Asset Allocation and Rebalancing Guide by Age and Goals
⚠️ 90/10 Isn't Right for Everyone
Warren Buffett's 90/10 strategy is powerful, but remember one crucial point: Buffett's wife and heirs are already extremely wealthy. That's why they can afford a more aggressive allocation.
If you're not starting with millions of dollars, you may need a more conservative approach.
📊 Vanguard's Age-Based Asset Allocation Guide
Vanguard recommends asset allocation based on age and investment horizon:
| Age Range | Stocks | Bonds | Description |
|---|---|---|---|
| 20s-30s | 90% | 10% | Long horizon, can handle volatility |
| 40s | 80% | 20% | 20+ years to retirement |
| 50s | 70% | 30% | Beginning retirement prep |
| 60s | 60% | 40% | Prioritizing stability |
| 70s+ | 50% | 50% | Capital preservation focus |
🎢 Why Increase Bond Allocation as You Age?
The Reality of Volatility
Vanguard's 100-year historical data:
| Portfolio | Best Annual Return | Worst Annual Return | Range |
|---|---|---|---|
| 100% Stocks | +54.2% | -43.1% | 97.3pp |
| 80/20 | +45.4% | -34.9% | 80.3pp |
| 60/40 | +36.7% | -26.6% | 63.3pp |
| 40/60 | +27.9% | -18.4% | 46.3pp |
After Retirement...
In retirement, you're withdrawing from your portfolio. If a big crash hits:
- You must sell stocks at low prices
- Not enough time to recover
- "Sequence of Returns Risk" kicks in
That's why reducing volatility as retirement approaches is crucial.
🔄 Rebalancing: Annual Checkup
What is Rebalancing?
Over time, stock and bond proportions shift. For example:
Start: Stocks 80% / Bonds 20% After 1 Year (stocks up): Stocks 88% / Bonds 12%
Rebalance: Sell some stocks, buy bonds to return to 80/20
Benefits of Rebalancing
- Risk Management: Maintain intended risk level
- Automatic Trading: "Sell high, buy low" effect
- Discipline: Prevents emotional decisions
How to Execute
- Frequency: Once per year (birthday, New Year's—easy to remember)
- Method: Reduce overweight assets, increase underweight
- Tax Consideration: Do it in retirement accounts to avoid taxes
🛑 Biggest Mistake: Abandoning Ship During Downturns
JP Morgan's Data
According to JP Morgan research, in most years, the S&P 500 experiences 10%+ intra-year declines. Even in years with positive annual returns!
Why You Must Endure
Selling during downturns means:
- Locking in losses
- Missing recovery
- Breaking compound effect
Choosing an allocation that fits YOU is key to surviving downturns.
📌 Execution Checklist
Step 1: Determine Asset Allocation
- Consider age and retirement timing
- Assess risk tolerance
- Set target ratio (e.g., 80/20)
Step 2: Choose Funds
- Low-cost S&P 500 ETF (VOO, IVV, SPY)
- Short-term bond ETF (SHV, VGSH, BIL)
Step 3: Rebalancing Schedule
- Set annual rebalancing date
- Add calendar reminder
🎯 Key Message
"Knowing what to do and actually doing it consistently are two different things."
Find an asset allocation that fits you, and build a portfolio you can stick with during downturns. That's the true essence of the Buffett strategy.
Keep it simple, keep costs low, and let time work its compounding magic!