Asset Allocation By Age

Asset allocation is the process of dividing your investment portfolio into different asset classes, or groups of investments. Each group offers unique characteristics that are defined by risks and returns.

Here’s what typical investors’ asset allocations—remember, that’s the mix of different investments—might look like as they get older. These figures are taken from Vanguard’s target date funds.

These allocations are just general rules of thumb. Some people prefer to have 100 percent in stocks until they’re in their thirties or forties. Others are more conservative and want some money in bonds. But the big takeaway here is that if we’re In our twenties and thirties, we can afford to be aggressive about investing in stocks and stock funds—even if they drop temporarily—because time is on our side.

And honestly, if you’re nervous about investing and just starting out, your biggest danger isn’t having a portfolio that’s too risky. It’s being lazy and overwhelmed and not doing any investing at all. That’s why it’s important to understand the basics but not get too wrapped up in all the variables and choices.

Over time, you can manage your asset allocation to reduce risk and get a fairly predictable return on investments. Thirty years from now, you’re going to need to invest very differently from how you do today. That’s just natural: You invest much more aggressively in your thirties than in your sixties, when you find yourself growing older and telling long-winded stories about how you trudged through three miles of snow (each way) to get to school every morning. The real work in investing comes with creating an investment plan that’s appropriate for your age and comfort level with risk.

All of this sounds completely reasonable: “I invest aggressively when I’m younger, and as I get older, I get more conservative.”

How the hell are you actually supposed to do it? What specific investments should…

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