growth needs with increasing protective "moat" around accumulated wealth

• Bond allocation (25%) provides meaningful downside protection during crashes

• Still aggressive enough to compound wealth significantly [5]

Critical behaviors:

• Don't panic-sell during bear markets - you still have 20+ years to recover

• Consider tax-loss harvesting in taxable accounts

• Increase bond allocation by 1-2% annually as you progress through your 40s

Psychological trap: At this age, your portfolio is large enough that 20% drops feel catastrophic in dollar terms. A $500,000 portfolio dropping 20% = $100,000 loss. This triggers panic selling. Resist.

50s: The transition decade (60-70% stocks)

Recommended allocation:

• 65% stocks (45% US stocks, 20% international stocks)

• 30% bonds (20% intermediate-term, 10% short-term)

• 5% cash

Specific portfolio example:

• 30% VTI (Vanguard Total Stock Market)

• 15% VXUS (Vanguard Total International Stock)

• 10% VB (Vanguard Small-Cap)

• 10% VNQ (Vanguard Real Estate)

• 20% BND (Vanguard Total Bond Market)

• 10% BSV (Vanguard Short-Term Bond)

• 5% VMFXX (Vanguard Federal Money Market)

Why this allocation:

• 10-15 years to retirement

• Retirement is becoming "real" - increased need for stability

• Bond allocation (35% including cash) provides cushion during volatility

• Still need growth - retirement could last 30+ years [8]

Critical behaviors:

• Start serious retirement number planning - how much do you need?

• Consider Roth conversions during low-income years

• Shift new contributions toward bonds - let existing stocks run, add to bonds

Critical mistake: Completely abandoning stocks because "retirement is soon." You still need 20-30 years of growth in retirement. Going 100% bonds at 50 is catastrophic [4].

60s: The preservation decade (40-60% stocks)

Recommended allocation:

• 50% stocks (30% US stocks, 20% international stocks)

• 40% bonds (25% intermediate-term, 15% short-term)

• 10% cash

Specific portfolio example:

• 20% VTI (Vanguard Total Stock Market)

• 15% VXUS (Vanguard Total International Stock)

• 10% VB (Vanguard Small-Cap)

• 5% VNQ (Vanguard Real Estate)

• 25% BND (Vanguard Total Bond Market)

• 15% BSV (Vanguard Short-Term Bond)

• 10% VMFXX (Vanguard Federal Money Market)

Why this allocation:

• 0-10 years to retirement, or early retirement years

• Need to protect principal - can't afford 50% crash with no recovery time

• But still need growth - retirement could last 30 years

• Balanced 50/50 allocation provides stability with growth potential [3]

Critical behaviors:

• Create income plan: Which accounts to withdraw from first?

• Consider bucket strategy: 2 years cash, 8 years bonds, rest stocks

• Plan for RMDs starting at age 73

Warren Buffett's allocation for his wife: 90% stocks, 10% bonds. Why? Because he knows trying to time the market is futile and stocks win long-term. But Buffett has unlimited money - you don't. Be more conservative [9].

70s+: The income decade (30-50% stocks)

Recommended allocation:

• 40% stocks (25% US stocks, 15% international stocks)

• 45% bonds (30% intermediate-term, 15% short-term)

• 15% cash

Specific portfolio example:

• 15% VTI (Vanguard Total Stock Market)

• 10% VXUS (Vanguard Total International Stock)

• 10% VB (Vanguard Small-Cap)

• 5% VNQ (Vanguard Real Estate)

• 30% BND (Vanguard Total Bond Market)

• 15% BSV (Vanguard Short-Term Bond)

• 15% VMFXX (Vanguard Federal Money Market)

Why this allocation:

• Actively withdrawing for living expenses

• Need stability - large drops could force selling at losses

• But still need growth - life expectancy is 15-25 more years

• Higher cash allocation provides 2-3 years of spending without selling stocks [6]

Critical behaviors:

• Never sell stocks during crashes - live off bonds and cash instead

• Rebalance by spending - spend from overweighted assets

• Consider annuities for guaranteed income floor

Data shows: Investors in their 70s hold 35.1% cash on average, and those in their 80s hold 39.7% cash. This might seem conservative, but it's actually smart - it prevents panic-selling stocks during downturns [1].

