The Rule of 110

An ultra-simple approach to updating your investments as you age

How much of your invested capital should you have in stocks, and how much should you have in bonds? It’s an age old question, and one that is pondered on an hourly basis by thousands of savvy investors, analysts, and advisers. Our goal here is not to provide advice for what to do this very minute, but to provide a general principle that can be useful in shaping your decisions.

Let’s start with a hypothetical: if you could live forever, what percentage of your investments would you put in stocks? The answer is almost certainly 100%, since you know you could always outlast a dip in the stock market. Now you see the issue: if someone is 90 years old, even a brief dip in the stock market may gut their portfolio and reduce the money they have for expenses and inheritances.

Stocks mostly go up, you might say. And when they go down, they usually shoot right back to where they were. Well, that’s been true, but it’s a perspective that’s shaped by recent bear markets, such as the sharp but short 2008-2009 crash and even shorter pandemic-related downturn in 2020. But after the Great Depression, it took until 1959 for the Dow Jones to retake its speculation-fueled 1929 high. That’s thirty years! Japan’s major index, the Nikkei, did not reclaim the levels reached during the 1989 bubble until 2024. (See chart below.) Japanese investors who put a portion of their paychecks into stocks every month would have been better off leaving it in the bank.

Above: The Nikkei’s disastrous 35 “lost years”.

Cautionary tales like these should make it clear why having at least some percentage in bonds is wise. However, having too much in bonds can be a mistake as well. Since the beginning of the long bear market in bonds and bull market in stocks that began in 1980, bonds have returned around 2000%, while stocks have returned closer to 6000%. (Figures courtesy of this wonderful page.) This is because bonds only return the original investment plus interest, and stocks, in some cases, can rise to hundreds or thousands of times their original purchase price.

So clearly the answer is somewhere in between a high risk all stock portfolio and a dull bond portfolio whose FOMO will probably be realized. Clever analysts came up with a rule that still applies today: the 110 rule. (It is occasionally also modified to the 100 rule or 120 rule to make it somewhat more conservative or less conservative, respectively.)

The rule is simple: the percentage in stocks you should own is equal to 110 minus your age.

So if you’re 20, you should have 110 – 20 = 90% in stocks, 10% in bonds. You should have ample time to recover from even the worst downturn in the market, and want to give those higher returns plenty of time to compound.

If you’re 70, you should have 110 – 70 = 40% stocks, 60% bonds. This still gives you exposure to some upside, and won’t wipe out your whole portfolio if there’s a major economic crisis.

If you’re an active investor, rebalancing to get to these percentages is worth doing every few years. The good news for investors who work on their portfolios less is that a number of retirement products are now offered that automatically rebalance to follow the rule. These funds generally have “target” in the title followed by a year when retirement is targeted, such as 2050. They automatically rebalance their holdings to slowly shift more toward bonds and away from stocks as time goes by. If you have a 401(k), target plans may be a simple way to ensure your portfolio is always age-adjusted without ever having to think about doing it yourself.

The 110 rule isn’t everything, but it can provide a simple way to adjust your portfolio as you age that is objective and doesn’t require any kind of speculation on the future direction of asset values.