Research consistently shows that asset allocation — the split between stocks, bonds, cash, and other asset classes — explains roughly 90% of a portfolio's long-term return variability. Not stock selection. Not market timing. The fundamental decision of how much to hold in each asset class dwarfs everything else. Yet most people spend more time researching individual stocks than thinking about their overall allocation.
| Asset class | Expected return | Risk level | Role in portfolio |
|---|---|---|---|
| Global equities | 7–10% nominal | High | Growth engine |
| Government bonds | 3–5% nominal | Low–Medium | Stability, diversification |
| Corporate bonds | 4–6% nominal | Medium | Income, moderate risk |
| Cash / money market | 3–4% (variable) | Very low | Emergency fund, short-term needs |
| Real estate (REITs) | 6–8% nominal | Medium–High | Income + inflation hedge |
| Commodities | Variable | High | Inflation hedge |
A rough rule of thumb: your equity allocation should be somewhere around 100 minus your age (or 110 minus your age for a more aggressive version). At 18, that's 82–92% equities. At 60, it's 40–50%. The logic: young investors have time to recover from crashes; those near or in retirement need stability. At 18 with decades ahead, a 50% market crash is a buying opportunity. At 65 drawing down a pension, the same crash could be devastating.
| Stage | Equities | Bonds | Cash |
|---|---|---|---|
| Student / first job (18–25) | 90% | 5% | 5% (emergency fund outside) |
| Early career (25–35) | 80% | 15% | 5% |
| Mid-career (35–50) | 70% | 25% | 5% |
| Pre-retirement (50–65) | 50% | 40% | 10% |
| Retirement (65+) | 40% | 45% | 15% |
For you, right now: if you're a teenager with zero near-term cash needs, the mathematically correct allocation is close to 100% global equities — you have decades to absorb any crash and recover. The only reason to hold bonds young is if you have a specific short-term goal (saving for something in 2–3 years). Keep that specific amount in cash or short bonds. Everything else, long-run equities.
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