The Proper Asset Allocation Of Stocks And Bonds By Age

The proper asset allocation of stocks and bonds by age is important to achieve financial freedom. If you allocate too much to stocks the year before you want to retire and the stock market collapses, then you're screwed. If you allocate too much to bonds over your career, you might not be able to build enough capital to retire at all.

Just know the proper asset allocation is different for everyone. There is no “correct” asset allocation because everybody has different earnings power, different risk tolerances, and different needs. We are all at different stages of our financial lives. Therefore, know thyself!

Although there might not be a proper asset allocation, there is, however, an optimal asset allocation by age I'd like to share in this post. An optimal asset allocation is where you have greater than a 70% chance of achieving your financial objectives. My recommended asset allocation should be relevant for most financial circumstances.

As someone who worked in finance for 13 years, got my MBA, and has written over 2,500 personal finance articles on Financial Samurai since 2009, the topic of asset allocation is one of the most important.

Those who do not have a risk-appropriate asset allocation often lose more than they should. And when you lose too much money, you ultimately lose time, the most valuable asset of all.

Proper Asset Allocation And Risk Tolerance

Your asset allocation between stocks and bonds first depends on your risk tolerance. Are you risk averse, moderate, or risk loving? Are young and full of energy? Or are you old and tired as hell?

I'm personally extremely tired due to raising two kids during a pandemic. Therefore, I'm relatively conservative. Besides, after such a huge run in the stock market, I'd like to keep most of the gains during the next correction.

Your asset allocation also depends on the importance of your specific market portfolio. For example, most would probably treat their 401K or IRA as a vital part of their retirement strategy. For most, these retirement accounts will become their largest investment portfolios.

However, those who have taxable investment accounts, rental properties, and alternative assets may not find their stock and bond portfolio as important.

For example, I have roughly 50% of my net worth in real estate because I prefer owning a hard asset that is less volatile, provides shelter, and produces rental income. I then have roughly 30% of my net worth in equities. Volatility is something I do not like.

Finally, the proper asset allocation of stocks and bonds depends on your overall net worth composition. The smaller your stocks and bonds portfolio as a percentage of your overall net worth, the more aggressive your portfolio can be in stocks.

The Proper Asset Allocation Of Stocks And Bonds Analyzed

I ran my current 401K through Empower to see what they thought about what my proper asset allocation is. You should do the same thing since it's free. To no surprise, the below chart is what they came back with.

I essentially have too much concentration risk in stocks and am underinvested in bonds based on the “conventional” asset allocation model for someone my age. To run the same analysis on Personal Capital, simply click the “Investment Checkup” link under the “Investing” tab.


I am going to provide you with five recommended asset allocation models to fit everyone's investment risk profile: Conventional, New Life, Survival, Nothing To Lose, and Financial Samurai.

We will talk through each model to see whether it fits your present financial situation. The proper asset allocation will switch over time of course.

Before we look into each asset allocation model, we must first look at the historical returns for stocks and bonds. The goal of the charts is to give you basis for how to think about returns from both asset classes.

Stocks have outperformed bonds in the long run as you will see. However, stocks are also much more volatile. Armed with historical knowledge, we can then make logical assumptions about the future.

Historical Return For Stocks

To determine the proper asset allocation, take a look at the historical returns for stocks. Stocks generally return around 10% since 1926. Below is a chart that shows the historical returns per year for the S&P 500.

Historical stock market returns by year

Notes On Stocks

  • The 10-year historical average return for the S&P 500 index is roughly 10%. The 60-year average is also about 10%, even after the 38.5% drubbing in 2008. However, there are forecasts for much lower returns going forward mostly due to high valuations.
  • The S&P 500 has been volatile over the past 20 years. The golden age was between 1995-1999.  2000-2002 saw three years of double digit declines followed by four years of gains until the economic crisis.
  • 2020 was another banner year in the stock market, closing up 18%. 2021 saw the S&P 500 increase by 27%. However, 2022 closed down about 20%.
  • The 32% correction and rebound in March 2020 was the fastest in history.

Historical Return For Bonds

The proper asset allocation must take into consideration bond returns. The average return for long-term U.S. government bonds is between 5% – 6%.

Bonds and interest rate performance is inversely correlated. Since July 1, 1981, the 10-year bond yield has essentially been going down thanks to technology, information efficiency, and globalization. As a result, the 10-year bond has performed well during this same time period.

However, 2022 saw the worst year for bonds in history with the aggregate bond market down about 14%. Therefore, know that even bonds aren't always a low-risk investment either. Take a look at the historical bond market returns.

Historical bond market returns by year

Below is a chart that shows asset class real returns by decade.

Asset Class Returns By Decade (Stocks, Bonds)
Asset class returns by decade

Notes On Bonds:

* Bonds have never returned more than 20% in one year. The two times the BarCap US Aggregate index came close was in 1991 and in 1995 when inflation was in the high single digits. Inflation is now around 2% and is expected to go higher with so much fiscal stimulus under the Biden administration.

* As of 2023, the 10-year bond yield is hovering at around 4.9%, up from a record-low of 0.51% in August 2020, and down from a high of 4.25% reached on November 7, 2022. As inflation declines, so will the 10-year bond yield.

* Bond funds have decline dramatically since the Fed started aggressively hiking rates in 2022. Long-duration bond funds like TLT are down over 40%, which shows the risk of owning bond funds versus buying individual bonds and holding them to maturity.

Below is another chart from Vanguard that shows the historical returns of a 100% bond portfolio, 20% / 80% stocks / bonds portfolio, and a 30% stocks / 70% bonds portfolio.

Historical Performance Of Bonds - proper asset allocation of stocks and bonds by age

See: Historical Returns Of Different Stock And Bond Weightings

Example Of Bonds Outperforming

Take a look at the performance of the Vanguard Long-Term Bond Index Fund (VBLTX) versus the S&P 500 ETF (SPY) since 1999. VBLTX has thoroughly outperformed SPY by an impressive 62%. This chart is obviously pre-pandemic. But it serves to demonstrate the power of bonds when interest rates are declining.