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The psychology destroying your allocation (behavioral biases you must overcome)

You now know the math. So why isn't your portfolio allocated correctly?

Bias #1: Status quo bias (portfolio inertia)

What it is: The tendency to leave things unchanged even when changing would be better.

How it manifests: You opened a brokerage account 5 years ago with a random allocation and never adjusted it. Or you're in your company's default 401(k) allocation instead of choosing your own [10].

The cost: Your 401(k) might be in a "moderate" allocation (60/40) when you're 28 years old and should be 90/10. Over 30 years, this could cost you $500,000+.

The solution: Set a calendar reminder for annual rebalancing. Treat it like a dental appointment - mandatory, not optional.

Bias #2: Overconfidence bias (thinking you can time the market)

What it is: Overestimating your ability to predict market movements.

How it manifests: "The market seems overvalued, I'll shift to 100% bonds until it drops, then buy back in." Or "I'll keep 100% stocks because I can handle the volatility" (you can't) [11][12].

The data: 93% of individual investors who actively trade lose money. Only 25% of professional fund managers beat their benchmarks over 10 years [13].

The cost: Missing the 10 best days in the market reduces 30-year returns by 50%. Market timing doesn't work.

The solution: Set your allocation, automate it, and never deviate. No market timing, no "tactical shifts."

Bias #3: Loss aversion (overweighting recent pain)

What it is: Losses hurt 2-3x more psychologically than equivalent gains feel good.

How it manifests: You got burned in the 2008 crash when you were 100% stocks, so now you're 100% bonds at age 35 "to be safe" [14][15].

The cost: 100% bonds at age 35 for 30 years = ~$800,000 at retirement. 90% stocks = ~$2,500,000. Loss aversion just cost you $1.7 million.

The solution: Acknowledge the fear, then override it with systems. Automate stock purchases during crashes - make fear work for you, not against you.

Bias #4: Recency bias (believing recent trends continue forever)

What it is: Overweighting recent events when predicting the future.

How it manifests: Stocks have been up for 3 years, so you think they'll keep going up and shift to 100% stocks at age 62. Or stocks dropped last year, so you think a crash is imminent and move to 100% bonds at age 30 [16].

The data: "This time is different" is the most expensive sentence in finance. Markets are cyclical. Booms end. Crashes recover. Always.

The solution: Stick to your age-based allocation regardless of recent performance.

Bias #5: Anchoring bias (stuck on past allocations)

What it is: Relying too heavily on the first piece of information received (the "anchor").

How it manifests: You set a 90/10 allocation when you were 25. You're now 55. You never adjusted because 90/10 feels "right" - it's your anchor [14].

The cost: Having a 25-year-old's risk tolerance when you're 55 means one bad market year could delay retirement by 5-10 years.

The solution: Calendar reminder to review allocation annually. "Would I choose this allocation today if starting fresh?" If not, change it.

Bias #6: Regret aversion (fear of making the "wrong" choice)

What it is: Avoiding decisions that might lead to regret.

How it manifests: You spend 6 months researching whether your stock allocation should be 75% or 80%, so you do nothing. Perfect becomes the enemy of good [14].

The cost: Six months of delayed investing = thousands in lost compound growth.

The solution: "Good enough" allocation implemented today beats "perfect" allocation delayed forever. Pick a formula (110 minus age), implement it, move on.

Bias #7: Herd mentality (doing what everyone else is doing)

What it is: Making decisions based on what others are doing rather than independent analysis.

How it manifests: Your coworker shifted to 100% cash because "a crash is coming." You follow suit despite being 30 years from retirement [13].

The data: 95% of investors can be influenced by the 5% who are making moves - even when those moves are irrational.

The solution: Block out noise. No CNBC, no finance Twitter, no coworker investing talk. Set allocation, automate, ignore.

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Rebalancing: How to maintain your allocation (without obsessing)

You've set your target allocation. Now what?

Markets will drag your allocation off-target constantly. Stocks outperform = you're now overweight stocks. Bonds outperform = you're overweight bonds.

Rebalancing means selling what's up and buying what's down to return to your target allocation [17].

