Asset Allocation by Age: How to Adjust Your Portfolio as You Get Older
Asset allocation — the split between stocks, bonds, and other asset classes — is the single most important driver of long-term portfolio risk and return. And unlike individual stock picks, it's something every investor actively controls. Here's how to think about it at each stage of your investing life.
Why asset allocation matters more than stock picking
Research from Brinson, Hood, and Beebower (1986, updated 1991) found that over 90% of a portfolio's return variability over time is explained by its asset allocation — not by market timing or security selection. In other words, whether you hold 80% stocks and 20% bonds (or the reverse) matters far more than which stocks or bonds you choose.
This is good news for individual investors. You don't need to pick winners. You need to pick an allocation appropriate for your time horizon and risk tolerance, then stick to it.
The old rule: '100 minus your age'
The classic heuristic says to hold your age in bonds — so a 30-year-old holds 30% bonds and 70% stocks; a 60-year-old holds 60% bonds and 40% stocks. It's intuitive: as you age, reduce volatility by shifting toward fixed income.
But this rule was designed when life expectancy was lower and bond yields were higher. Today, a 65-year-old retiree in Canada can reasonably expect 20–25 more years in retirement. A portfolio with 65% bonds may not generate enough growth to sustain withdrawals for that long. The updated version of the rule shifts to '120 minus your age' — recognizing longer retirements and lower bond yields.
Allocation by decade: a practical framework
| Age range | Suggested equity weight | Rationale |
|---|---|---|
| 20s–early 30s | 90–100% equities | Maximum time horizon; short-term volatility is irrelevant |
| Mid 30s–40s | 80–90% equities | Long runway; can accept significant drawdowns and recover |
| 50s | 60–80% equities | Approaching retirement; begin reducing sequence-of-returns risk |
| Early retirement (60–65) | 50–65% equities | Drawdown phase begins; balance growth with stability |
| Late retirement (70+) | 40–60% equities | Longevity risk still relevant; don't eliminate equities entirely |
Sequence-of-returns risk: why allocation matters most near retirement
Sequence-of-returns risk is the danger of experiencing large market losses in the early years of retirement, when your portfolio is at its largest and you've just started withdrawing. A 30% drawdown in year one of retirement is far more damaging than the same drawdown in year one of investing — because you're withdrawing, not contributing.
Reducing equity exposure 5–10 years before retirement (a strategy called the 'glide path') reduces this risk. You sacrifice some growth in exchange for a more stable base from which to begin withdrawals.
What counts as 'bonds' in a modern portfolio?
When people say 'bonds' in the context of asset allocation, they typically mean the fixed-income portion: a mix of government bonds, corporate bonds, and sometimes GICs. In Canada, common fixed-income ETFs include XBB (iShares Core Canadian Universe Bond), VAB (Vanguard Canadian Aggregate Bond), and ZAG (BMO Aggregate Bond Index). These hold hundreds of bonds and provide broad exposure to the Canadian bond market.
Should you hold real estate or alternatives?
Many Canadians have significant real estate exposure through their primary home. If your principal residence represents a large portion of your net worth, you may already be over-exposed to a single illiquid asset — which argues for a more equity-heavy, liquid investment portfolio as a counterbalance.
Frequently asked questions
What is a good asset allocation by age in Canada?
A common modern guideline is '120 minus your age' in equities. So a 30-year-old would hold ~90% equities and 10% bonds; a 60-year-old would hold ~60% equities and 40% bonds. Adjust based on your actual risk tolerance, other income sources, and retirement timeline.
Should I hold 100% equities in my 20s?
Many financial educators argue yes — if you have a 30+ year horizon and stable income, 100% equities maximizes long-term expected return and you have ample time to recover from drawdowns. The risk is behavioural: you need to stay invested through 40–50% market declines without selling.
What is the 60/40 portfolio?
The 60/40 portfolio holds 60% global equities and 40% bonds. It's been the traditional 'balanced' allocation for decades, delivering decent returns with significantly lower volatility than a pure equity portfolio. In Canada, XBAL and VBAL are one-ticket ETFs that implement this allocation automatically.
How often should I rebalance my asset allocation?
Most research suggests annual rebalancing or threshold-based rebalancing (rebalancing when allocations drift more than 5%) produces the best risk-adjusted outcomes. More frequent rebalancing generates transaction costs and taxes without meaningfully improving results. Use new contributions to buy underweight assets first.