Asset Allocation
How you divide your portfolio between stocks, bonds, and other assets matters more than which specific funds you pick. Get the big picture right and the details take care of themselves.
Stocks vs Bonds vs REITs
Each asset class plays a different role in your portfolio.
Stocks
~10%/year historically. High volatility, potential for 30-50% drops. Growth engine of your portfolio. Best for long time horizons (10+ years).
Bonds
~4-5%/year historically. Lower volatility, smaller drawdowns. Stability and predictable income. Best near retirement or for low risk tolerance.
REITs
~8-12%/year historically. Moderate volatility, rate-sensitive. Real estate exposure without landlording. Best for income generation and diversification.
Age-Based Allocation Rules
The traditional rule: 110 minus your age = stock allocation. FI seekers with longer time horizons go more aggressive.
| Age | Traditional Rule | FI Community |
|---|---|---|
Glide Paths to FI
A glide path shifts your allocation from aggressive to conservative as you approach your FI number — not based on age, but on proximity.
Accumulation
10+ years from FI — 90-100% stocks. Maximize growth. Volatility is your friend: market drops mean cheaper shares.
Transition
2-5 years from FI — 75-85% stocks. Begin shifting to 80/20 or 75/25. Build a 1-2 year cash buffer for peace of mind.
Preservation
At or near FI — 60-75% stocks. Protect what you've built while still growing. Many FI retirees settle here.
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When and How to Rebalance
Calendar Rebalancing
Rebalance on a set schedule — annually or semi-annually. Simple, requires minimal monitoring. Good for most investors.
Band Rebalancing
Rebalance whenever an asset class drifts 5%+ from target. More responsive to market moves. Catches extreme drift faster.
The FI Community View
The FI community tends toward higher stock allocations and longer time horizons than traditional financial advice suggests. Why? Because early retirees often have 40-60 year investment horizons, not 20-30.
With a longer runway, you can ride out market downturns that would devastate a traditional retiree. Many in the community hold 80-100% stocks well into their 40s and 50s, adjusting only when they're within a few years of pulling the FI trigger.
Continue Your Journey
Explore related topics to refine your investment strategy.
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