Asset Allocation — The Most Important Investment Decision
Your asset allocation (mix of stocks, bonds, and cash) determines 90% of your investment returns, not individual stock picks.
Age-Based Allocation Rule
A simple rule: subtract your age from 110 to get your stock percentage. The rest goes to bonds and cash.
| Age | Stocks | Bonds | Cash | Risk Level |
|---|---|---|---|---|
| 25 | 85% | 10% | 5% | Aggressive |
| 35 | 75% | 20% | 5% | Growth |
| 45 | 65% | 30% | 5% | Moderate |
| 55 | 55% | 35% | 10% | Conservative |
| 65 | 45% | 40% | 15% | Income |
Simple 3-Fund Portfolio
You only need 3 funds for complete diversification: domestic stock index, international stock index, and bond index. Rebalance once per year.