The Case For Bonds: Stocks versus Bonds Performance 1999 - 2000

Now of course, not all bond funds are the same. Although VBLTX is considered a reasonable proxy for bonds, other bond funds may not perform as well.

Here is another chart showing the performance of the VBMFX, another Vanguard bond ETF versus VTSMX, a Vanguard S&P 500 ETF. In this scenario, bonds outperformed the stock market from 2001 to about 2013, or 12 years. Since 2013, stocks have outperformed.

Stocks versus bond performance

Bonds don’t get as much love as stocks because they are considered boring. It’s hard to get rich quick off a bond. But it is possible to see a quick windfall if you pick the right high-flying stock.

Despite the lack of sexiness in bonds, if you’re serious about achieving financial independence or are already financially independent, bonds are an integral part of your portfolio.

Not only do bonds provide solid returns, bonds also offer defensive characteristics when stocks are selling off. Here's a detailed post on how to buy Treasury bonds. When Treasury bonds are yielding over 5%, I find them to be very attractive given the long-term inflation trend is around 2-3%.

Conventional Asset Allocation Model For Stocks And Bonds

The proper asset allocation of stocks and bonds generally follows the conventional model.

The classic recommendation for asset allocation is to subtract your age from 100 to find out how much you should allocate towards stocks. The basic premise is that we become risk averse as we age given we have less of an ability to generate income.

We also don't want to spend our older years working. We are willing to trade lower returns for higher certainty. The following chart demonstrates the conventional asset allocation by age.

Candidates For The Conventional Asset Allocation:

  • Believe in conventional wisdom and don't want to overcomplicate things.
  • Expect to live to the median age of 78 for men and 82 for women.
  • Are not very interested in the stock market, bond market, or economics and would rather have someone manage your money instead.

Proper Asset Allocation Of Stocks And Bonds - Conventional Model

New Life Asset Allocation Model For Stocks And Bonds 

The New Life asset allocation recommendation is to subtract your age by 120 to figure out how much of your portfolio should be allocated towards stocks. Studies show we are living longer due to advancements in science and better awareness about how we should eat.

Given stocks have shown to outperform bonds over the long run, we need a greater allocation towards stocks to take care of our longer lives. Our risk tolerance still decreases as we get older, just at a later stage. While in retirement, ideally, returns are conservative, demonstrate low volatility, and generate steady passive income.

Candidates For The New Life Asset Allocation:

  • You plan to live longer than the median age of 79 for men and 82 for women.
  • Not that interested in actively managing your own money, but depend on your portfolio to live a comfortable retirement.
  • Plan to work until the conventional retirement age of 65, plus or minus 5 years.
  • Are a health fanatic who works out regularly and eats in a healthy manner. Sugar is synonymous with poison, while raw is synonymous with utopia.

Proper Asset Allocation Of Stocks And Bonds - NEW LIFE MODEL

Survival Asset Allocation Model For Stocks And Bonds

The Survival Asset Allocation model is for those who are risk averse. The 50/50 asset allocation increases the chances your overall portfolio will outperform during a stock market collapse because your bonds will be increasing in value as investors flee towards safety.

Bonds can also rise when stocks rise as you've seen in the historical chart above. During the 2008 Global Financial Crisis, a bond index fund only fell by about 1.5%, while stocks declined by 38%. The worst year ever for bonds was in 1994 when bonds fell 2.9%.

Bonds have performed like a champ during the 2020 recession compared to stocks.

Worst Year for Stocks And Bonds

Candidates For Survival Asset Allocation:

  • Believe the stock market has a higher chance of underperforming bonds, but are not sure given historical data points to the contrary.
  • Are within 10 years of full retirement and do not want to risk losing your nest egg.
  • Depend on your portfolio to be there for you in retirement due to a lack of alternative income streams.
  • Are very wary of the stock market because of all the volatility, scams, and downturns.
  • Are an entrepreneur who needs some financial safety just in case your business goes bust.
The proper asset allocation of stocks and bonds by age - Survival

Nothing-To-Lose Asset Allocation Model Of Stocks And Bonds 

Given stocks have shown to outperform bonds since 1926, the Nothing-To-Lose Asset Allocation model is for those who want to go all-in on stocks. If you have a long enough time horizon, this strategy might suite you well.

Candidates For The Nothing-To-Lose Asset Allocation:

  • You are rich and don't count on your stock portfolio to survive now or in retirement.
  • Are poor and are willing to risk it all because you don't have much to risk.
  • Have tremendous earnings power that will continue to go up for decades.
  • Are young or have an investment horizon of at least 20 more years.
  • Believe you are smarter than the market and can therefore choose sectors and stocks which will consistently outperform.
The proper asset allocation of stocks and bonds by age - nothing to lose

Financial Samurai Asset Allocation Model Of Stocks And Bonds 

The Financial Samurai model is a hybrid between the Nothing-To-Lose model and the New Life model. I believe stocks will outperform bonds over the long run, but we'll see continued volatility over our lifetimes. I also believe this is the most proper asset allocation if you consistently read my site.

Specifically, I'm preparing for a new normal of between 7% – 8% returns for stocks (from 8-10% historically). I also expect 2%-4% return on bonds from 4-7% historically. In other words, I believe bonds and stocks are expensive and returns will be structurally lower going forward.

