#7: Stock Portfolio

This is part of a series in which we re-evaluate Money Magazine’s “25 Rules To Grow Rich By”. One “rule” will be re-evaluated each weekday until the series concludes; you can keep tabs on the action at the 25 Rules index.

How Much Should I Invest in Stocks?

Rule #7: To figure out what percentage of your money should be in stocks, subtract your age from 120.

This is an old, old rule that has been around in some form since my grandpappy was in diapers; back then, you were told to subtract your age from 100.

But let’s think about this for a minute: according to this rule, at age 70, you should have 50% of your investment in stocks? That seems rather risky to me, as you should want a high degree of stability during your twilight years.

On the other hand, why would investors under 30 want to invest their money in low-return things (unless it is for liquidity purposes, of course)? If an individual is looking at the vast majority of their life still ahead of them, why not invest everything in an index fund that will return tremendous amounts in the future?

This rule is a nice little rule for people in middle age, but it doesn’t take into account the oldest or youngest investors who should either be maximizing or minimizing their risk based on what their futures hold. Let’s rewrite this rule so that it encompasses everyone, then:

Rewritten Rule #7: To figure out what percentage of your money should not be in stocks, subtract 30 from your age and then double that number.

You can jump ahead to rule #8 or jump back to rule #6.

Trent Hamm
Trent Hamm
Founder of The Simple Dollar

Trent Hamm founded The Simple Dollar in 2006 after developing innovative financial strategies to get out of debt. Since then, he’s written three books (published by Simon & Schuster and Financial Times Press), contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.

Loading Disqus Comments ...