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Probably the happiest period in life most frequently is in middle age, when the eager passions of youth are cooled, and the infirmities of age not yet begun; as we see that the shadows, which are at morning and evening so large, almost entirely disappear at midday–Thomas Arnold 1795-1842, British Educator, Scholar

As you move into your 40s and 50s, your asset allocation should reflect your shorter investing horizon. While there is no one right asset allocation between stocks and bonds at this age, many recommend allocating between 70% (aggressive) and 40% (conservative) to stocks. Some may begin their 40s at the aggressive end of this allocation, and slowly move to the conservative allocation as they near 60. Richard Ferri, in his book All About Asset Allocation, proposes two portfolios (one basic, one multiple assets) that allocates 55% to stocks. Here are his two suggested portfolios:

Asset ClassPercentSample Low-Cost Funds and Symbols
US Equity30%Vanguard Total US Stock Market Index (VTSMX)
International Equity15%Vanguard Total International Portfolio (VGTSX)
Real Estate10%Vanguard REIT Index Fund (VGSIX)
Fixed Income45%iShares Lehman Aggregate Bond Fund (AGG)
Asset ClassPercentSample Low-Cost Funds and Symbols
US Equity
Core US Equity23%Vanguard Total US Stock Market Index (VTSMX)
Small Value5%iShare S&P 600 Berra Value (IJS)
Micro Cap2%Bridgeway Ultra Small Company Market (BRSIX)
Real Estate10%Vanguard REIT Index Fund (VGSIX)
International Equity
Pacific Rim - Large4%Vanguard Pacific Stock Index (VPACX)
Europe - Large4%Vanguard European Stock Index (VEURX)
Small Cap3%Vanguard International Explorer Fund (VINEX)
Emerging Markets4%DFA Emerging Markets (DFEMX)
Fixed Income
Investment-Grade20%iShares Lehman Aggregates Bond Fund (AGG)
High-Yield10%Vanguard High Yield Corporate Bond (VWEHX)
Inflation-Protected10%Vanguard Inflation-Protected Securities (VIPSX)
Emerging Markets5%Payden Emerging Markets Bond (PYEMX)

I’m in my early 40s, and for me, these suggested portfolios are a tad too conservative. My current stock allocation is 85%, but through 401(k) contributions, I’m slowly increasing my bond investments. Even at 40 (and to some of you, that may sound ancient), I have 25 years until retirement and (hopefully) 20 or more years after retirement. So my investing horizon is still quite long. That said, I do find that as my investments grow, my tolerance for risk diminishes. All of which is to say, you have to decide what asset allocation is best for you. Ferri’s two suggested portfolios above, however, are a good place to start.

Author Bio

Total Articles: 1120
Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Article comments

1 comment
FosterNieves says:

cool links, thanks!,