I’m often asked about the “right” mix of stocks and bonds, especially as investors approach or enter retirement. A common rule of thumb — sometimes called the Bogle rule — suggests that an investor should hold a bond allocation roughly equal to their age. At first glance, this seems sensible. After all, as we grow older, preserving capital becomes more important than pursuing maximum growth.
But like most rules of thumb, this one is frequently misunderstood, and if applied mechanically, it can lead to poor decisions. Markets don’t move in straight lines and neither do investors’ lives. A formula that ignores individual circumstances risks creating a false sense of precision.
John Bogle, the late founder of Vanguard, never intended this guideline to be a rigid formula. His point wasn’t that everyone should follow the same allocation path but rather that asset allocation should become more conservative over time in context. Context matters greatly — and it changes as your financial picture evolves.
What Bogle emphasized throughout his career is that we don’t know what future market returns will be. What we do know are the sources of returns (dividends, interest and capital appreciation), the importance of keeping costs low and the value of broad diversification. We also know that short-term market movements are unpredictable and that neither market timing nor consistently beating the market can be relied on as a disciplined long-term strategy.
Where investors get into trouble is assuming that age alone determines how much risk they should take. In reality, the correct allocation depends on several factors, including the size of your portfolio, your spending needs, your other sources of income, your tolerance for volatility and — most importantly — whether your assets are sufficient to support your lifestyle over time. These considerations tend to matter far more than a birth date.
One practical way to think about fixed income is to put enough of your portfolio into bonds to cover approximately four to seven years of expected withdrawals. This approach creates a dedicated reserve designed to fund spending through market downturns. Knowing that several years of expenses are set aside in stable assets allows you to remain patient when markets are under pressure and gives you confidence that you won’t be forced to sell stocks at unfavorable prices. For many investors, this structure provides emotional as well as financial stability.
An investor retiring with a large, well-funded portfolio may be able to maintain a meaningful allocation to equities, even later in life. Stocks, despite their volatility, have historically provided the best protection against inflation and the erosion of purchasing power. When near-term spending needs are already covered, growth assets can be given the time they need to recover from inevitable market declines.
On the other hand, an investor who’s heavily dependent on their portfolio for current income — and who would be forced to sell assets during market downturns — may need a more conservative mix. In that case, shorter-term bonds and other stabilizing assets play a critical role in preserving purchasing power, smoothing cash flow and providing liquidity when it’s needed most.
The real question isn’t, “How old am I?” but rather, “Do I have enough, and what do I need this money to do for me?”
Asset allocation should reflect your personal circumstances, not a formula pulled from a book or headline. There’s no single rule that works for everyone. The most successful portfolios are built deliberately, reviewed regularly and adjusted thoughtfully as life — and markets — change.
Steven C. Merrell is a partner and managing director at Creative Planning (formerly known as Monterey Private Wealth). He welcomes questions you may have concerning investments, taxes, retirement or estate planning. Send your questions to: Steve Merrell, 2340 Garden Road, Suite 202, Monterey, CA, 93940. Or you can email steve.merrell@creativeplanning.com. This commentary is provided for general information purposes only, should not be construed as investment, tax or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.
