An Essential Guide to Asset Allocation by Age

Quick Guide to Asset Allocation by Age:
20s & 30s: High equity, low bond allocation. Focus on growth.
40s & 50s: Gradually increase bonds, reduce equity. Balance growth and safety.
60s: Equity and bonds balanced, introduce short-term investments.
70s & Beyond: Higher focus on bonds and short-term, lower equity for risk reduction.

Feeling anxious about how to save for retirement? You’re not alone. With each passing birthday, the thought, “Am I saving enough?” can become more pressing. But the key to a comfortable retirement lies in understanding and applying the correct asset allocation by age. This simple strategy is fundamental to long-term financial success, especially as you near those golden years.

Asset allocation involves dividing your investments among different categories, such as stocks, bonds, and cash, to balance risk and reward based on your age, goals, and risk tolerance. It’s not just about picking the right investments; it’s about adjusting those choices as your life and the markets change.

Why does this matter? Because as you get older, your ability to recover from financial setbacks diminishes. Therefore, adjusting your investment strategy to be more conservative as you age can help preserve your hard-earned savings and ensure they last through your retirement years. Consider this your roadmap to navigating those changes.

Detailed infographic showing the shift in asset allocation from 20s through 70s, highlighting key investment types and percentages for each age group, demonstrating decreasing equity and increasing bond & cash positions with age - asset allocation by age infographic pillar-5-steps

Understanding Asset Allocation

Asset allocation is like building a financial safety net for your future. It’s about spreading your investments across different types of assets—like stocks, bonds, and cash—to balance risk, lay a strong foundation for your portfolio, and aim for a blend of growth and security. Let’s break it down into simpler terms.

Balance Risk

Imagine you’re at a buffet. If you only fill your plate with spicy food, there’s a high chance you’ll end up with a burnt tongue. Similarly, putting all your money into one type of investment (like stocks) is risky because if that market dips, so does your entire investment.

By mixing different types of investments, you’re more likely to protect yourself against major losses. Stocks, for instance, can offer high growth but come with higher risk. Bonds are generally safer but offer lower returns. Cash is the safest but doesn’t grow much. The key is finding the right mix for you.

Provides Foundation

Your asset allocation creates the foundation of your investment strategy. It’s about understanding your goals, how long you have to achieve them, and how much risk you’re comfortable taking. This foundation helps guide your investment decisions and keeps you on track towards your financial goals.


Diversification is a fancy word for not putting all your eggs in one basket. It’s related to asset allocation but focuses on spreading your investments within each asset category. For example, instead of investing in just one company’s stock, you might spread your investments across different sectors like technology, healthcare, and finance.

Diversification can help reduce the impact of poor performance in any single investment. If one sector or company is doing poorly, it’s less likely to drag down your entire portfolio if you’re diversified across different areas.

Why It Matters

Asset allocation is crucial because it directly influences your investment risk and returns. It’s a tool to help you reach your financial goals, whether you’re saving for retirement, a new home, or your child’s education. By understanding and managing your asset allocation, you can navigate through market ups and downs with more confidence.

At Principal Preservation Services, we understand that each individual has unique financial goals and risk tolerances. That’s why we work closely with our clients in Minnesota and Wisconsin to develop personalized asset allocation strategies. Whether you’re just starting to invest in your 20s or are navigating retirement in your 70s, we’re here to help you create a balanced and diversified portfolio that aligns with your long-term financial aspirations.

The right asset allocation for you will change over time as your financial situation, goals, and risk tolerance evolve. Regularly reviewing and adjusting your asset allocation is key to staying on track towards achieving lasting financial success in retirement.

By understanding the principles of asset allocation, you’re taking a crucial step towards building a more secure and prosperous future.

Age-Based Asset Allocation Strategies

At Principal Preservation Services, we understand that asset allocation by age is vital in crafting a financial plan that grows with you. Let’s break down how your investment strategy might evolve with time, focusing on equity, fixed income, and short-term investments.

Asset Allocation in Your 20s and 30s

In your 20s and 30s, time is on your side. This period is all about growth.

  • Equity: Aim to have a higher allocation towards stocks, around 80-90%, to capitalize on long-term growth. Stocks have historically provided higher returns over the long run, albeit with more volatility.
  • Fixed Income: The remaining 10-20% can be in bonds, which helps to slightly reduce the risk of your portfolio without significantly dampening potential returns.

Starting early gives your investments more time to compound, setting a solid foundation for your financial future.

Asset Allocation in Your 40s and 50s

As you move into your 40s and 50s, your focus begins to shift slightly towards preservation while still allowing for growth.

  • Equity: A suggested allocation might be 60-70% in stocks. You’re still aiming for growth, but starting to be a bit more cautious.
  • Fixed Income: Increase your bond allocation to 30-40%. Bonds are generally safer than stocks and will start to play a more significant role in protecting your wealth as you edge closer to retirement.

This phase is about balancing growth with the beginnings of preservation, ensuring you’re well-positioned for the transition to retirement.

