Asset allocation, and why "100 minus your age" is a poor starting point
Allocation should follow when you need the money and how large a fall you can sit through — not your birthday.
The old rule says hold 100 − your age percent in equity. At 35 that is 65%. It is memorable, and it is wrong in a specific way: it assumes age is the only thing that differs between two people.
What allocation is actually solving for
Two constraints, and age is only a proxy for one of them.
Time until the money is needed. Equity's volatility is only a problem if you have to sell during a fall. A 25-year-old saving for a house next year and a 60-year-old with a 30-year retirement ahead have their horizons the wrong way round from what the rule assumes.
Tolerance for a drawdown. Not the theoretical kind you tick on a risk profiling form — the kind where the portfolio is down 35% and every headline says it will get worse. If you sell there, a high-equity allocation was wrong for you no matter what the horizon said.
Allocate by goal date, not by person
Rather than one number across your whole net worth, allocate per goal:
| Money needed in | Sensible tilt |
|---|---|
| Under 2 years | Cash, deposits, liquid funds — no equity |
| 2 to 5 years | Mostly debt, small equity slice |
| 5 to 10 years | Balanced |
| Over 10 years | Equity-heavy |
The same person can correctly hold a fixed deposit and an aggressive equity fund at the same time, because the money has different due dates. A single portfolio-wide percentage cannot express that.
Rebalancing is the mechanism
Allocation only works if you restore it. After a strong equity run, equity is overweight and your risk has quietly increased without you deciding anything. Selling the winner to buy the laggard feels wrong every single time, which is exactly why it works — it forces selling high and buying low without requiring a forecast.
Once a year, or when a sleeve drifts more than five percentage points from target, is plenty. More often mostly generates tax and transaction cost.
See your current split
Published by FinClamp. This guide is information, not financial advice — see the disclaimer.