The classic 60/40 portfolio calls for 60% stocks and 40% bonds. AllianceBernstein's 60/30/10 portfolio is trying to achieve similar returns—it still has 60% in an equities index, 30% in a bond index and another 10% in a TIPS index—but with steadier performance if inflation spikes.
At age 60–69, consider a moderate portfolio (60% stock, 35% bonds, 5% cash/cash investments); 70–79, moderately conservative (40% stock, 50% bonds, 10% cash/cash investments); 80 and above, conservative (20% stock, 50% bonds, 30% cash/cash investments).
Aggressive portfolios generally contain investments with an increased potential for capital appreciation. They tend to have larger allocations of stocks and smaller allocations of bonds and cash reserves. Aggressive investment strategies are most commonly pursued by young investors who are still of working age.
An Example of the 90/10 Strategy
An investor with a $100,000 portfolio who wants to employ a 90/10 strategy could invest $90,000 in an S&P 500 index mutual fund or exchange-traded fund (ETF), with the remaining $10,000 going toward Treasury bills.
Buffett produced a Sharpe ratio of 0.76, almost double that of the overall market. Incredibly, Buffett generated a higher Sharpe ratio and a higher information ratio than all other US-listed stocks with trading histories exceeding 30 years during 1926 through 2011.
One method for using the 80-20 rule in portfolio construction is to place 80% of the portfolio assets in a less volatile investment, such as Treasury bonds or index funds while placing the other 20% in growth stocks.
The $1,000 per month rule is designed to help you estimate the amount of savings required to generate a steady monthly income during retirement. According to this rule, for every $240,000 you save, you can withdraw $1,000 per month if you stick to a 5% annual withdrawal rate.
While retirees should in most cases be in the stock market, it can be so volatile in times of economic uncertainty. It's always wise to secure other ways to maximize your retirement resources so you don't find yourself in an unpleasant situation.
Generally Recommended Allocation for 65-Year-Olds
Respected investment firm T. Rowe Price has a model that's closer to this more modern version of allocation, recommending that investors in their 60s have 45% to 65% in stocks, with 30% to 50% in bonds and 0% to 10% in cash.
The reality is that stocks do have market risk, but even those of you close to retirement or retired should stay invested in stocks to some degree in order to benefit from the upside over time. If you're 65, you could have two decades or more of living ahead of you and you'll want that potential boost.
There are guidelines to help you set one if you're looking for a single number to be your retirement nest egg goal. Some advisors recommend saving 12 times your annual salary. 12 A 66-year-old $100,000-per-year earner would need $1.2 million at retirement under this rule.
A 70/30 portfolio is a widely used investment concept for a globally diversified investment portfolio. According to this rule, 70 percent of the portfolio should be made up of investments in developed countries, and 30 percent should be made up of investments in developing countries (emerging markets).
What Should My Portfolio Look Like at 55? Begin by evaluating your tolerance for risk at that age and decide how focused on growth you still need to be. Some financial advisors recommend a mix of 60% stocks, 35% fixed income, and 5% cash when an investor is in their 60s.
The percentage you invest in each asset class depends on your risk tolerance, time horizon, and goals. A common guideline is a 60/40 split between stocks and bonds, but other model allocations include: Aggressive. 90% stocks/10% bonds.
For example, if you have retirement savings of $1 million, the 4% rule says that you can safely withdraw $40,000 per year during the first year — increasing this number for inflation each subsequent year — without running out of money within the next 30 years.
You can retire comfortably on $3,000 a month in retirement income by choosing to retire in a place with a cost of living that matches your financial resources. Housing cost is the key factor since it's both the largest component of retiree budgets and the household cost that varies most according to geography.
Probably 1 in every 20 families have a net worth exceeding $3 Million, but most people's net worth is their homes, cars, boats, and only 10% is in savings, so you would typically have to have a net worth of $30 million, which is 1 in every 1000 families.
If you have $400,000 in the bank you can retire early at age 62, but it will be tight. The good news is that if you can keep working for just five more years, you are on track for a potentially quite comfortable retirement by full retirement age.
Just 16% of retirees say they have more than $1 million saved, including all personal savings and assets, according to the recent CNBC Your Money retirement survey conducted with SurveyMonkey. In fact, among those currently saving for retirement, 57% say the amount they're hoping to save is less than $1 million.
Kevin O'Leary: By Age 33, You Should Have $100K in Savings — How To Get Started. If you're just starting out in your career, $100,000 might seem like a lot of money. After all, the median salary of a 20- to 24-year-old, according to Bureau of Labor Statistics data, is just $37,024.
The 5% rule says that you can generate an income of around 5% from investments each year without eating into your capital (reducing your balance). So, for example, if you have $1 million invested, you should be able to derive an income of around $50,000 each year for the rest of your life.
The 60/40 portfolio—a classic diversification strategy comprising 60% stocks and 40% bonds—assumes stock prices and bond prices tend to move in opposite directions. So when stocks fall, bond prices should rise and help smooth out a portfolio's returns.
Key Takeaways
The 50-30-20 budget rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must have or must do. The remaining half should dedicate 20% to savings, leaving 30% to be spent on things you want but don't necessarily need.