Asset Allocation in Your 60s

Retirement is on the horizon, and your strategy continues to evolve.

  • Equity: Consider reducing your stock allocation to 40-50%. You still need growth, but less risk is prudent as you near retirement.
  • Fixed Income: Bonds may now constitute 40-50% of your portfolio, providing income and stability.
  • Short Term: It’s also wise to start including more short-term investments, like money market funds, making up about 10% of your portfolio. These can offer easy access to funds when needed, without significant risk.

This stage is about security and ensuring you have reliable income streams for retirement.

Asset Allocation for 70s & Older

Now, preservation is key. Your investment strategy should focus on protecting what you’ve built and providing stable income.

  • Equity: Consider a 30-40% allocation to stocks. You still want some growth to combat inflation and extend your nest egg’s longevity.
  • Fixed Income: 50-60% of your portfolio might be in bonds, prioritizing income and safety.
  • Short Term: Increasing your allocation to short-term investments to 10-20% can provide liquidity and safeguard against market volatility.

At this stage, the aim is to maintain your lifestyle and ensure your savings last through your retirement years.

These are general guidelines. Everyone’s financial situation, goals, and risk tolerance are unique. Regularly reviewing your asset allocation with a financial advisor can ensure your investment strategy remains aligned with your evolving needs. At Principal Preservation Services, we’re here to help you navigate these decisions, ensuring your strategy adapts as you move through different stages of life.

Rebalancing Your Portfolio

Mitigate Risk, Reduce Volatility, Emotional Investing

Rebalancing your portfolio is like giving your financial plan a regular health check-up. It’s essential for keeping your investments in line with your goals, especially as you age. Let’s break down why it’s crucial and how it helps you.

Why Rebalance?

  • Maintain Your Strategy: Over time, some investments may grow faster than others. Without rebalancing, your portfolio can drift from its original asset allocation, potentially exposing you to more risk than you’re comfortable with.
  • Reduce Risk: As markets fluctuate, rebalancing allows you to sell high and buy low automatically, helping to reduce the risk in your portfolio.
  • Control Emotions: It’s easy to let emotions drive your investing decisions, especially during market volatility. Rebalancing keeps you focused on your long-term strategy rather than short-term market movements.

How to Rebalance

  1. Review Your Asset Allocation: Start by reviewing your current asset allocation and compare it to your target allocation. This target should reflect your current age, risk tolerance, and financial goals.

  2. Determine What Needs to Change: Identify which asset classes are over or underrepresented in your portfolio. You’ll need to sell assets in overweight categories and buy assets in underweight categories to get back to your target allocation.

  3. Consider Taxes and Costs: Be mindful of potential tax implications and transaction costs when rebalancing. Sometimes, it may be beneficial to rebalance within tax-advantaged accounts like IRAs or 401(k)s to minimize taxes.

  4. Set a Schedule: Regularly scheduled rebalancing, such as once a year or after significant market movements, can help maintain your desired asset allocation without constant monitoring.

At Principal Preservation Services, we understand that rebalancing your portfolio can seem daunting. However, it’s a fundamental aspect of asset management that can significantly impact your financial well-being. We’re here to assist you in making these critical decisions, providing clear, straightforward advice tailored to your unique situation.

Rebalancing isn’t just about numbers; it’s about staying true to your financial journey and ensuring your investments align with your life’s changing phases. By taking a proactive approach to rebalance, you’re not just managing your investments; you’re taking control of your financial future.

Our goal is to help you achieve yours. With thoughtful planning and regular portfolio reviews, we can work together to navigate the complexities of the market, ensuring your asset allocation by age remains appropriate, no matter what life throws your way.

Investment Options for Different Ages

Asset Allocation Funds, ActivePlus Portfolios, Target Date Funds

When navigating the journey toward financial security, understanding your investment options is key. Let’s explore three investment strategies tailored to suit various stages of life: Target Date Funds, Asset Allocation Funds, and ActivePlus Portfolios. These strategies can play a pivotal role in managing your investments effectively, aligning with our mission at Principal Preservation Services to guide you towards a successful and worry-free retirement.

Target Date Funds

Retirement Funds, Target Funds

Target Date Funds (TDFs) are like a set-it-and-forget-it meal. You pick a fund with a target year close to when you expect to retire, and the fund does the rest. Initially, TDFs are more aggressive, investing heavily in stocks for growth. As the target date approaches, they automatically shift to more conservative investments, like bonds, to protect your earnings. This change is known as the “glide path.”

TDFs are excellent for those who prefer not to micromanage their investments. They adjust your asset allocation as you move closer to retirement, aiming to balance risk and return efficiently.

Asset Allocation Funds

Automatic Rebalancing, Professional Management

Asset Allocation Funds are like having a personal chef who adjusts the ingredients of your meal based on your health needs over time. These funds maintain a fixed allocation of assets, such as stocks, bonds, and cash, which is rebalanced periodically by professional managers. This ensures your investment stays aligned with your risk tolerance and financial goals.

