120 Rule Calculator

The 120 Rule Calculator is a useful tool for determining the recommended percentage of an investment portfolio that should be allocated to stocks, based on the investor's age. This rule is a guideline often used in retirement and investment planning.

Historical Background

The 120 Rule is a simplified version of the more traditional "100 Rule" used in investment planning. It emerged as a response to longer life expectancies and the need for portfolios to have more growth potential over longer retirement periods.

Calculation Formula

The formula for the 120 Rule is straightforward:

\[ \text{Percentage of Portfolio in Stocks} = 120 - \text{Current Age} \]

Example Calculation

For a 40-year-old investor, the calculation would be:

\[ 120 - 40 = 80\% \]

This suggests that 80% of the investor's portfolio should be invested in stocks.

Importance and Usage Scenarios

• Retirement Planning: Helps in determining an age-appropriate asset allocation.
• Investment Strategy: Provides a basic guideline for balancing risk and growth potential.
• Financial Advising: Often used by financial advisors as a starting point for investment recommendations.

Common FAQs

1. Is the 120 Rule suitable for everyone?

   • It's a general guideline and may not suit every individual's risk tolerance or financial situation.

2. How does the 120 Rule adapt to changing market conditions?

   • The rule does not account for market conditions; it's purely age-based.

3. Should the stock percentage be adjusted annually?

   • Yes, it's recommended to reassess the allocation annually as the investor's age changes.

4. Can this rule be applied to all types of investment portfolios?

   • It is most applicable to long-term investment portfolios, particularly those focused on retirement.