Asset Allocation Calculator — Formula
## Asset Allocation by Age
### The Classic Rule
**Stock Allocation = (120 - Age) x Risk Multiplier**
Older versions used 110 or 100 instead of 120, but increasing life expectancies favor more aggressive allocations.
### Risk Tolerance Adjustments
- **Conservative (0.8x)**: Less volatility, lower expected return
- **Moderate (1.0x)**: Balanced approach, standard rule
- **Aggressive (1.2x)**: More stocks, higher expected return and volatility
### Why This Works
Younger investors have more time to recover from downturns, so they can hold more stocks. As retirement approaches, shifting toward bonds reduces the risk of a devastating loss at the wrong time.
### The Classic Rule
**Stock Allocation = (120 - Age) x Risk Multiplier**
Older versions used 110 or 100 instead of 120, but increasing life expectancies favor more aggressive allocations.
### Risk Tolerance Adjustments
- **Conservative (0.8x)**: Less volatility, lower expected return
- **Moderate (1.0x)**: Balanced approach, standard rule
- **Aggressive (1.2x)**: More stocks, higher expected return and volatility
### Why This Works
Younger investors have more time to recover from downturns, so they can hold more stocks. As retirement approaches, shifting toward bonds reduces the risk of a devastating loss at the wrong time.
Exemplo Resolvido
35-year-old, moderate risk tolerance, retiring at 65.
- Base stock % = (120 - 35) x 1.0 = 85%
- Bond allocation = 100% - 85% = 15%
- Years to retirement = 30
- Expected return = 85% x 10% + 15% x 4% = 9.1%