{"id":20528,"date":"2021-07-02T11:25:54","date_gmt":"2021-07-02T11:25:54","guid":{"rendered":"https:\/\/www.tatacapital.com\/blog\/?p=20528"},"modified":"2025-07-14T11:02:50","modified_gmt":"2025-07-14T11:02:50","slug":"how-asset-allocation-should-change-with-age","status":"publish","type":"post","link":"https:\/\/www.tatacapitalmoneyfy.com\/blog\/investment-guide\/how-asset-allocation-should-change-with-age\/","title":{"rendered":"How Asset Allocation Should Change with Age"},"content":{"rendered":"\n

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When you create your investment portfolio, one of the most important parameters that will affect your returns is the asset allocation. Meaning, the proportion you invest in different asset classes \u2013 equity, debt, gold, and so on. Ideally, you should focus on investing in such a way that your risks are minimized, and returns maximized. But, should this be a factor of your age? Does it make sense to think about asset allocation as per age? Let\u2019s find out.<\/p>\n\n\n\n

Should asset allocation change with age?<\/strong><\/h2>\n\n\n\n

Yes, absolutely. When you make an investment, you\u2019re looking to buy something that will appreciate in value with time. Each asset behaves differently over time and also accompanies a different level of risk. Your time horizon is an important determinant of risk tolerance \u2013 the longer the horizon, the more time you have to ride out the ups and downs of the market. Thus, the higher your risk tolerance. Similarly, a short time frame reduces your risk tolerance levels.<\/p>\n\n\n\n

Additionally, one\u2019s risk appetite decreases over time since expenses and financial obligations increase. As investors near retirement, their risk tolerance decreases even further because of the absence of a steady source of income. Thus, it only makes sense to strategize asset allocation as per age.<\/p>\n\n\n\n

Additional Read: <\/strong>Investing in different asset classes based on their risk<\/a><\/p>\n\n\n\n

What is the rule of thumb for asset allocation with age?<\/strong><\/h2>\n\n\n\n

Investment in stocks<\/strong><\/h3>\n\n\n\n

Stocks or equity shares of a company offer the most potential for long-term wealth creation. However, they are also subject to market changes. Now, when you\u2019re young, your long-term growth potential outweighs the risks involved. It is highly unlikely for young investors to cash out stocks when the market is down. But, as you age, the scenario will gradually reverse. Thus, it is advisable to invest in equities and equity mutual funds<\/a> when you\u2019re in your prime. With time, decrease your investments in equity and related funds.<\/p>\n\n\n\n

Investment in bonds<\/strong><\/h3>\n\n\n\n

Bonds or debt-based funds offer lower long-term returns compared to equity. However, they promise a steady stream of income and are ideal for a low risk tolerance level. Therefore, as you near your retirement, your asset allocation as per age should incline more towards fixed-income assets such as debt mutual funds. You can still make investments in this asset class when you\u2019re young, depending on your risk appetite.<\/p>\n\n\n\n

Additional Read: <\/strong>Benefit of Asset Allocation in the Portfolio<\/a><\/p>\n\n\n\n

Thinking about asset allocation according to age<\/strong><\/h2>\n\n\n\n

Investors have a handy formula to deduce the right asset allocation as per age. Simply deduct your age from 100 to calculate the percentage of your portfolio that should be invested in stocks. Meaning, a 40-year old would invest 60% of their portfolio in stocks, whereas a 60-year old would invest 40%.<\/p>\n\n\n\n

Finally, it’s during your peak-earning years that you should invest the most in stocks and the least in bonds \u2013 in your 35s to 50s. Then, as you age, you might want to bring stability to your portfolio with more debt investments and fewer equity ones.<\/p>\n\n\n\n

Over to you<\/strong><\/h3>\n\n\n\n

Looking to build a portfolio that is right for your age and risk appetite? You can now do so from the comfort of your home! Tata Moneyfy’s mutual fund app <\/a>lets you compare different investment options. Choose from equity, debt, and hybrid funds and build a portfolio that aligns with your age, investment strategy, and risk tolerance. Download Moneyfy today and start a rewarding investment journey.<\/p>\n\n\n\n

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Download Moneyfy App<\/a><\/div>\n<\/div>\n<\/div>\n\n\n\n
<\/div>\n<\/div>\n<\/div><\/div>\n","protected":false},"excerpt":{"rendered":"

When you create your investment portfolio, one of the most important parameters that will affect your returns is the asset allocation. <\/p>\n

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