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Fiction: A quick way to figure out how much equity exposure belongs in your portfolio is to subtract your age from 100. So, if you are 65 years old, you would want 35 percent of your holdings to be in equity (with the remainder in fixed income vehicles).
Fact: While this simple calculation does attempt to take age and investment time horizon into consideration by reducing equity exposure, it does not always apply.
Asset allocation decisions are based on unique factors such as:
- Personal risk tolerance
- Investment goals and a timeline for those goals
- Financial situation
For example, someone nearing retirement who has not saved adequately and does not have other assets may have the risk tolerance, as well as the need, to invest a greater portion of his or her portfolio in equity. Or a younger person with substantial assets and a low risk tolerance may wish to do the opposite.
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