How allocation thinking changes with time

The same portfolio can be sensible for one person and too risky for another, and age is a big part of the reason. Age itself is not the point. It stands in for two things: how many years of investing you have left, and how soon you will need to spend the money.

What age stands for

First, time to recover. A 40% fall matters less if you have thirty years before you need the money and are still investing every month at lower prices. Second, future earnings. Your income over the rest of your career works a bit like a stable asset, and early in a career it is by far the largest thing you own.

The common rules of thumb

The oldest rule set your equity share at 100 minus your age. As people started living longer, many raised this to 110 or 120 minus age. Target-date funds follow the same idea as a glide path: mostly equity at the start, moving steadily towards bonds as the target year gets closer.

These are starting points, not answers. They ignore whether your income is stable, whether you have dependants, what else you own and, most of all, how you behave when markets crash.

What the rules leave out

An allocation you give up on in a downturn is worse than a more cautious one you can hold. An investor who moves to 80% equity, panics at a 35% fall, sells, and comes back two years later does much worse than one who held 60% the whole time. Your real risk tolerance is what you did the last time markets fell, not what you think you would do.

How this relates to the simulator

The simulator on this site tests a rule-based version of the same instinct: moving money out during a deep fall and back in later. Across 108 versions, only 11 beat simply investing every month, and the winners gained mostly from three specific periods in twenty years. That is not an argument against reducing risk. It shows that timing the move is harder than it looks, and that a rule you can follow consistently matters more than the exact thresholds.

Nothing here is investment advice. See the disclaimer.