Example:

Target: 70% stocks, 30% bonds
After 1 year: 76% stocks, 24% bonds (stocks outperformed)
Rebalancing action: Sell 6% of stocks, buy 6% bonds to return to 70/30

How often should you rebalance?

The research is clear: Annual rebalancing is optimal for most investors [17][18].

Three rebalancing strategies:

Strategy #1: Calendar-based (most popular)

How it works: Rebalance on a set schedule (annually, semi-annually, quarterly)

Best for: Most investors - simple, systematic, prevents overthinking

Frequency:

• Annual: Optimal for most people

• Semi-annual: If you're neurotic and want to check more often

• Quarterly: Too frequent - increases costs and taxes [17]

Implementation: Set calendar reminder for January 1st each year. Rebalance regardless of market conditions.

Strategy #2: Threshold-based (most efficient)

How it works: Rebalance only when allocation drifts by X% from target

Best for: Investors who can resist checking constantly

Common thresholds:

• ±5% absolute: Rebalance when stocks are 75% instead of 70% target

• ±10% relative: Rebalance when stocks are 77% instead of 70% target (10% drift from 70%)

Implementation: Check quarterly. Only rebalance if threshold breached [19].

Strategy #3: Hybrid (best of both)

How it works: Check on schedule (annually), only rebalance if threshold breached (±5%)

Best for: People who want systematic review without unnecessary trades

Example:

• Check every January 1st

• If stocks are 70-75%, do nothing

• If stocks are >75% or <65%, rebalance

This is what most advisors recommend [17].

Tax-efficient rebalancing strategies

Rebalancing triggers capital gains taxes in taxable accounts. Here's how to minimize them:

1. Rebalance with new contributions

• Don't sell overweighted assets - just stop buying them

• Direct all new money to underweighted assets

• Takes longer but avoids taxes

2. Rebalance with dividends

• Turn off automatic dividend reinvestment

• Direct dividends to underweighted assets

• Painless, tax-free rebalancing

3. Rebalance in tax-advantaged accounts first

• Rebalance 401(k) and IRA first (no tax consequences)

• Only rebalance taxable accounts when necessary

4. Tax-loss harvest

• Sell losing positions to offset gains from rebalancing

• Use losses to offset gains = reduced taxes

5. Partial rebalancing

• Don't fully rebalance (76% → 70%)

• Partial rebalance (76% → 73%)

• Reduces transaction costs and taxes [17]

Common rebalancing mistakes

Mistake #1: Rebalancing too frequently

Why it's wrong: Quarterly or monthly rebalancing increases costs and taxes while providing minimal benefit. Vanguard research shows monthly rebalancing underperforms annual rebalancing [17].

The fix: Rebalance annually max.

Mistake #2: Never rebalancing

Why it's wrong: A 70/30 portfolio left untouched for 10 years becomes 85/15 as stocks outperform. You're now taking way more risk than intended [20].

The fix: Calendar reminder. Non-negotiable.

Mistake #3: Rebalancing during crashes

Why it's wrong: Rebalancing during a crash means selling bonds to buy stocks - which is actually correct (buy low!). The mistake is stopping regular rebalancing because "markets are scary."

The fix: Rebalance on schedule regardless of market conditions. Especially during crashes.

Mistake #4: Emotional rebalancing

Why it's wrong: "Stocks are up 30% this year, I should take some profits" (market timing). "Stocks are down 20%, I should wait to rebalance" (trying to time the bottom).

The fix: Systematic rebalancing removes emotion. Calendar-based or threshold-based only. No discretion.

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Common allocation mistakes that destroy wealth

Mistake #1: Holding too much cash in your 20s-40s

The mistake: 33.88% of investors in their 20s hold cash instead of investing [1].

Why it's catastrophic: $10,000 cash at age 25 = $10,000 at age 65 (actually $4,000 after inflation).
$10,000 invested at 8% from age 25-65 = $217,245.

The cost: $207,245 per $10,000 held in cash.

The fix: Emergency fund only (3-6 months expenses). Everything else invested.

Mistake #2: Becoming too conservative too early

The mistake: Shifting to 50/50 or 40/60 allocation in your 40s because "markets seem risky."