Candidates For The Financial Samurai Asset Allocation:

  • Are a personal finance enthusiast who gets a kick out of reading finance literature and managing your money.
  • Not dependent on your 401k or IRA portfoliso in retirement, but would like it to be there as a nice bonus.
  • Enjoys studying macroeconomic policy to understand how it may affect your finances.
  • Is an early retiree who won't be contributing as much to their portfolios as before.
  • Also invests in real estate to diversify and smooth out the volatility of stocks. Real estate is actually my favorite asset class to build wealth because it is easy to understand, is tangible, provides utility, and has a solid income stream.
  • Given a Financial Samurai is a real estate investor, real estate acts as a Bond Plus type of investment. In other words, real estate is defensive during a downturn as more capital goes towards real assets. Real estate also tends to do well as more investors buy bonds, resulting in lower interest rates. At the same time, real estate tends to do well during strong economic growth due to rising rents and rising real estate prices.
Financial Samurai proper asset allocation model of stocks and bonds by age

The Right Asset Allocation Depends On Your Risk-Tolerance 

By providing five different asset allocation models, I hope you are able to identify one that fits your needs and risk tolerance. Don't let anybody force you into an uncomfortable situation.

Ideally, your asset allocation should let you sleep well at night and wake up every morning with vigor. When it comes to investing, you need to calculate your existing investment exposure and invest accordingly.

I encourage everyone to take a proactive approach to their retirement portfolios. Ask yourself the following questions to determine which asset allocation model is right for you.

Questions To Ask To Determine A Better Asset Allocation

  • What is my risk tolerance on a scale of 0-10?
  • If my portfolio dropped 50% in one year, will I be financially OK?
  • How stable is my primary income source?
  • How many income streams do I have?
  • Do I have an X Factor (ways to make alternative income)?
  • What is my Money Strength?
  • What is my knowledge about stocks and bonds?
  • How long is my investment horizon?
  • Where do I get my investment advice and what is the quality of such advice?
Bonds and Stocks Historical Performance Since 2000

Once you've answered these questions, sit down with a loved one to discuss whether there is congruency with your answers and how you are currently investing.

Further, it's important to understand the right order of contributions between your tax-advantaged and taxable investments. You want to take full advantage of your tax-advantaged accounts, while also building up your taxable investments as large as possible. The sooner you want to retire early, the larger your taxable investments should be.

It's important not to overestimate your abilities when it comes to investing. We all lose money eventually, it's just a matter of when and how much. Having a proper asset allocation will improve your odds of building wealth in a risk-appropriate manner over the long term.

Recommendation To Build Wealth

The best ways to build wealth and have the proper asset allocation is to get a handle on your finances by signing up with Empower. They are a free online platform which aggregates all your financial accounts on their Dashboard so you can see where you can optimize.

Before Empower, I had to log into eight different systems to track 28 different accounts (brokerage, multiple banks, 401K, etc) to track my finances. Now, I can just log into Empower to see how my stock accounts are doing, how my net worth is progressing, and where my spending is going.

Their Investment Checkup tool is also great because it graphically shows whether your investment portfolios are property allocated based on your risk profile. The tool allows you to easily determine the proper asset allocation.

Aggregate all your financial accounts in order to get a good over view of your net worth and start building those passive income streams! It only takes a minute to sign up.

Retirement Planning Calculator
Personal Capital's amazing Retirement Planning Calculator. How are your results?

Invest In Real Estate To Build Wealth

In addition to investing in stocks and bonds, I'm a big proponent of real estate investing. Real estate is a core asset class that has proven to build long-term wealth for Americans. Real estate is a tangible asset that provides utility and a steady stream of income if you own rental properties.

You can think about real estate as a bonds plus asset class. Real estate acts very much like bonds with its income generating ability and defensive characteristics. However, real estate can often do much better than bonds in a bull market.

My favorite two real estate crowdfunding platforms are:

Fundrise is my favorite private real estate platform. The platform enables all investors to diversify into real estate through private eREITs. Fundrise has been around since 2012 with now over $3.3 billion in assets. For the average investor, investing in a eREIT for real estate exposure and stability is one of the easiest ways to go. I particularly like Fundrise's focus on single-family and multi-family investments in the Sunbelt, where valuations are lower and yields are higher.

CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends. For investors who like to buy individual properties or build their own select real estate fund, CrowdStreet is my favorite choice.

Both platforms are free to sign up and explore. I've personally invested $954,000 in real estate crowdfunding across 18 projects to take advantage of lower valuations in the heartland of America. There is a strong demographic shift towards lower cost areas of the country thanks to technology and the pandemic.

Invest In Private Growth Companies

Finally, consider diversifying into private growth companies through an open venture capital fund. Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment. 

Check out the Innovation Fund, which invests in the following five sectors:

  • Artificial Intelligence & Machine Learning
  • Modern Data Infrastructure
  • Development Operations (DevOps)
  • Financial Technology (FinTech)
  • Real Estate & Property Technology (PropTech)

Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!

The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum. In addition, you can see what the Innovation Fund is holding before deciding to invest and how much. Traditional venture capital funds require capital commitment first and then hope the general partners will find great investments.

About the Author:

Sam worked in investing banking for 13 years at GS and CS. He received his undergraduate degree in Economics from The College of William & Mary and got his MBA from UC Berkeley. In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $350,000 a year in passive income. His favorite investment today is in real estate crowdfunding.

He spends most of his time playing tennis and taking care of his family. Financial Samurai was started in 2009. It is one of the most trusted personal finance sites on the web with over 1.5 million pageviews a month. Pick up a hard copy of my new WSJ bestseller, Buy This, Not That: How To Spend Your Way To Wealth And Freedom. It's the best personal finance book you'll ever read.

About The Author

93 thoughts on “The Proper Asset Allocation Of Stocks And Bonds By Age”

  1. In these allocations are “Bonds” something like FUAMX (Fidelity® Intermediate Treasury Bond Index Fund) that only use Treasuries or FXNAX (Fidelity® U.S. Bond Index Fund) that has a mix of corporate and government bonds?

  2. Severely Independent

    Is it rational to consider Pension and SS as the fixed components of a portfolio? If yes, how do you !) account for it in asset allocation 2) allocate retirement funds to stocks – 80 to100%?

