Investor Corner/Staying the course/Bringing It All Together
6.2.2 How Much Equity Do You Need?
How much equity you need depends on your time horizon, other sources of income, and your genuine risk capacity. The common rule of thumb of subtracting your age from 100 is only a rough starting point, and any allocation should be stress-tested against a realistic 40 to 50 percent equity fall.
Why a single simple formula cannot fully answer this
The common 100-minus-age rule of thumb offers a simple, easy-to-remember starting point, but it ignores several genuinely important factors: how stable your income actually is, whether you have other significant income sources such as a pension or rental income, how many dependents rely on you, and how you have personally reacted to market volatility during any past downturns you may have already experienced.
Why stress-testing matters more than the exact starting percentage
Before settling on any specific equity allocation, it is worth explicitly imagining, and ideally actually calculating, what a genuine 40 to 50 percent fall in the equity portion would mean for your overall portfolio's total value and for your ability to comfortably meet near-term goals. If that realistic scenario feels genuinely intolerable rather than merely uncomfortable, the current equity allocation may simply be too aggressive for your actual, honest risk tolerance.
A more complete way to arrive at the right number
Starting from a simple rule like 100-minus-age, then explicitly adjusting up or down based on your own income stability, other income sources, genuine time horizon for each specific goal, and honestly assessed comfort with a realistic large drawdown, produces a far more personally appropriate allocation than mechanically applying any single formula alone.
How PriLytics helps. PriLytics shows your true current asset allocation clearly, making it straightforward to check it against whatever target feels genuinely right for your own specific circumstances. See your true asset allocation.