As featured in The Wall Street Journal, Money Magazine, and more!

Rule for Building Wealth: Go Heavy on Stocks

This article was written by in Tips. 2 comments.

The latest “rule of thumb” is to subtract your age from 120. The resulting number is the percentage of your allocation that should be invested in stocks, optimally through index fund investing. This was rule #6 in Money Magazine’s 25 Rules to Grow Rich By.

In The Bogleheads’ Guide to Investing (asset allocation chapter reviewed here), the authors say an allocation of 100% offers no more long-term performance, but significantly more risk than a mix of 90% stocks and 10% bonds.

Fortune Magazine’s Rules for Building Wealth take the long-term view:

If you’re just starting out, 80 percent to 100 percent of your assets ought to be in stocks. “If you have, say, 30 or 40 years, what happens over the next three months or even three years doesn’t matter. If you need the money in two years and it drops 40 percent in one year, that’s a problem,” says Stuart Ritter, a certified financial planner with T. Rowe Price.

I’m in the process of helping my mother re-balance her investments. She plans on retiring soon, but I will suggest staying mostly in stock funds so the money continues to last, even when she starts taking distributions.

Published or updated December 19, 2006. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

Email Email Print Print
About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

Read related articles from Consumerism Commentary

{ 1 comment… read it below or add one }

avatar Matt

The only issue with being that stock heavy is that if the market or market segment you’ve invested in takes a dive (say another bubble occurs) you’re likely to end up loosing a lot of cash. Granted if you’re young and heavily invested in the stock market this isn’t likely to cause you much grief down the road.

With that said I think that this rule of thumb should take into account the amount of money you’re investing with. If at 30 I had 2 or 3 million to work with I would invest it far differently than if I only had 50 thousand.

Reply to this comment

Leave a Comment

Note: Use your name or a unique handle, not the name of a website or business. No deep links or business URLs are allowed. Spam, including promotional linking to a company website, will be deleted. By submitting your comment you are agreeing to these terms and conditions.

Notify me of followup comments via e-mail. You can also subscribe without commenting.