Using the rule of 100 minus age, what is the approximate equity allocation for a 25-year-old?

Using the rule of 100 minus age, what is the approximate equity allocation for a 25-year-old?

• A. 65%
• B. 75%
• C. 85%
• D. 95%

Answer: (B)

This rule ties how much of the portfolio is invested in stocks to the investor’s age—the younger you are, the larger the stock slice should be, using a simple age-based guideline. For someone who is twenty-five, this approach points to about three-quarters of the portfolio in equities, with the remaining portion in more conservative investments like bonds or cash. The idea is that a longer time horizon provides more opportunity to ride market fluctuations, so you can take on more growth-oriented investments. In real life, you’d adjust this based on personal risk tolerance, goals, and other factors, so the exact mix might vary, but the target given by this rule is a high equity allocation for a young investor.

This rule ties how much of the portfolio is invested in stocks to the investor’s age—the younger you are, the larger the stock slice should be, using a simple age-based guideline. For someone who is twenty-five, this approach points to about three-quarters of the portfolio in equities, with the remaining portion in more conservative investments like bonds or cash. The idea is that a longer time horizon provides more opportunity to ride market fluctuations, so you can take on more growth-oriented investments. In real life, you’d adjust this based on personal risk tolerance, goals, and other factors, so the exact mix might vary, but the target given by this rule is a high equity allocation for a young investor.