My daughter Morgan likes to play Life, the classic board game that takes you from college to family to retirement with several spins of a wheel. At one point, all players must stop their colored car tokens at a fork in the road on the game board and decide on taking the “risky” or “safe” path of life. The risky path, naturally, has greater potential for financial rewards than the safe path, but also greater potential for financial losses.

The “risky or safe path” is one of my favorite parts of Life, as it provides a glimpse into players’ views on risk. Just 7 years old and fairly impulsive, Morgan prefers the risky path. I, her older and “wiser” father, carefully weigh all the factors: Am I winning (i.e., do I have the most money)? How have I fared taking the risky or safe path in the past? And how soon is Morgan’s bedtime? (The safe path is a little shorter.)

In my real life as a Vanguard financial advisor, a favorite part of my job is helping people determine which path to take when it comes to their money—especially in terms of asset allocation. It’s an area where I see many of my clients struggle. It’s easy for uncertainty to cloud judgment and to end up with a portfolio having too much risk, or too little. And unfortunately, those less-than-optimal allocation decisions cost real dollars instead of game dollars.

Here are a few points about risk and allocation that I advise clients to keep in mind:

1. Allocation often doesn’t match age

Most people know the old “Hold your age in bonds” or “100-minus-your-age in stocks” asset mix formulas. These rules of thumb offer good starting points for allocation decisions, but are not perfect. In fact, I find that in most cases a suitable asset allocation doesn’t match an investor’s age—such as a legacy-minded 80-year-old maintaining an entirely appropriate 80% stock, 20% bond allocation.

2. It’s possible to “cheat” on the risk quiz

Quizzes like Vanguard’s investor questionnaire give a better indication of a suitable allocation than age-based formulas, since they take into account possible investor behavior during times of stock and bond market volatility. But again, results are just a starting point. For example, very risk-averse clients with whom I’ve spoken received recommendations of high-percentage stock mixes based on their quiz answers. And more than one client has told me, with the proverbial wink of an eye, how they took the quiz multiple times and changed their answers to get their desired results.

3. The markets will steer you wrong

The worst influence on allocation is recent market performance. I’ve spoken with many clients holding large amounts of cash for the last several years, worried that the stock market was too high and bond yields were too low, a decision that ultimately hurt their portfolios. Then there were parents who kept their kids’ 529 college savings allocated mostly in stocks through 2008, only to be left scrambling to find another way to pay their tuition bills during the financial crisis. Markets change too quickly and unpredictably to be a reliable foundation for deciding on an asset mix.

4. Your asset mix should reflect you

Ultimately, the foundation for an asset allocation decision should come down to just one thing:


“You” as reflected by your goals. Your time horizon. And your risk tolerance. These 3 factors don’t tend to change much in the short term but should evolve over the long term. That makes them much more reliable for determining the allocation that will provide the best chance of achieving financial success. But oddly enough, they are also the same factors that many people forget in their decision-making process.

What does that extra risk achieve?

A few years ago I spoke with a couple in their 60s who wanted help deciding on their allocation as they headed into a secure retirement. They had a 7-figure nest egg and modest spending needs that would be covered by a pension and Social Security benefits. With no kids, they just wanted to ensure they could cover large potential expenses, such as long-term care, and not run out of money.

Their risk quiz results recommended a moderately aggressive 60% stocks, 40% bonds—which the husband thought was too conservative. “We’ve had mostly stocks all our lives,” he told me. “With my pension, we can take on more risk. Besides, bond yields are just so low. I can’t see putting more money there.”

“Well, yes, you certainly can allocate more toward stocks,” I replied. “But given your portfolio’s size, you’ve already achieved your goal of financial security. And you told me you’re unconcerned about how much money passes to family or charity. So let me ask you: What will taking that extra risk achieve?”

The question seemed to take him aback. He paused and gave it some thought. “That’s a good question,” he finally said. “Nothing, really … but greed kicks in.”

We decided on 60/40.

The path that will serve you best

Asset allocation is the most important decision  you make with your portfolio. Take the risky path or the safe path, but understand the pros and cons of each, and how they relate to your situation. The mix that reflects you best is the one that will serve you best—no matter which space upon the path of life you land.




  • Please remember that all investments involve some risk. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.
  • Diversification does not ensure a profit or protect against a loss.
  • All investing is subject to risk, including possible loss of principal.