You need a balanced investment portfolio. Stocks give higher growth but have high risk as compared to bonds which have a much lower risk but come with lower return. So how much of your portfolio to invest in stocks and how much of your portfolio to invest in bonds? You need to keep to keep this ratio balanced. With age your risk profile also changes. When you are in your 30s and 40s you would like to grow your portfolio at a much higher pace by investing in stocks which means taking more risk. But when you hit 50, you should change your investment style and focus more on preserving your capital. Which means investing more in bonds. How to calculate the percentage of your portfolio to invest in stocks and the percentage of your portfolio to invest in bonds?
110 — [your age] = percentage of money you should have invested in stocks
Let’s say an investor is 50 years old. 110 minus 50 is 60. According to this rule, 60% of your money that investor’s portfolio should be invested in stocks, which means 40% should be invested in bonds.
Here’s the formula for women:
120 — [your age] = percentage of money you should have invested in stocks