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Should your bond allocation match your age?

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An old investment rule-of-thumb says the percentage of bonds in your portfolio should match your age. Here, experts evaluate and update it for a new economic era.

A number of investment experts – including veteran investor John Bogle, founder of Vanguard – advocate roughly matching your bond allocation to your age.

This means if you are 45, 45 per cent of your portfolio should be in high-quality bonds.

Every investor’s attitude to risk is different, but the thinking is if you are approaching retirement age, you are more likely to want a steady fixed income.

Adrian Lowcock, senior investment manager at Hargreaves Lansdown, says: “Your income won’t grow, but it won’t shrink. That’s the advantage of bonds: they’re reliable.”

He adds that the relative stability of the bond market allows long-term investors to look past the “noise” that triggers short-term reactions in the equity market.

While matching your bond exposure to your age may have once been a good rule-of-thumb, commentators now suggest it could limit your income in retirement.

Rewriting the rule

Alex Hoctor-Duncan, head of EMEA retail at BlackRock, says: “I can see why it might seem a nice, simple, attractive personal calculation to make, and at the end of the day humans like to feel comfortable in their decision-making.

“However, I’m not convinced that since we’re all living longer and thus need to be actively invested for longer, having a broad calculation like that would lead to the best outcome for the investor.”

James Priday, director of Prydis Wealth Limited, says sticking to this rule could be counterproductive in the current low interest rate environment.

He explains: “As interest rates rise bond values tend to suffer, so an 80 year old with 80 per cent of their investable assets in bonds could see relatively significant capital losses over the next couple of years as the base rate moves upwards. For most 80 year olds that isn’t something they can afford to see happen.”

According to Priday, the determining factor behind your exposure to bonds or fixed interest should not be your age but your objectives, attitude to risk, investment time horizon and the wider economic climate.

“This isn’t anything new, but they really are the guiding principles all investors should abide by,” he says.

However, age does have something to do with it, according to Lowcock.

“The longer your time horizon, the more risk you can take on board. But no matter what your age, never invest more than you would feel comfortable losing.”


The key message to investors – whatever their age – is to diversify. By failing to diversify you could be exposing yourself to increased risk without even realising it.

“Diversification really is key to reducing risk, so concentrating your portfolio more and more to one asset class as you get older, whether that be fixed interest, equities or property, is a risky strategy,” Priday says.

Rather than keeping the majority of your portfolio in bonds as you approach the end of your working life, Lowcock recommends a mixture of income-producing asset classes.

He says: “Ideally you’ll always want a mix of equity and bonds – and make sure you’re invested across a range of different bonds and other types of income.

“You can complement that with other assets like commercial property and infrastructure funds, which also produce an income.”

Hoctor-Duncan believes that people should get into the habit of saving younger and look for consistency over their investing life.

“Regardless of age,” he says, “a diversified portfolio is the thing you require.”


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