Why it's catastrophic: You have 20-25 years until retirement. That's enough time to recover from any crash. By going conservative early, you sacrifice decades of compound growth.

The cost: 70/30 allocation for 25 years = ~$1.8M.
50/50 allocation for 25 years = ~$1.2M.
Difference: $600,000 lost.

The fix: Follow age-based formulas (110 minus age) minimum. Don't deviate.

Mistake #3: Staying too aggressive too late

The mistake: Maintaining 80-90% stocks into your 60s because "stocks always recover."

Why it's catastrophic: One bad sequence of returns early in retirement can derail your entire plan. A 40% crash at age 63 with insufficient bonds means you're selling stocks at bottom to fund living expenses.

The cost: Forced to work 5-10 more years because portfolio can't support withdrawals.

The fix: Transition to 50/50 or 40/60 by age 60. No exceptions.

Mistake #4: Trying to time allocation shifts

The mistake: "Markets seem overvalued, I'll shift to 100% bonds until they drop 20%, then I'll buy back in."

Why it's catastrophic: Market timing doesn't work. You'll miss the recovery, buy back in at higher prices, and underperform a simple buy-and-hold strategy.

The data: Missing the 10 best market days over 30 years reduces returns by 50%.

The fix: Set allocation, hold it, rebalance systematically. Never make tactical shifts based on "feelings."

Mistake #5: Ignoring rebalancing for years

The mistake: Set a 70/30 allocation in 2015, never touched it, now it's 85/15 in 2025.

Why it's catastrophic: You're taking 21% more risk than you intended. One crash could wipe out years of gains.

The cost: Higher volatility, larger drawdowns, increased panic-selling risk.

The fix: Annual rebalancing, non-negotiable.

Mistake #6: Having no allocation strategy at all

The mistake: Randomly buying stocks and bonds with no target percentages.

Why it's catastrophic: You have no idea if your portfolio matches your risk tolerance. You'll panic-sell during crashes because you never defined what "normal" volatility looks like.

The cost: Behavioral mistakes compound. Panic-selling during 2008, 2020, or any crash locks in losses permanently.

The fix: Pick a formula (110 minus age). Implement it today. Stick to it forever.

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How to implement your asset allocation (the action plan)

Step 1: Calculate your target allocation (2 minutes)

Choose a formula:

• Conservative: 100 - age = % stocks

• Moderate: 110 - age = % stocks (recommended for most)

• Aggressive: 120 - age = % stocks

Example (age 35, using 110 rule): 110 - 35 = 75% stocks, 25% bonds

Step 2: Check your current allocation (5 minutes)

Log into every account (401k, IRA, brokerage) and calculate:

Total portfolio value: $100,000
Stocks: $85,000 (85%)
Bonds: $10,000 (10%)
Cash: $5,000 (5%)

**Current allocation: 85/10/5
**Target allocation: 75/25/0

You're overweight stocks by 10%, underweight bonds by 15%

Step 3: Decide rebalancing method

Option A: Immediate rebalance (if in tax-advantaged accounts)

• Sell $10,000 of stocks

• Buy $15,000 of bonds (using $10K from stock sale + $5K cash)

• New allocation: $75K stocks / $25K bonds = 75/25 ✓

Option B: Gradual rebalance with contributions (if in taxable account)

• Keep current holdings (avoid taxes)

• Direct next 6 months of contributions to bonds only

• Over time, portfolio shifts to 75/25

Option C: Dividend rebalancing

• Turn off dividend reinvestment

• Direct all dividends to bonds

• Slow but tax-free

Step 4: Choose your funds (10 minutes)

For stocks:

• Simple: VTI (Total US Stock Market) or VOO (S&P 500)

• Diversified: 70% VTI + 30% VXUS (International)

For bonds:

• Simple: BND (Total Bond Market)

• Conservative: 70% BND + 30% BSV (Short-term bonds)

Example 75/25 portfolio:

• 52.5% VTI (70% of stocks)

• 22.5% VXUS (30% of stocks)

• 25% BND (all bonds)

Step 5: Set up automatic rebalancing (5 minutes)

In 401(k) or robo-advisor:

• Enable "automatic rebalancing"

• Choose "annually" or "at 5% threshold"

In brokerage account:

• Calendar reminder: January 1st every year

• Create rebalancing checklist

• Execute trades

Step 6: Create contribution plan (5 minutes)

How much to contribute:

• Minimum: 15% of gross income

• Target: 20-25% of gross income

• Stretch: 30-40% for early retirement

Where to contribute:

1. 401(k) up to match (free money)

2. Max Roth IRA ($7,000)

3. Back to 401(k) to max ($23,000)

4. Brokerage account (everything beyond)

What to buy with contributions:

• Auto-invest into target allocation

• Or direct all new money to underweighted asset

Total time to implement: 27 minutes.

