Equity/bond ratio by age

monaymadlol

Hi, wondering how many follow or buck the standard equity is 100 minus your age (or more like 110 or 120 minus age)? For either ISAs or sipps.

DireEmblem

Where did you hear this rule?

I follow a 100% equities after emergency funds rule - why, because I dont think I will be retiring until another 15/20 years.

InvesterJones

Never heard of an age based rule, but have heard of managing volatility in line with how long you can leave the investment - the shorter the time the less the volatility.

monaymadlol

DireEmblem said:

Where did you hear this rule?

I follow a 100% equities after emergency funds rule - why, because I dont think I will be retiring until another 15/20 years.

If you have a search online, it's a commonly referenced investment rule of thumb based on reducing equities and re-risking with age to a more even 50/50 split or so.

wmb194

You used to see mention of this a lot 15+ years ago but the world's moved on. It was usually in relation to de-risking a portfolio in the run up to retirement and buying an annuity but the world moved on when annuity rates were destroyed by QE and the other things central banks did in the wake of the financial crisis but also because pension drawdown was introduced and people became more comfortable continuing to hold equities in retirement.

Linton

I dont think a rule based on age makes much sense as the need for bonds is very much dependent on your objectives. One should have a positive reason for choosing bonds as opposed to property, cash, infrastructure, or even equity etc and the % bonds will be whatever it needs to be to meet your objectives.

dunstonh

Hi, wondering how many follow or buck the standard equity is 100 minus your age (or more like 110 or 120 minus age)? For either ISAs or sipps.

No.  Its pretty rubbish to follow such an arbitrary method.

GeoffTF

Here is Vanguard's view on this matter:

https://www.vanguardinvestor.co.uk/articles/latest-thoughts/investing-success/investing-through-the-ages-your-50s-and-early-60s

I have done the opposite. As I grow older, I become richer, my expenditure goes down and the number of years that I have to live goes down. My equity percentage has gone up as my capacity to absorb risk has gone up. Essentially, I have followed another old adage: invest in the stock market only money that you can afford to lose.

bostonerimus

When I started my DC pension the age/bonds rule was an easy way to get young people to invest heavily in equities and to shift their allocation to less volatile bonds as the got older. The idea behind it is generally good and you’ll see it implemented in Target Date Retirement funds. However, it doesn’t account for other investments you might have and if you have a pot that can easily supply your income needs you can probably have more risk and hence equities as you can ride out losses. Most people should be as mindful about risk and potential losses as they are about returns and income generation and for that bonds are still important. Going 100% equities is risky if you don’t have any headroom between pot so: and income needs.

monaymadlol

wmb194 said:

You used to see mention of this a lot 15+ years ago but the world's moved on. It was usually in relation to de-risking a portfolio in the run up to retirement and buying an annuity but the world moved on when annuity rates were destroyed by QE and the other things central banks did in the wake of the financial crisis but also because pension drawdown was introduced and people became more comfortable continuing to hold equities in retirement.

I see it mentioned now except with 120 or 110 as people live longer, but I guess it depends on other factors too

jimjames

monaymadlol said:

Hi, wondering how many follow or buck the standard equity is 100 minus your age (or more like 110 or 120 minus age)? For either ISAs or sipps.

My rule is 100% minus (my age)+(my age)