  3. I stumbled on your Financial Samurai by accident and was impressed by the amount of great information. It’s a very good read.

  4. if you use dividend stocks instead of just using a s&p500 etf or fund for your equity allocation would that allow you to increase your percentage in stocks? Since dividend stocks are more stable and tend to hold up better in a downturn wouldn`t that allow you to go to say 65 or 70 percent equity ? Im 63 years old retired and have a pension and social security so I dont need to dip into my retirement money to much maybe a 4% withdraw rate at 65. Any thoughts or advice on this would be appreciated.I may consider a combination of total stock market etf and dividend stocks for my allocation.

    1. Retiring. Definitely an opportunity, but it just takes more time and I’m trying to do less, not more. Do you have a YouTube channel?

      Can you watch faster than you can read? I can’t.

  5. Awesome job on the breakdown of the bonds! Im definitely more knowledgeable about the mix of bonds and stocks now. Thank you sir.

  6. Hi Sam-

    Long time reader and genuinely attribute my success to following a lot of your advice. I am now “struggling” with a “problem” I would love your take on. Simply put, I am 30 years old, married, and we have a $1.5M net worth ($1M investment account, $500K retirement accounts).

    Asset allocation:

    US Equity Large Cap: $1M
    International Equity: $400K
    Cash: $100K

    After Tax Income: $250k
    Expenses: $90K

    Although I am doing well, I am worried about a downturn (although I would just keep buying) and am concerned I’m being a “naive millennial” who thinks markets only go up and am taking too much risk.

    However, I really see no reason to buy bonds and make 2%.

    Should I just keep buying stocks and see where I am in 3-5 years? I don’t plan on having a family or buying a home until 35.



    1. Keyshia wiods

      For one do your wife no anything about it or no whatever the case might be always talk to your wife about anything cuz if anything happened she would be your backbone she will back you up in anything don’t be selfish and trying to take measures on your own hand the things will not never turn out right

  7. Before you can consider retiring…you need a budget. Only then can you really determine things like “risk tolerance”. Figure at least 2-3% inflation and living until 90. Figure your budget today will double by then. Figure your Social Security will be cut by 10% or more in 2035. Figure your spouse is going to die and take their social security with them. Figure your money will run out if you don’t have at least 1 million in savings and IRAs…minimum. Otherwise, figure your 80s will be spent living in a 10′ x 10′ room staring at a wall where a big screen tv use to be.

  8. Interested in your thoughts on asset allocation for my 83 in-laws. Until very recently, they had 100% of their retirement in equities. We finally convinced my mom-in-law to shift to some value-preserving funds… but their total mix is still over 90% (!) equities. My father-in-law wouldn’t consider anything but aggressive growth equities.

    They have modest teacher retirement payments, and Social Security, but are otherwise depending on their IRA savings for continued retirement and ongoing medical care. They’ve been saving using the stock market since the late 70’s in both IRAs and 403(b) plans at various times.

    They survived the plunge in 2008 with great angst, and the good fortune of living much longer than average. Unfortunately, my father-in-law has recently gone into memory care for dementia and my mother-in-law has just had a mild heart attack. Even though they seem to have the “Nothing-to-lose” model in mind, they definitely DO have much to lose.

    Their children (all are CPAs and two are CFOs for decent sized corporations) are trying to convince my mom-in-law that a mix of no more than 60% equity funds and 40% bond funds or other capital preserving assets would still satisfy their aggressive earning desires but at least keep them away from losses that they don’t have long enough to to live and recover from a big loss. Personally, if I were 83, with nearly 1M in assets, I would have all my assets in something that I would preserve value for my living AND to transfer to the grandkids when I was gone. Not for them, though.

    Any suggestions on how we can present a (to me at least) more sane asset allocation for very senior adults?

  9. The asset allocation is all good as bonds are negatively correlated with stocks in general. The correlation could change as the market condition changes. The bonds will reduce the beta weighted delta of your stocks. One could even reduce the volatility or so called standard deviation of the P/L of the stocks/bonds portfolio by adding some negative delta via options to reduce the cost base of your assets. Why not more retirees or would-be retirees are doing that? Wall street’s self-serving and widely perpetuated myths that options are risky is probably the answer.

  10. Hi there,
    I am 48, working full time and used to be 100% in stocks/mutual funds. Start investing since 2003, managed 2008 and hold on during the storm, but now at my age, my obligations (has a daughter at univeriaty & son to prepare within 8 years time), I am chicken out with current market turmoil.
    Intend to restructure my investing strategy next year. I live in Indonesia where interest rate at 6%, 10 yrs government bonds at 8% and average 20 yrs stock market index at 20%.
    Seeking your advice. Thank you

  11. Haha, very true!

    This whole conversation started out as you can see, where I have a good friend and daytrader who is trying to time the market downturn using all these principles like Elliot Wave, etc.

    Sure, people have made money timing the market but a lot also haven’t! Basically, this is what led to me to the question of whether I should change my allocation (from 100/0 to maybe 80/20) based on my retirement year, etc. and also whether I am still gambling in doing so based on the recent downturns in the market these past few months… It is very hard to predict the market, even if you’re REALLY REALLY GOOD AT IT.

    I prefer to keep my money in mostly stock since I have had a good amount of exposure therapy to volatility and the ups and downs. I only rebalance once a year and this is when I typically look at the market :)


      1. The answers to your questions :) Sorry for the delayed reply!

        1. Working
        2. 28 years
        3. 2 different streams of revenue, in addition to my market investments of course.
        4. Single and no family as of now; if I do decide to have a family it will be around 40-45!

  12. Hello Financial Samurai!

    GCC mentions in his path to 100% equities article that in all honesty, as an early retiree ages, almost independent of the market, it is best to have 90/10 or 100/0 stocks as this will help one’s portfolio grow the most (as long as they can withstand the volatility, which is not too hard if you only look at it once a year :) ).

