Aligning for age

Most clients inquire about asset allocation—the way an investment portfolio is divided among stocks, bonds, and cash reserves. Riley and his colleagues are most often asked: Is my allocation right for my age?

“I know there are many different rules of thumb on how to allocate the percentage of stocks and bonds in your portfolio, such as subtracting your age from 100,” Riley said. “Those are OK to use as a starting point, but your allocation should really be aligned with your goals, your time horizon, and your risk tolerance, rather than just your age.

“It all starts with: What are you trying to do? Live in retirement, or create a legacy for your family or for charity? Or a little bit of both? Some of the first questions I ask are: What are your plans for how you would like to spend your money, and what’s your goal? Then I go from there.”

Calculating your cash

Another common question related to asset allocation is: How much cash should I have on hand in retirement?

“When you’re in retirement, we recommend that you have a year’s worth of expenses in cash and maybe a little extra, just in case you need slightly more than you expected,” Riley said. “Figure out what your expenses are, how much you’re going to take from the portfolio, and then have thatamount in cash.”

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Riley said rebalancing among the asset classes to replenish your cash account is an important part of the equation.

“Cash is best used for spending,” he said. “You want cash on hand so you always have liquid assets available for a spending need. Then it makes sense to have the rest of the money in your portfolio invested in both stock and bond funds, working as hard as possible to replenish that cash.”

Investing across the globe

Retirees and pre-retirees also have questions about allocating tointernational markets. One of the most relevant is: Why should I keep or increase my international exposure?

It’s a timely question, as Vanguard recently raised its recommended level of international stock and bond allocation—from 30% to 40% for stocks, and from 20% to 30% for bonds.

“The world’s markets are 50% United States and 50% everybody else,” Riley said. “We’re trying to get as close to the return of those markets as possible, while taking into account the costs of investing internationally and the associated currency risks. Our research has shown that 40% of your stock holdings, and about 30% of your bond holdings, is a good target.

“Over the next 30 or 40 years, international markets will perform differently than the United States. Sometimes they will outperform; sometimes they will underperform. We’re not trying to guess when it will happen. We just want to make sure you have exposure there to diversify the portfolio.”


All investing is subject to risk, including the possible loss of the money you invest. Past performance is no guarantee of future results. Diversification does not ensure a profit or protect against a loss.

Advisory services are provided by Vanguard Advisers, Inc. (VAI), a registered investment advisor.

Investments in stocks or bonds issued by non-U.S. companies are subject to risks including country/regional risk and currency risk.

Please remember that all investments involve some risk. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.