Now you have: ✓ Target allocation defined
✓ Current portfolio rebalanced
✓ Automatic future rebalancing
✓ Contribution plan established

You're done. Don't touch it for a year.

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Special situations: When standard allocations don't apply

Situation #1: Early retirement (retiring before 55)

Problem: Standard allocations assume retirement at 65. If you're retiring at 45, you need 20+ more years of growth.

Solution: More aggressive allocation than peers

• Age 45, retiring now: 60/40 instead of 65/35

• Need decades of growth to fund 40+ year retirement

Situation #2: Late start (starting investing in your 40s-50s)

Problem: You have less time to compound, need to catch up.

Solution: Slightly more aggressive + higher contributions

• Age 50 with $50K saved: 75/25 instead of 60/40

• But ALSO contribute $30K+/year to make up for lost time

Don't confuse higher risk tolerance with sufficient contributions. Do both.

Situation #3: Pension or guaranteed income

Problem: You have a pension covering 50-75% of retirement expenses.

Solution: More aggressive allocation with remainder

• Pension = bond-like income

• Can treat investment portfolio as 80-90% stocks even in 60s

• This is called "pension as bonds" strategy

Situation #4: High risk tolerance (you don't panic)

Problem: Standard formulas assume average risk tolerance. Maybe you're different.

Solution: Increase stock allocation by 10-15% max

• Age 40 standard: 70/30

• Age 40 high risk: 85/15

But: Most people who think they have high risk tolerance find out they don't when markets crash 40%. Be honest with yourself.

Situation #5: Very conservative (can't stomach volatility)

Problem: Standard 80/20 at age 30 makes you panic-sell during every 10% dip.

Solution: More conservative + accept lower returns

• Age 30 standard: 80/20

• Age 30 conservative: 70/30 or 60/40

Trade-off: Lower stress + lower wealth. Make peace with this trade-off.

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How PsyFi solves the behavioral problems with asset allocation

You now know:

• The formulas (110 minus age)

• The specific allocations by age

• The rebalancing strategies

• The behavioral biases sabotaging you

So why won't you actually implement this?

Because knowing ≠ doing.

The traditional approach requires constant willpower:

1. Calculate target allocation annually

2. Manually rebalance across multiple accounts

3. Remember to increase bond allocation as you age

4. Resist panic-selling during crashes

5. Resist euphoric buying during booms

6. Track contributions across accounts

7. Maintain discipline for 30-40 years

One moment of weakness destroys decades of discipline.

How PsyFi eliminates the willpower requirement:

Problem #1: Manual allocation calculation

Traditional: You have to remember formulas, calculate percentages, adjust for risk tolerance

PsyFi: System auto-calculates optimal allocation based on age, goals, and assessed risk tolerance. Updates automatically as you age.

Problem #2: Multi-account rebalancing complexity

Traditional: You have 401(k) at Vanguard, Roth IRA at Fidelity, brokerage at Schwab. Rebalancing requires logging into each, calculating allocations, executing trades, tracking cost basis.

PsyFi: Single dashboard view of all accounts. One-click rebalancing across everything. Tax-optimization built in.

Problem #3: Age-based allocation drift

Traditional: You set 80/20 at age 30. You're now 45. Your allocation should be 65/35. Did you remember to shift it?

PsyFi: Automatic glide path. As you age, allocation automatically shifts more conservative. Zero manual intervention.

Problem #4: Panic-selling during crashes

Traditional: Market drops 25%. You see your balance down $100K. Your brain screams "SELL!" You override discipline and sell.