    What are your thoughts on this compared to the 80/20 or 70/30 split that you recommend in your portfolio allocation model? When you get up there in age, I can see the portfolio being shifted slightly more to bonds due to healthcare costs and also because you have less years to live… but other than that, I see no reason why 90/10 split shouldn’t be a thing!

    Curious as to your thoughts, thanks so much.


    1. Hi Sean, I wish GCC and others 100% in equities the best of luck. If they have the risk tolerance to stomach the volatility, go for it. This recent 10% correction in October 2018 is a nice test.

      I’ve found that the more you accumulate and the more you don’t want to ever go back to work, the less risk tolerant you will be.

      For me, it would be a disaster if I or my wife had to go back to work with our 18 month old boy now. We are committed to being full-time parents until he goes to kindergarten (age 5.5-6) at least.

      See: Investment Risk And Return Portfolios For Early Retirees to see the returns

      Also, here’s our story on how a jobless family of three survives in San Francisco.

      We really don’t want to return to work. Nor do we want to be forced to live overseas to save money. We want as many options as possible!


      1. Thanks GL!

        I totally understand where you’re coming from; typically, for me to avoid volatility I just don’t look at my portfolio :)

        But I understand that a 50% crash like in 2008 can sometimes cause people to sell unnecessarily (even though I believe this was a “rare” recession with a crash this large, and from what I know, the market hadn’t dropped this low for that long since Depression era times…).

        Regardless of whether 2008 was an outlier or not, it’s true though that even though you accumulate more responsibility, you also accumulate more in terms of wealth? For example, even if you lose 50% of your wealth during a recession, eventually the market comes back up, and an early retiree should still have more than enough in a brokerage account and also in dividends to last him during that period in time without worry? Since you have more years to ride out the volatility too, this is a much different portfolio allocation than someone retiring at 65 of course who has less years and maybe would be content with a 70/30 split.

        The more years you ride out your retirement funds, the more they will grow with only nominal market performance. Investing in more stocks (90/10) will be more volatile, but will also increase your returns exponentially compared to a 70/30 split, so it should lessen your worries even more about money!

        Again, I ran all of this data in the FireCalc Sim (and accounted for taxes), so this is where I am coming up with the numbers :) For me, I can hedge against the volatility although I can understand not doing so with a family as it will be tougher. I can understand too that if someone early retired at the beginning of a sustained bear market and not a bull, they will need to spend less and save more to ensure that they don’t outlive their funds.

        1. Some pertinent questions to ask you are:

          * retired or working
          * age
          * abilities to make money elsewhere
          * number of kids/people to support

          I’ve found that everybody 35 and under tend to think they are warren buffet!

  13. This article is one I will be sharing with my wife. While she is a great saver, she is not patient to have these allocation conversations. I was planning on having another one of these conversations with her soon, and this page saved me a ton of work. Thank you for posting it.

  14. Scott Zaleski

    Hi Sam,

    Love your blog, super insightful and very helpful. A little about me, just moved back to my Seattle rental from the Bay Area – relevant to your last few blog posts. Anyway, I have a fairly simple retirement strategy, healthy mix of index funds. I was curious from your perspective – the right allocation between US and International. I like your 80% Stocks and 20% Bonds mix above, but I am curious … how would you break up:

    Larg Cap
    Mid Cap
    Small Cap



    1. J.L. Collins would recommend investing 80% in VTSAX (Vanguard Total Stock Market Index Fund) & 20% in VBTLX (Vanguard Total Bond Market Index Fund). Happy investing!!!

  15. Very good article and comments, thank you.
    Readying to retire in 1-2 years, I have become very fond of Wade Pfau’s theories and alternatives.
    That is …. in its most distilled form, 1-2 years before retirement, decrease your stock allocation to approx. 30% .
    Thereafter, increase by 1% per year.
    He suggests this so as to not be so stock heav close to retirement in case we run into a down market, thus leaving an investor with limited ability to catch up.
    Thanks again,

  16. Jonathan Levi

    Hey Sam
    Heard you on my buddy Noah Kagan’s show and decided to come check out your blog. So far, I love it. The only thing I wanted to suggest was that many of us reading have other investments outside of stocks/bonds. I would’ve loved if this post had addressed how much each of these frameworks carry in assets like Real Estate, cryptocurrencies, fiat currencies, etc. In any case, my assistant will be dropping you an email to invite you to come onto our show, Becoming SuperHuman, so hopefully we’ll get a chance to talk more

  17. Hi Sam – Where do you see cash fitting into the allocation strategy? I’m a fairly active investor turning 50 this year and unable to continue to contribute to my IRA, but with all of my accounts considered, I should be OK in retirement. Currently I’m 50% stock, 25% cash, 25% bonds. I’d go down to 10% cash and up to 65% stock if the market takes a dive. Thoughts?

    Also, something that’s always confused me about the bond ratio is whether it matters what type of bond it is. I have several different types of bond funds in the interest of diversification. Munis in taxable accounts, corporate debt, mortgage/asset backed securities, and treasuries in my IRAs. It seems like whenever anyone is talking about the bond ratio they are assuming a full allocation into treasuries. Can you comment on that for me please?

  18. Hi Sam – Thank you for taking the time to create such a comprehensive and thoughtful website. It’s been inspiring and motivating, and I’ve been rethinking my portfolio.

    What allocation would you recommend for a 40 year old that does not own real estate? I live in NYC and renting is a better option for me than buying, especially with pricing right now. I’m currently Cash 55%, Equities 43%, and Bonds 2%.

    I want to stay liquid just in case there may be buying opportunities in the coming years. With that said, I think that a greater exposure to bonds would make sense. But I don’t know how I feel about a such significant increase in bonds given the market today. And I’m unsure about putting more money in an equity index since the broader market has been performing well over the past years.

