A very simple, yet highly useful asset classification system consists of just two broad asset classes: (1) equity-growth-stocks and (2) debt-income-bonds.

In general, bonds are less risky than stocks; however, the potential return on stocks is higher.  By the way, returns between the two are not highly correlated but that fact is a subject for another post.

So what proportion of your investment should you allocate to growth (stocks) and what should you allocate to income (bonds)?

A commonly cited rule of thumb regarding how much to allocate to stocks is to start with 100 and subtract your age.  Using this rule of thumb if you are 50 years old, you should invest 50% of your assets in stocks and 50% or your assets in bonds.

To “complexify” this age-based rule of thumb, I recommend taking the Finametrica Risk Tolerance Assessment Quiz.  Your quiz score reveals your personal risk tolerance which indicates what proportion of your to allocate between stocks and bonds.

Talk with Parker Evans, CFA, CFP to Know more