For a guide to asset allocation, diversification, and building your first investment portfolio, see the Portfolio Basics hub.
For a complete guide to index fund and ETF investing — including fund comparisons, expense ratios, and tax strategy — see the Index Funds and ETFs hub.
Asset allocation — how you divide your portfolio between stocks, bonds, and cash — is the single biggest driver of investment returns and risk. Here’s how to get it right at every age.
Model Portfolios by Age
Aggressive (Your 20s-30s)
| Asset Class | Allocation | Example Funds |
|---|---|---|
| U.S. stocks | 60% | VTI, VTSAX, FSKAX |
| International stocks | 30% | VXUS, VTIAX, FTIHX |
| Bonds | 10% | BND, VBTLX, FXNAX |
| Total | 100% |
Risk level: High | Expected return: 8-10% long-term | Worst year possibility: -35% to -45%
Moderate Growth (Your 40s)
| Asset Class | Allocation | Example Funds |
|---|---|---|
| U.S. stocks | 50% | VTI or VTSAX |
| International stocks | 20% | VXUS or VTIAX |
| U.S. bonds | 25% | BND or VBTLX |
| International bonds | 5% | BNDX or VTABX |
| Total | 100% |
Risk level: Moderate | Expected return: 7-8% | Worst year possibility: -25% to -35%
Balanced (Your 50s)
| Asset Class | Allocation | Example Funds |
|---|---|---|
| U.S. stocks | 40% | VTI or VTSAX |
| International stocks | 15% | VXUS or VTIAX |
| U.S. bonds | 35% | BND or VBTLX |
| International bonds | 5% | BNDX or VTABX |
| TIPS (inflation-protected) | 5% | VTIP or SCHP |
| Total | 100% |
Risk level: Moderate-Low | Expected return: 6-7% | Worst year possibility: -20% to -25%
Conservative (Early Retirement, 60s)
| Asset Class | Allocation | Example Funds |
|---|---|---|
| U.S. stocks | 30% | VTI or VTSAX |
| International stocks | 10% | VXUS or VTIAX |
| U.S. bonds | 40% | BND or VBTLX |
| TIPS | 10% | VTIP or SCHP |
| Short-term bonds/cash | 10% | VGSH or SCHO |
| Total | 100% |
Risk level: Low | Expected return: 5-6% | Worst year possibility: -10% to -15%
Income/Preservation (Late Retirement, 70s+)
| Asset Class | Allocation | Example Funds |
|---|---|---|
| U.S. stocks | 25% | VTI |
| International stocks | 5% | VXUS |
| U.S. bonds | 35% | BND |
| TIPS | 15% | VTIP |
| Short-term bonds | 10% | VGSH |
| Cash/money market | 10% | VMFXX |
| Total | 100% |
Risk level: Very Low | Expected return: 4-5%
Age-Based Allocation Rules of Thumb
| Rule | Formula | Example (Age 35) | Stocks | Bonds |
|---|---|---|---|---|
| Your age in bonds | Age = Bond % | 35% bonds | 65% | 35% |
| 110 minus age | 110 - Age = Stock % | 75% stocks | 75% | 25% |
| 120 minus age | 120 - Age = Stock % | 85% stocks | 85% | 15% |
Modern financial planning typically uses 110 or 120 minus your age because people live longer and need more growth.
The Three-Fund Portfolio
The simplest effective portfolio:
| Fund | Purpose | Suggested Allocation |
|---|---|---|
| U.S. total stock market (VTI/VTSAX) | Domestic equity growth | 50-70% |
| International total stock (VXUS/VTIAX) | Global diversification | 15-30% |
| U.S. total bond market (BND/VBTLX) | Stability and income | 10-30% |
This covers 10,000+ stocks and 10,000+ bonds with just three funds. Total expense ratio: ~0.05%.
How Different Allocations Perform
Historical performance of different stock/bond mixes (1926-2024):
| Allocation | Avg. Annual Return | Best Year | Worst Year | Max Drawdown |
|---|---|---|---|---|
| 100% Stocks | 10.3% | +54% (1933) | -43% (1931) | -51% (2007-09) |
| 80/20 (Stocks/Bonds) | 9.4% | +45% | -34% | -40% |
| 70/30 | 8.9% | +39% | -27% | -32% |
| 60/40 | 8.3% | +33% | -21% | -26% |
| 50/50 | 7.6% | +28% | -16% | -22% |
| 40/60 | 6.8% | +23% | -12% | -18% |
| 20/80 | 5.2% | +14% | -6% | -10% |
| 100% Bonds | 5.1% | +33% (1982) | -13% (2022) | -17% |
When to Rebalance
| Method | How It Works | Pros | Cons |
|---|---|---|---|
| Calendar (annual) | Rebalance on same date each year | Simple, disciplined | May be too frequent/infrequent |
| Threshold (5%) | Rebalance when allocation drifts 5%+ from target | Responsive | Requires monitoring |
| Calendar + threshold | Check quarterly, rebalance only if 5%+ drift | Best of both | Slightly more complex |
Tax-Efficient Rebalancing
| Strategy | How to Do It |
|---|---|
| Redirect new contributions | Put new money into the underweight asset class |
| Use dividends/distributions | Set dividends to buy the underweight class |
| Rebalance in tax-advantaged accounts | Move money in 401(k)/IRA where there’s no tax |
| Tax-loss harvest | Sell losers in taxable accounts to rebalance + get tax deduction |
Common Asset Allocation Mistakes
| Mistake | Why It’s a Problem |
|---|---|
| 100% stocks at age 60 | One bad year could devastate your retirement |
| 100% bonds at age 30 | Insufficient growth; inflation eats purchasing power |
| Home country bias (all U.S.) | Missing international diversification |
| Too many funds (15+) | Complexity without benefit; overlap dilutes returns |
| Never rebalancing | Portfolio drift changes your risk profile |
| Chasing last year’s winner | Performance chasing usually hurts returns |
| Ignoring asset location | Tax-efficient placement matters as much as allocation |
Related: How to Start Investing | Index Funds vs ETFs | S&P 500 Historical Returns | The 4% Rule
The content on Wealthvieu is for informational purposes only and should not be considered financial, tax, or investment advice. Consult a qualified professional before making financial decisions. Full disclaimer · Editorial policy