    What you suggest for someone who most likely won’t be able to invest in real estate for at least another three to five years?

    Thanks in advance, C

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  22. MBA for Matt

    I’m considering doing a full-time MBA in the fall of 2016. Do I have enough time to put money in stocks/bonds, or should I shoot for a high-yield savings account? I am 27, make $80k a year, and have a wife+1.5 kids. I’ve got $20k in retirement and another $10K in cash.

    On a side note, you should do a post about the costs of an MBA. I’d love your perspective.

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  24. Brian @ Debtless in Texas

    I have a hard time with bonds right now as the interest rates are being kept artificially low and are due for a hike. Even the Fed has announced that they are going to hike rates ‘sometime soon’ and it seems like buying bonds now is betting on a sure loss.

    Im not saying that one can ever time the market (if you can, by all means let me know), but to me this seems like a common sense observation that interest rates really can’t go anywhere but up.

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  29. This was super helpful Sam. I just found your blog via this post. The “new life” model more or less describes me exactly. I left my salaried law firm job so I no longer qualify for a 401(k). I set up a traditional IRA with my robo-advisor of choice and put my first $5,500 in.

    Now I just need to figure out what to do with my extra cash savings: renovating to further increase the value of our Brooklyn apartment (which has gained about 20% in value since we bought it), making additional securities investments, contributing to my 2-year old’s 529 savings plan, etc.

      1. I joined an educational game design boutique and am apprenticing and learning skills as a producer of interactive learning experiences. Those may take many different forms, though web-based games for middle and high-school students are my current project.

  30. Hey guys. New investor here and looking for some direction. I have a basic understanding of how things work and am trying to figure how to best allocate funds for a 401k.

    It’s managed through Wells Fargo. I looked through at 10 year returns as well returns since inception and there are not that many success stories among them. I’m 26 and plan to have a good pension to retire on after many years in the school system so I’m look to gamble a little bit and give this thing a try.

    The one’s I’m leaning towards are:

    Goldman Sachs Sm Cap Val/A- 50%
    Janus Global Research Fund Class A- 10%
    T. Rowe Price Equity Income Fund- 20%
    Amer.Cen. One Choice Tg Date Port 2045 I- 20%

    Does this look a decent set up? Thanks for the help!!

  31. Hey, I’m 37 have 380K saved but missed the full bull of market. Since 1999, lost 200K in principal in stocks. I only re-invested back 50% of my money in 2012. I gave 50% in cash. Market is now at 17,000 DJIA from 6,500 in 2008. Do you think I should buy 30% more stock now? or don’t you think its so overpriced? also, I just want to buy VANGAURD ETF and lower my fees. Do I get dividends back when I buy ETFs? How do i invest to get dividends- do I must buy individual stocks. I really don’t trust money managers, they are just salesman. your thoughts/

  32. Donald J Woodward

    I am conflicted here. I made to 74 and the old age doc says I am healthy and may last 15 years or more ( my mom’s age). So do I accumulate more equity or less? Part of you says 50/50 equity to bonds, but that is at 65 years, Then another option is to increase equity later on. But if is pretty certain that I will not run out of money should I invest as though the grandchildren will be the ones to fritter it away and maximize gain as though I am young again? Maybe I should use the Markowitz way of investing to make one feel the least bad when things happen.

  33. NotJackBogle

    Hey Samurai–nice blog.

    One comment on asset allocation models: According to theory, (right I know), the ideal portfolio for “everyone” is the tangency portfolio. With a typical mix of S&P 500/5 year treasuries (and I know it doesn’t have to be just these), if you look at diagrams, the tangency portfolio generally seems to be about 50/50, maybe closer to 45/50. This gives you the highest Sharpe Ratio (unit of return/unit of risk). Then what you are supposed to do if you want a higher return/higher risk is leverage at the risk free rate, if you want less risk you add the appropriate amount of cash reserves to your portfolio (and get less return), but this maintains the efficiency of the portfolio by keeping the Sharpe Ratio as high as possible. This isn’t really a point I see raised very often in AA discussions but it is relevant since the whole underlying theory of caring about an AA of the portfolio in the first place comes from MPT & CAPM.

  34. Look at that S&P historical chart.. Today really does look like 60’s and 70’s

    I wonder if we are in “1973” setting up for another 1975 pull back?

    chartists believe that long term bull markets come after a prolonged range bound period (10-20 years) and we must retest the low of the range once more before a 1980’s/90’s bull. Secretly I hope so I need to reason to sell bonds and go overweight stocks…

  35. Hello,

    I am new to the investment game….I am about to become eligible for my company’s 401k in which they match 50 cents to the dollar up to 8% of my contribution. My salary is only $33,500 but I have my annual review tomorrow so hopefully a raise will be coming. I am curious what your advice is as far as how aggressive I should be with where I put my money in my 401k. My company has about 12-15 funds where I can put my money ranging from low to high risk. We also have the option of just putting it into a moderate, growth or aggressive balanced portfolio where the investment company we use picks stocks/bonds for you.

    I also have some money in my savings account that I am considering putting into a separate IRA as it is just sitting there accruing next to nothing. I have about $10k saved but I wouldn’t want to put it all in the IRA…suggestion on how much? Or if I should even invest this money?

    If it helps…I am 35 yrs old.

