Your Portfolio Shouldn't Be Built on Your Age Alone
There is a rule of thumb that has shaped more portfolios than perhaps any other: subtract your age from 100, and that is the percentage you should hold in stocks. A forty-year-old holds 60% stocks; a seventy-year-old holds 30%. Tidy, memorable, and effortless. It is also the financial equivalent of buying clothing in one size. It will technically fit a great many people, and it will fit almost none of them well.
Age-based investing is appealing for an honest reason: it is simple, and investing can feel overwhelming. But the comfort of the shortcut hides a real cost. As we say at The Legacy Foundation, a portfolio should never be a one-size-fits-all or age-based solution. Here is why age, on its own, is the wrong foundation — and what a portfolio should actually be built on.
Two people, same age, entirely different situations
Picture two people who just turned fifty-eight. By the age-based rule, they should own identical portfolios.
The first has a pension that will cover most of her essential expenses for life, no debt, grown and independent children, and a healthy taxable account beyond her retirement savings. The second has no pension, is still paying a mortgage, expects to help a child through several more years of school, and is counting on his portfolio to generate most of his retirement income.
These two people have almost nothing in common financially. One can take meaningful investment risk because her essential needs are already secured; the other must be far more deliberate because his portfolio carries far more weight. They are the same age, and they should not own the same portfolio. Age told us nothing that mattered.
Time horizon is not a single date(What’s the line break and how does this appear?
The age-based rule treats retirement as a finish line — as if money is needed all at once on the day you stop working. In reality, your portfolio may have to distribute income longer than you worked and possibly to additional individuals. Money you will spend in your first year of retirement and money you will not touch for thirty years are, in effect, two different investments with two different objectives. A strategy we often use at The Legacy Foundation is creating different buckets that have various timelines, along with a focus on income-producing assets. There are equities/stocks that pay attractive dividends vs using all growth stocks with a focus on stock price increases without consideration for income.
Risk tolerance and risk capacity are different things
Sound investing distinguishes between two kinds of risk. Risk tolerance is emotional — how well you sleep when markets fall. Risk capacity is financial — how much loss your plan can actually absorb without being knocked off course. The two often diverge. A person can be emotionally comfortable with risk their plan cannot afford, or financially able to take risk that keeps them up at night. Age measures neither. At the Legacy Foundation, we put our clients' portfolios through a stress test, tracking historical market data to give us a real-time percentage of success based on the risk allocation and how likely future distributions last in retirement.
Your goals should drive the design
Ultimately, a portfolio exists to serve goals — retirement income, a home, education, a legacy for the next generation, support for causes you care about. Different goals have different time horizons and different degrees of flexibility, and a portfolio should be built to serve the specific goals in front of you. Age is silent on all of it. We know defining goals is rarely straightforward; that’s why helping you design your goals is part of our financial planning process.
Final Thought
A thoughtfully constructed portfolio reflects a full picture: your specific goals and their individual time horizons; both your tolerance for risk and your genuine capacity for it; your other resources, such as pensions, Social Security, and outside assets; your tax situation across different account types; and whether others should be incorporated into your financial plan. Age belongs in that picture - it’s a meaningful input, but it’s one input among many. You are not an average. Your portfolio should not be built as though you were.
Wondering whether your portfolio truly fits your life — or just your age? Talk with The Legacy Foundation about a strategy built around your goals.
We understand that taking the first step toward financial planning can feel overwhelming. That’s why we offer portfolio reviews to anyone looking for thoughtful financial guidance—something we’ve been helping individuals and families navigate for more than 35 years. Click here to request a complimentary review.
Disclaimer:
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Investing in mutual funds involves risk, including possible loss of principal. An investment in Exchange Traded Funds (ETF), structured as a mutual fund or unit investment trust, involves the risk of losing money and should be considered as part of an overall program, not a complete investment program. An investment in ETFs involves additional risks such as not diversified, price volatility, competitive industry pressure, international political and economic developments, possible trading halts, and index tracking errors. Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price. No strategy assures success or protects against loss.