According to the rule of thumb, what is the approximate percentage of equity in a portfolio for a 40-year-old investor?

According to the rule of thumb, what is the approximate percentage of equity in a portfolio for a 40-year-old investor?

• A. 40%
• B. 60%
• C. 80%
• D. 20%

Answer: (B)

A simple guideline for asset allocation uses age to estimate how much should be in equities. For a 40-year-old, the suggested equity stake is about 60%, with the other 40% in fixed income or cash. This balances growth potential from stocks with the need to manage risk given a decades-long time horizon before retirement. It’s a starting point that can be adjusted for risk tolerance, goals, and market assumptions. If someone prefers less risk, they might reduce the equity share; if they’re comfortable with more volatility in pursuit of higher growth, they might tilt more heavily toward equities.

A simple guideline for asset allocation uses age to estimate how much should be in equities. For a 40-year-old, the suggested equity stake is about 60%, with the other 40% in fixed income or cash. This balances growth potential from stocks with the need to manage risk given a decades-long time horizon before retirement. It’s a starting point that can be adjusted for risk tolerance, goals, and market assumptions. If someone prefers less risk, they might reduce the equity share; if they’re comfortable with more volatility in pursuit of higher growth, they might tilt more heavily toward equities.