  36. I am a new hire at a large company with a great salary and am starting to contribute to my 401k from day 1. Ofcourse I will be maxing it out, receiving all employer contributions, etc., etc., but I am having trouble deciding where to allocate my 401k funds. I want to start off with high-risk high reward funds, seeing as I potentially have 30 to 40 years to invest. My current plan is to start out with almost 100% stocks. I’ve got 40% in a 30 year retirement fund (high risk), 40% in a low-fee S&P 500 index fund, 10% in emerging markets, and 10% in international stock (Europe & Pacific). I am very new to investing, but have been following your blog for some time. I’ve seen the bull market and it’s earnings the last few years and am wondering if I am now at a peak as I start investing. I am withholding my post tax income for the next 6mo to a year in a money market as I save up for a down payment on a condo (in a large city on the west coast). Being new to investing and not formally educated in finance and economics, I am having a hard time predicting any markets or even understanding trends of current markets (I’m still doing much research). What is your opinion on 401k allocation for a new hire? Also, as a side note, how would you consider the housing market over here on the west coast in the large cities? Prices have risen quite a bit since the real estate collapse and I missed buying during this time (still studying in college), but am wondering if it is still beneficial to jump in the housing market before it gets even pricier. My best guess would be to go for it because I doubt the banks would make the same mistake twice so soon, which would allow for real estate markets to steadily rise again. But like I said, I am no expert by any means.



  37. Hi FS,

    Just ran into this site a couple of days ago after getting serious about my future and my family’s future. I’m totally hooked to the site, reading articles after articles trying to grasp everything I’m reading. I’m 24 years old, engaged and have a 1 year old son. Unfortunately I’m not doing to good on the savings side and am on my way towards creating a savings plan now. I’m curious to know how I can start to scratch the surface of investing in Stocks and Bonds. Maybe you already have an article on this? (for example if you recommend trying to start off with etrade or things of that nature) Or should I not even consider this until I have some money saved up?

    just for added details I make $40k a year (and drowning in student loans lol.. over $47k)

    My apologies in advance for bombarding you with questions lol.

    Thanks for taking the time out to read this! Any advise is appreciated.

    1. Welcome to my site! Feel free to subscribe.

      With the info you have provided, I would simply focus on contributing to your 401k/IRA and maxing those out first before spending more time in after tax investing. I’d also focus on paying down that debt.

  38. Buy & Hold Blog

    Thanks for reminding us about the asset allocation and its importance in relation to risk tolerance. I’m in my mid-30’s and have chosen 75% stocks, 25% bonds/cash equivalents. I probably need to increase my allocation in stocks. Thanks for the reminder.

  39. As I sit here in retirement today, I can unequivocally say that rental income is fantastic. My rental income is supporting my lifestyle as I just bank/reinvest any stock returns and dividends. Rental income just takes time.

  40. We allocate our assets, our stocks, bonds, and cash, because we want to get the return that we are aiming for while minimizing the risk that we are exposed to. You need to decide how to divide your assets and choose an investment that will go with how you divide your money.

  41. I ‘m definitely with the “nothing to lose” model. The return on government bonds currently are so low that you are actually losing money investing there. Certain corporate bonds do better, but again, its pretty limited. I’m also hopeful that my dividend stream in solid, reliable companies will grow large enough to cover my expenses such that I won’t need bonds into my retirement. You also have an automatic inflation hedge built in with dividends that you dont get with bonds (unless they happen to be TIPS- treasury inflation protected). Moving some of your income to bonds when you hit 65 does make some sense though, the time to take risk has probably passed you by at that point.

    1. Indeed. At 65, or thereabouts… hopefully we’ve all developed a big enough nut where it’s all about living off the passive income generation rather than relying on capital increases.

  42. Hi Jeremy,

    I think you are doing great! With your time horizon, skills as a developer, and your initiative to work on multiple income streams, you should be fine. The FS model seems appropriate, but only you can decide.

    The one thing to note is that things change all the time. You may think you can work for the next 20 years no problem, but I think you’ll be surprised if you work on your X Factor. You never know. But you’ll definitely never know if you don’t try. My article on is something I’ve been thinking of trying. Worth a shot? Maybe! Gathering feedback now and need a developer.



  43. The “Nothing To Lose Model” is 100% stocks until age 65 or whenever you no longer want to work, or have all your expenses covered by passive income.

    The one key thing I want everybody to know is that we will all lose money eventually. Nobody can consistently beat the market, no matter how smart we think we are. Everything is easier said than done.

  44. Ive always felt avoiding the latest meltdown in stocks is really the best investment strategy. Bear markets typically last .5-2 years and then you get a bull maket for several years until your next bear market and the cycle repeats itself. So simplistically the closer you are to the last bear market time-wise the more bullish you should be on stocks. I’m bullish on stocks in 2013 but am not as bullish as 2012. I’m slowly decreasing the percentage I have invested in stocks every year from now until the next bear market where I’ll try to buy back in and repeat the cycle.

    1. If you can tell us when the next bear market will start (within the month is fine), shoot me an e-mail and give me a heads up would ya? I’ll even buy you a steak dinner as a reward.

      1. Haha well I cant tell you when its going to start but the idea is the farther you get from 2009 the more cautious you have to be when the market enters a downtrend (just follow moving averages for simplicity). By now were far enough removed that I wouldnt be 100% in stocks but not far enough removed where I’m overly worried about a crash. There will be another crash someday in the future though and even if you only manged to save half your portfolio from the effects of it thats a huge deal especially if you can buy back in a year later anywhere close to the bottom.

  45. I consider more than risk tolerance with my asset allocation. In retirement (this time) I will have all my basics covered by Social Security and a pension. That represents the fixed portion of my retirement. My stock market portfolio asset allocation is intended to shield me against a very volatile market and still be a growth portfolio. I expect to live 30 years in retirement and want sufficient funds to support my wants in life. In the next five years, I do expect to shift more funds into TIPS and dividend paying stocks (funds). I think I will stop at 20-25% though. This plan could change, but that is what it is today.

  46. The First Million is the Hardest

    I have a pretty high risk tolerance, and right now my asset allocation most closely resembles the ‘new life’ model although my mix will probably trend more aggressive compared to the chart at older ages.

    From conversations I’ve had I think this past recession really put some permanent doubt in peoples minds & a lot of people will be trending to a more conservative going forward than they might have in the past.

    1. No doubt the massacre of 2009/2010 is going to scar the existing generation of investors for a very long time, myself included.