PsyFi: Behavioral commitment devices:

• Cool-down periods before major sells

• "Are you sure?" interventions showing opportunity cost

• Automatic additional buying during crashes (dollar-cost averaging into weakness)

• Option to temporarily hide balance during volatility

Problem #5: Contribution inconsistency

Traditional: Some months you contribute $500, some months $0, some months you forget entirely.

PsyFi: Automated contribution escalation:

• Starts at comfortable level

• Increases 1% every 6 months automatically

• Adjusts allocation of new money to maintain target percentages

• Removes 100% of decisions

The fundamental insight:

Traditional investing assumes you're a robot: Calculate allocations, execute perfectly, never deviate, maintain discipline for 40 years.

PsyFi assumes you're a human: You'll panic, you'll forget, you'll get lazy, you'll make mistakes. So it builds systems that work despite human nature, not in opposition to it.

The result: Investors who can't even remember their target allocation actually maintain it perfectly for decades - because the system handles it.

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The simple truth about asset allocation

Perfect allocation implemented today beats optimal allocation delayed forever.

You could spend 6 more months researching whether 75/25 is better than 80/20 for your specific situation. Or you could implement 110-minus-age right now and move on with your life.

The difference between 75/25 and 80/20 over 30 years? Maybe $50,000.

The difference between 75/25 implemented today vs. 6 months from now? Easily $50,000 in lost compound growth.

Stop researching. Start implementing.

Pick a formula. The 110-minus-age rule is fine. It's embedded in target-date funds used by millions. It's backed by firms managing trillions. It works.

Or just buy a target-date fund matching your retirement year and never think about allocation again.

Either strategy beats what you're doing now: nothing.

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Your 10-minute action plan

Minute 1-2: Calculate target allocation

• 110 - [your age] = % stocks

• Remainder = % bonds

Minute 3-5: Log into accounts and check current allocation

• Add up total stocks

• Add up total bonds

• Calculate current percentages

Minute 6-8: Decide if you need to rebalance

• Is current allocation within ±5% of target? → Do nothing

• Is current allocation off by >5%? → Rebalance

Minute 9-10: Set calendar reminder

• "Rebalance portfolio" - January 1st every year

• Set to recurring

Done.

You now have an asset allocation strategy. You're ahead of 80% of investors.

The final step: Automate future contributions, then close this tab and don't think about your portfolio for 12 months.

Because the best portfolio is the one you can stick with. And the best allocation is the one you actually implement.

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References

1. https://www.empower.com/the-currency/money/average-portfolio-mix-by-investor-age 

2. https://waterloocap.com/asset-allocation-models-by-age/ 

3. https://www.schwab.com/learn/story/retirement-portfolio-assets-allocation-by-age 

4. https://www.sofi.com/learn/content/asset-allocation-by-age/ 

5. https://www.commonsllc.com/insights/best-asset-allocation-by-age 

6. https://waterloocap.com/asset-allocation-by-age-guide/ 

7. https://www.fool.com/retirement/strategies/asset-allocation-by-age/ 

8. https://www.troweprice.com/personal-investing/resources/insights/retirement-savings-by-age-what-to-do-with-your-portfolio.html 

9. https://www.optimizedportfolio.com/asset-allocation/ 

10. https://www.financialplanningassociation.org/article/journal/MAR15-understanding-behavioral-aspects-financial-planning-and-investing 

11. https://www.researchgate.net/publication/376131619_Behavioral_Biases_in_Investment_Decision-Making 

12. https://www.preprints.org/manuscript/202502.2000/v1 

13. https://online.mason.wm.edu/blog/behavioral-biases-that-can-impact-investing-decisions 

14. https://shermanwealth.com/common-investor-biases/ 

15. https://www.essentia-analytics.com/common-behavioral-biases/ 

16. https://www.tandfonline.com/doi/full/10.1080/23322039.2023.2239032 

17. https://investor.vanguard.com/investor-resources-education/portfolio-management/rebalancing-your-portfolio 

18. https://www.investor.gov/additional-resources/spotlight/directors-take/rebalancing-your-investment-portfolio 

19. https://www.troweprice.com/personal-investing/resources/insights/whats-the-best-approach-for-portfolio-rebalancing.html 

20. https://retirementresearcher.com/rebalancing-frequency/