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.

Witthaya Prasongsin / Getty Images 

What’s the best way for the average investor to balance risk versus potential reward?

For years, financial advisors answered, “Own Your Age in Bonds.” 

Own Your Age in Bonds (OYAIB) says that the percentage of bonds in your portfolio should equal your age. If you are 25, just 25% of your money should be in bonds. If you are 60, then 60% of your assets should be bonds. OYAIB is based on the notion that as we move nearer to retirement, we want to replace the growth potential and risk of stocks with the relative predictability of quality bonds.

Why "Own Your Age" No Longer Works

OYAIB has become less useful today with the significant change happening in the bond market. As interest rates fall, bonds go up. Today, after three decades of downward movement, interest rates have started to move slowly higher from all-time lows. Interest rate trends are famously hard to predict, but we could be in for 20 or 30 years of slowly rising rates. That means the 8% annual return that bonds have averaged since 1976 would be unlikely.

And consider today’s long lifespans. It’s not uncommon today for someone to be retired for 25 or 30 years. Paying for those years will probably require you to take more risk in retirement than your parents. That means owning more stocks, which offer the potential for growth and higher volatility.

An Alternative to Own Your OYAIB

If you have at least a moderate risk tolerance, forget about OYAIB and implement the 15/50 Stock Rule. If you believe you have more than 15 years on Earth, your portfolio should consist of at least 50% stocks, with the remaining balance in bonds and cash. This approach helps you maintain a balance between risk and reward.

This really isn’t a new idea. The 50/50 portfolio idea has been around for decades. Columbia Business School professor Benjamin Graham, who was Warren Buffet’s mentor, championed this philosophy, as does Vanguard founder John Bogle.

The stocks in your 15/50 portfolio can be either dividend-payers or growth stocks. Watch your allocations closely and reallocate as necessary to prevent stocks from sneaking beyond the 50% mark. As Benjamin Graham explained, “When changes in the market level have raised the common-stock component to, say, 55% the balance would be restored by a sale of one-eleventh of the stock portfolio and the transfer of the proceeds to bonds. Conversely, a fall in the common-stock proportion to 45% would call for the use of one-eleventh of the bond fund to buy additional equities.”

A 15/50 Stock Rule portfolio requires more risk tolerance than one based on OYAIB, especially if you are in your 70s. But for the reasons above, it’s the philosophy that provides the best balance of risk versus reward now and in the coming years.

The Balance does not provide tax, investment, or financial services and 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.