There’s no single right answer, but here’s the quick version: many planners suggest that how much of networth should be in stocks depends mainly on your age, your time horizon and how well you handle losses. Common rules of thumb land somewhere between 40 percent and 80 percent for typical long-term investors, with younger savers leaning higher and people nearing retirement leaning lower.
Those numbers are starting points, not instructions. Below is a way to think it through yourself.
First, Which “Networth” Are We Talking About?
Net worth is everything you own minus everything you owe. That includes your house, which for many people is the biggest asset and isn’t something you’d sell to rebalance. So when people ask this question, they usually mean one of two things:
- The share of your investable assets (retirement accounts, brokerage accounts) in stocks.
- The share of your entire net worth, including home equity, a business or other holdings.
The first is far more common and easier to apply. If a large share of your wealth is already in a home or a private business, you may want fewer stocks in your investment accounts.
How Much of Networth Should Be in Stocks at Different Ages?
Subtract your age
The old “100 minus your age” rule says a 40-year-old would hold 60 percent in stocks. Because people live longer, many now use 110 or even 120 instead. These are shortcuts, not science.
The 60/40 portfolio
A classic mix of 60 percent stocks and 40 percent bonds has been a benchmark for decades. It’s not a promise of returns, and it has had rough years, but it’s a useful reference point.
Target-date funds
These funds automatically shift from stocks toward bonds as a retirement year approaches. If you don’t want to decide on your own, they’re a hands-off way to follow a typical glide path. Their stock share varies by provider, so read the fund’s documents.
How to Work Out Your Own Number
- Define the goal. Money you’ll need in two years shouldn’t be in stocks. Money for retirement in thirty years can usually handle more ups and downs.
- Check your emergency fund. If you’d have to sell investments to cover a job loss, you’re more exposed. Keeping several months of expenses in cash can make a higher stock share easier to hold.
- Be honest about risk tolerance. A drop of 30 percent or more has happened in stock markets historically. Ask how you’d react. If you’d panic and sell, a lower stock share may serve you better.
- Consider your other income. A stable pension or a secure salary lets some people take more risk. Irregular income argues for caution.
- Write the plan down. Choose a target range, such as 60 to 70 percent, and rebalance when you drift outside it.
A Simple Illustration
| Situation | Possible stock share (illustrative) |
|---|---|
| Early career, long horizon, steady job | Higher end, perhaps 70 to 90 percent |
| Mid-career with a family | Moderate, perhaps 60 to 75 percent |
| Near retirement | Lower, perhaps 40 to 60 percent |
| Short-term goal within a few years | Little or none |
These ranges are illustrative only. Real situations vary, and professionals may recommend something quite different.
Mistakes to Avoid
- Putting too much of your net worth in your employer’s stock.
- Chasing last year’s winners and ignoring diversification.
- Forgetting that “stocks” can include funds, which spread risk across many companies.
- Never rebalancing, so a bull market quietly pushes your stock share higher than planned.
Where to Learn More
The SEC’s investor education site, sec.gov, has plain-language guides on asset allocation and diversification. A fee-only financial planner can also help tailor a plan, and it’s worth asking how they’re paid before you start.
We’d sum it up this way: pick a stock share you can stick with through a bad year, tie it to your goals, and review it once or twice a year.
Special Situations
If you own a business or rental property
Illiquid assets behave differently from a stock fund. A business can lose value when the economy slows, just like the market does, so having both a business and a heavy stock allocation may double up on the same risk. Some advisers suggest treating a business as a big “stock-like” holding when planning the rest.
If you’re already retired
Retirees face something called sequence-of-returns risk: a bad market in the first few years of withdrawals can do outsized damage. Many keep a few years of spending in cash or bonds so they don’t have to sell stocks in a downturn.
If you have debt
Paying off high-interest debt, such as credit cards, can be a better “return” than investing, since the interest rate you save is certain. This is a common point in beginner guides, and it’s worth checking against your own numbers.
Reviewing Your Allocation
We suggest reviewing once a year or after major life events: marriage, a new child, a job change, an inheritance. Rebalancing doesn’t have to be exact. Many people use a threshold, such as acting when your stock share drifts five percentage points from the target. Watch for taxes and fees when selling in a taxable account, and use new contributions to rebalance where possible.
Again, how much of networth should be in stocks is a personal call: the best allocation is one you can keep through a market drop without abandoning your plan.
This article is for general information only and is not financial advice.