They’re a fit for investors who want a diversified portfolio without the hassle of selecting and rebalancing individual investments. Plus, the professional management and automatic rebalancing can help mitigate risk and capitalize on opportunities.

ActivePlus Portfolios

Risk Tolerance, Time Horizon, Diversified Model Portfolio

ActivePlus Portfolios are akin to a bespoke suit, tailored precisely to fit your measurements. These portfolios are crafted based on your individual risk tolerance and investment time horizon, using a diversified mix of assets to target your specific financial goals.

Offered by T. Rowe Price, ActivePlus Portfolios are managed actively, meaning investment decisions are made by professionals with the aim of outperforming the market. This option is suitable for investors who seek a more personalized approach, combining the benefits of professional management with a portfolio designed around their unique circumstances.

financial planning - asset allocation by age

In conclusion, whether you’re drawn to the hands-off approach of Target Date Funds, the balanced strategy of Asset Allocation Funds, or the personalized touch of ActivePlus Portfolios, there’s an investment strategy out there to suit your needs. At Principal Preservation Services, we’re here to help you understand these options and choose the one that best aligns with your retirement goals and investment style. Together, we’ll ensure your financial plan is robust, resilient, and ready for the future.

Frequently Asked Questions about Asset Allocation by Age

Navigating the journey of asset allocation by age can seem complex, but it’s crucial for achieving financial security in retirement. At Principal Preservation Services, we frequently encounter questions from clients about how best to adjust their investment strategies as they age. Here are some of the most common queries:

What is the best asset allocation by age?

The ideal asset allocation evolves as you age, reflecting changes in your risk tolerance and investment horizon. A widely accepted rule of thumb is to subtract your age from 100 or 110 to determine the percentage of your portfolio that should be invested in stocks, with the remainder in bonds and other fixed-income investments. For example, if you’re 40 years old, following the “100 minus age” rule suggests 60% of your portfolio should be in stocks. However, with increasing life expectancies, adjusting this rule to “110 minus age” or even “120 minus age” may be more appropriate to ensure your savings last throughout retirement.

How can a 70 year old invest $100 K?

For someone in their 70s, a more conservative approach is generally recommended due to the shorter investment horizon and the need for more stable, income-generating investments. An investment strategy might involve allocating 40% of the portfolio to stocks to maintain some growth potential, with 50% in bonds for income and stability, and 10% in cash or cash equivalents for liquidity. It’s essential to focus on quality stocks and consider dividend-generating investments, but with careful risk management to preserve capital.

What should a 70 year old portfolio allocation be?

At the age of 70 and beyond, a moderately conservative asset allocation is typically suggested. This could look like 40% of the portfolio in stocks to provide growth and combat inflation, 50% in bonds for income and reduced volatility, and 10% in cash or similar liquid assets for immediate needs. This allocation balances the need for income, safety, and some level of growth to ensure the portfolio’s longevity, taking into account the individual’s life expectancy, health, and financial goals.

At Principal Preservation Services, we understand that each individual’s financial situation and retirement goals are unique. While these guidelines serve as a starting point, we work closely with our clients in Minnesota and Wisconsin to tailor an asset allocation strategy that best fits their specific needs, ensuring peace of mind and financial security in retirement.


Long-term Strategy, Importance of Diversification, Adjusting with Age

In wrapping up our essential guide to asset allocation by age, it’s clear that a thoughtful, age-appropriate investment strategy is crucial for achieving financial stability and success, especially as you approach retirement. The journey doesn’t stop at a certain age; it evolves, much like your financial goals and needs.

Diversification is not just a buzzword—it’s a foundational element in building a resilient investment portfolio that can weather market volatility and economic shifts. By spreading investments across various asset classes, such as stocks, bonds, and short-term securities, you minimize risks that can derail your financial plans.

However, the most critical takeaway is the need for adjusting your asset allocation as you age. The investment mix that works in your 20s will not serve you the same in your 50s or beyond. As we’ve discussed, younger investors might lean more heavily into equities for growth, while those closer to retirement age may prefer bonds and short-term investments for stability and income.

The concept of rebalancing your portfolio is paramount. It’s about more than just setting it and forgetting it. Regular check-ins and adjustments ensure that your investment mix stays aligned with your evolving risk tolerance, financial goals, and the economic landscape.

At Principal Preservation Services, we understand that navigating these decisions can be complex. That’s why we’re here—to guide you through each step of your financial journey, ensuring your asset allocation aligns with your age, goals, and risk tolerance. Our aim is to provide you with strategies that preserve your principal while striving for growth, allowing you peace of mind as you move towards a secure and fulfilling retirement.

No matter where you are in your investment journey, remember: It’s never too late or too early to start planning for the future. Whether you’re just beginning to save for retirement or looking to optimize your current investments, we are here to help. Our team is dedicated to offering transparent, sound advice tailored to your unique situation.

In essence, asset allocation by age is about making your money work for you in the most efficient way possible, no matter your stage in life. With the right strategy and a trusted partner by your side, achieving lasting financial success is within reach.

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