Asset Allocation: How Much to Hold in Stocks, Bonds and Cash
Read the full lesson page, check three ideas, then try its educational activity.
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Start with a rule of thumb, then adjust for your horizon and nerves. The 110 minus age rule gives a 30 year old 80% stocks; a 60 year old 50%. From 1928 to 2025, all stocks compounded about 10.0% a year before inflation but lost 43.8% in 1931; a 60/40 mix earned 8.3% and lost 27.3% at worst (our calculation).
Check your understanding
Question 1
In our 1928 to 2025 calculation, which mix had its worst year in 2022 instead of 1931?
- 100% stocks
- 80/20
- 60/40
- 20/80
Show the answer
Answer: D. Bonds lost 17.83% in 2022, so the bond heavy 20/80 mix lost 17.87% that year, more than its 10.82% loss in 1931.
Question 2
What stock share does the 110 minus age rule of thumb suggest for a 40 year old?
- 40%
- 60%
- 70%
- 110%
Show the answer
Answer: C. 110 minus 40 is 70, so about 70% in stocks, which is a first guess to test before it becomes a plan.
Question 3
Which rebalancing method described by Investor.gov avoids selling anything?
- Waiting for the market to recover
- Sending new contributions to the underweight asset
- Moving everything to cash once a year
Show the answer
Answer: B. New money added to the asset that fell behind brings the mix back toward target without a sale.
Practice this lesson
Enter your age, choose Moderate for risk tolerance, and add your real time horizon and investment goal. Write down the illustrative stocks, bonds and cash mix it shows. Then find the closest row in the worked example table and note that row’s worst year. Run it again with Conservative and Aggressive and compare the three.
Write down what you learned
In your notes, state the idea in your own words, the evidence you checked, and one limitation. Use hypothetical figures or virtual money for any exercise.
Key takeaways
- Asset allocation, your split among stocks, bonds and cash, sets both your growth rate and your worst year.
- From 1928 to 2025, all stocks compounded about 10.0% a year but lost 43.8% in 1931 (our calculation).
- Each 20 point shift from stocks to bonds cut the compound rate by about a point and softened the worst year (our calculation).
- Bonds are not a perfect cushion: in 2022, stocks and 10 year Treasuries each lost about 18%.
- Rules like 110 minus your age are first guesses; your horizon, goals, ability and willingness decide the mix.
- Rebalancing can follow a schedule or set drift limits; an untouched 60/40 mix from 2009 was about 88% stocks by 2021.
AI responses are for educational purposes. Always verify with official course materials.
This lesson teaches a concept. It is general education, not advice about your money. Before you act on anything you learn here, speak to someone licensed.
Sources and reference material
Primary sources and original reference material for the concepts discussed on this page.
- SEC Investor.gov: Asset Allocation, Diversification, and Rebalancing
- Target Date Funds: Investor Bulletin (Investor.gov, U.S. Securities and Exchange Commission, March 25, 2025)
- Investor Bulletin: Interest Rate Risk (U.S. Securities and Exchange Commission, June 2013)
- Market Yield on U.S. Treasury Securities at 10 Year Constant Maturity, monthly (GS10), Board of Governors of the Federal Reserve System via FRED
- Aswath Damodaran, NYU Stern: Historical Returns on Stocks, Bonds and Bills (updated January 5, 2026)
References added 14 October 2026.
