New Investing Rule of Thumb to Replace 'Own Your Age in Bonds'

15/50 stock rule helps investors strike a balance between risk and reward

Person checking their investments on their smartphone.
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One of the standing adages in the world of investing is to break a portfolio into two parts—one with stocks and the other with bonds—such that the percent of bonds aligns with the age of the investor.

The reason behind this rule is based on the notion that as people move closer to the age at which they plan to retire, they should replace the risk of stocks with the more stable actions of bonds.

For example, if you are age 25, then 25% of the value of your portfolio should be in bonds. If you are age 60, then 60% of your assets should be in bonds. Today, however, this rule might not have the same effect it once did. There are many reasons for this, but one is because the bond market, while not as risky as the stock market, is always changing.

Key Takeaways

  • A common investing rule of thumb said you should invest in stocks and bonds with the bond percentage being the same number as your age.
  • Today's longer lifespans, along with the chance of lower returns on bonds, mean that it's worth thinking about a slightly bolder strategy.
  • The 15/50 rule says you should always invest 50% of your assets in bonds and 50% in stocks as long as you think you have more than 15 years left to live.

Why 'Own Your Age' No Longer Works

When you factor in the major changes going on in the bond market, the concept of bonds that follow a person's age makes less sense today than it did decades ago. As interest rates fall, bond yields go up. It also follows that as interest rates rise, bond yields go down. After three decades of trending downward since the early 1980s, interest rates shot up to an extreme spike during the COVID-19 pandemic in 2020, and they have since seemed to be falling back to pre-2020 lows.

Interest rate trends are hard to predict in the short term, but there could be a longer spell of slowly rising rates. That means the high annual return that bonds have produced since 1976 would be more rare, with yields slowly lowering.

Think also of today's long lifespans. It's not unheard of today for people to be retired for 25 or 30 years. Paying for a longer retirement in a shorter span of time might call on you to take more risks before you retire (and even after you retire) than your parents did. That means owning more stocks, which offer better prospects for growth, but higher volatility.

A More Modern Approach

If you have at least a moderate risk tolerance, forget about bonds and your age, and try the 15/50 stock rule. If you think you have more than 15 years left to live, your portfolio should consist of at least 50% stocks, with the balance that's left placed in bonds and cash. This approach can help you maintain a steady balance between risk and reward.

This isn't a new concept by any means. The 15/50 portfolio approach, which is first split 50/50 between stocks and bonds, has been around for decades.

Benjamin Graham (mentor to famed Warren Buffet) touted the 15/50 method, and Vanguard founder John Bogle gave advice under the same theory (although from the angle of starting with the "own your age" approach and knocking a decade or so off).

If you decide to go the 15/50 route, the stocks you select can either be the type that pays dividends or growth stocks. Keep a close watch on your allocations, and reallocate as needed to prevent either stocks or bonds from tipping beyond the 50% mark.

Actions To Take When the Market Shifts

In his book "The Intelligent Investor," Graham explains what the 15/50 rule might look like in real life. He suggests an example of when market-level changes might have raised your portion of common stock to 55%. You could restore the balance of your holdings if you sell one-eleventh of the stock portfolio then transfer the proceeds to bonds. In the reverse case, if the market levels have decreased your portion of common stock to 45%, you would use one-eleventh of the bond fund to purchase more stocks.

What does that mean for you in practice? If the value of stocks to bonds in your portfolio were to shift due to market swings, you should then shift your assets from stocks to bonds, or from bonds to stocks, as needed to maintain the 50/50 balance.

How Risk Factors Into the 15/50 Rule

A 15/50 stock rule takes on more risk than a rule that is based on your age. (This is very true if you are in your 70s.) Building your portfolio to a 50/50 split then leaving it to grow assumes a higher risk by default. This type of split comes with a tactic to limit that risk: You can adjust the proportion 5% one way or the other. This small shift can help maintain the symmetrical value of each of the asset types.

To ensure your portfolio is balanced, you should keep a close watch on the value of your stocks and bonds to make sure you don't go past your trigger percent.

Using this method, you should be able to keep the value of your portfolio mostly steady at times when bond yields are rising and falling due to rate changes. That would decrease your risk, as long as you think that you have about 15 years left to live.

Frequently Asked Questions (FAQs)

What stock-to-bond ratio has performed the best?

Historically, stocks have outperformed bonds over a long-term timeline. A starting investment of $100 in stocks in 1929 would have been worth more than $761,000 at the end of 2021. A $100 corporate bond investment on the same timeline would have been worth $54,200, and Treasury investments would have been worth even less. On that long of a timeline, the best ratio is 100% stocks, but adding bond investments helps protect your portfolio from short-term downturns.

What should your stock-to-bond ratio be in retirement?

In retirement, your investing timeline is short, so you want to emphasize relatively safer investments like bonds rather than stocks. The exact ratio will depend on your age, your health, and your retirement plans, but your ratio before retirement should generally shift more toward bonds as you enter retirement.

The Balance does not provide tax, investment, or financial services or advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal.

Article Sources

  1. Center on Budget and Policy Priorities. "Tracking the Post-Great Recession Economy."

  2. AARP. "Jack Bogle's Simple Advice for Investors."

  3. Benjamin Graham. "The Intelligent Investor." Harper Business, 2006.

  4. NYU Stern School of Business. "Historical Returns on Stocks, Bonds, and Bills: 1928-2021."