      My #1 tenet in investing is not to lose money! If I can’t make money, fine. I just refuse to lose.

      1. Is there a post about your portfolio around 2008, and how you were able to not loose money? I’d be very interested in that


        1. I don’t think so. I lost around 35% of my net worth in 2008-2009, hence why I started Financial Samurai in July 2009 to get my finances in order.

          But most of my net worth was in real estate and cash. Not so much equities, b/c I worked in equities.

          1. Gotcha – I’ve been binging on your blog since December. Next objective is to get the fiancé on board, and have the cheapest (big fat indian) wedding possible.

            Thanks a tonne and looking forward to the dialogue!

          2. Well, that’s a very interesting statement you just made: “But most of my net worth was in real estate and cash. Not so much equities, b/c I worked in equities.” Yet the whole article is about investment allocations (by risk level and age) in equities and bonds. Hummmm… So, having worked in equities you obviously have some serious issues with them — would love it if you would share your concerns.

            1. Sure. My career was in equities and I already had hundreds of thousands of dollars in company stock and in my 401(k) plans. I needed to diversify away from stocks given my career, bonus, and already a lot of my net worth was already invested in stocks.

              Now at 41, I’ve got about 25% of my net worth in stocks, 35% in real estate, 10% in low-risk investments now that interest rates are up, and the rest in my online business.

              See: Financial SEER

  47. I like the Financial Samurai asset allocation plan. However, once I hit 65, I probably would increase my bond allocation quite a bit. When you get older, your risk tolerance usually reduce quite a bit.
    My bond allocation went down a lot after I rolled over my 401k. I really need bump up my bond allocation, but the rate is so low right now.

  48. I have a pretty low risk tolerance. I just hate losing money which is also why I don’t gamble. I loved all the analysis and data points that you included in this post. Volatility in stocks is nuts. I’m glad I’m not a portfolio manager or I’d be a major stress case. I have a fairly large fixed income allocation and don’t have any current plans to change it. I am thinking about getting more structured notes though as my CDs expire since your recent post got wheels turning.

  49. First of all, I don’t think there are any wrong answers here because nobody knows what the future will hold. My opinion thought is once you’ve made your nut, why would you risk so much of it. I understand you have to outpace inflation and keep skin in the game, but I think there is nothing wrong with hitting singles and being the tortoise that finishes the race with the least risk possible with an acceptable rate of return. Is your allocation a percentage of total net worth, and do you consider the equity of business ventures and real estate in this percentage?

    1. I agree. The proper asset allocation is based on your own risk tolerance.

      My asset allocation charts are for investment portfolios in stocks and bonds only. I’ll do a follow up on net worth allocation. That is going to get a little more complicated since there are so many other types of investments.

      1. Personally, and this may change as I age, but I am hesitant to put too much trust into low yielding bonds, unless I don’t have access to real estate that is. Personally my allocation looks a bit like this:

        * 50% invested into direct real estate purchases, very close to home for constant monitoring and control, or better yet a duplex(with a fire suppression system and decent insurance). Passive income streams from good tenants, if you can find them that is.
        * 50% into my investment account allocations(Warren Buffet Portfolio):
        * 10 % of the investment account allocation into bonds and bond funds, this gives me some ability to re-balance the portfolio to buy assets that are crashing and falling in value at a good price.
        * 90% of my investment account allocations into US total stock market, and perhaps some global stock market funds

        This plan depends upon the solidity of real estate as a backbone for passive income and later retirement, and the bonds to provide funds for rebalancing. Bonds are in a bear market and getting eaten by inflation but stocks have been in a bull market for quite a while. It stands to reason that at some point this will change.

        Allocations are strategic and diversified. It is nearly impossible to beat the Warren Buffett portfolio for stocks and other market investments……..but they are not as solid as physical rental real estate. A tangible asset in an isolated market can provide massive levels of insulation from market fluctuations.

        My on paper plan looks very risky, because all my brokers can see is a plan to hold 90/10 in stocks and bonds for very long periods of time and possibly pass it on as a trust…….not adjusting based on age looks suicidal, however that ignores my real portfolio which is heavily invested in real estate.

  50. Interesting, why do you think bonds will have a negative return over the long run? Wouldnt debt still retain value as someone will always want to lend money? Further, I think that sitting on the other side of this debt bubble, lending standards have increased and may stay strict for quite some time.

    Personally I’m not in bonds much as I subscribe more towards the riskier end of the spectrum. I’m 28 and my investment style probably falls somewhere in between the “Financial Samurai” model and the “New Life” model.

    1. Because of an asset shift away from bonds into riskier assets like stocks. If you look at the 10-year bond movement in recent levels, anybody who bought a month ago is losing money. The charts will give you some idea.

      1. Andrew @ Listen Money Matters

        But that’s only if you sell it though, no? I’m a buy and hold guy so I guess I never consider the alternative much. I don’t think I will ever get out at the peak or buy at the bottom so I don’t try, I would rather make decisions on good fundamentals and have enough buffer to ride out the storms.

          1. Dr. K. Ramesh

            I bought 300 shares of 3M, 250 shares of Berkshire Hathaway and American growth fund-mutual fund in 1980 and left it without even looking at the stocks as I was engrossed in my scientific and teaching. In 2010 prior to retirement I took a look. It had ballooned to 750,000.

            My cousin who bought only google and Amzon in 2000 has retired with the two stocks not bothering to buy bond and going crazy.

            The key is when you stocks you are buying company. Know the company well . Merck, Honewell, Boeing, Lind (Praxair), Medtronics are very good stocks to buy and leave it alone.

  51. I never thought of a “neutral” rating as a lack of conviction, statistically, most stocks are going to perform around average, so “neutral” is just a way of saying, “This stock is likely to neither out- nor underperform. But because my employer has a vested interest in us maintaining coverage on this company, I will publish this report that shoes nothing earth shattering.”

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