Have you ever subtracted your age from 100 to figure out how much to keep in stocks? It’s one of the most widely repeated rules of personal finance. And the classic 60/40 portfolio — 60% stocks, 40% bonds — is widely known as a great place to start with investing. But according to Yale finance professor James Choi, both of those guidelines share a critical blind spot. And for many women, that blind spot could be costing them.
Choi recently joined Jean Chatzky on the HerMoney podcast to talk about his new asset allocation research. In it, he offers a more personalized, more sophisticated way to think about how to invest your money. And the conclusions he reaches might surprise you.
What’s Wrong With the Rules We’ve Always Followed
Chatzky has long been a defender of the 60/40 portfolio. And she still believes there’s real value in it, as a framework and as a starting point. “What I always tell people is that 60/40 only works if you actually maintain it,” she says. “When stocks surge, that 60% can become 65%, 70%, and suddenly you’re carrying a lot more risk than you signed up for without even realizing it.” That’s why rebalancing annually is so important.
But here’s where James Choi’s research pushes the conversation further. Both the 60/40 rule and the “100 minus your age” shortcut, he argues, are missing something fundamental about your financial life: everything that hasn’t happened yet. Your future paychecks. Your Social Security benefits. The income that is still coming your way.
“For most of us during our working lives, our biggest economic asset is not actually our savings,” Choi explains. “It’s the future stream of wage income and Social Security benefits that are coming our way.”
Your Paycheck Is Actually a Bond. Here’s What That Means for Your Asset Allocation.
One of the most powerful ideas in James Choi’s research is the concept of human capital and how it functions like a bond in your overall wealth picture.
Here’s the logic: a traditional bond pays you a steady, predictable stream of income over time. So does your job. And because your paycheck isn’t strongly correlated with what the stock market is doing — your salary doesn’t drop 20% just because the S&P 500 does — that future income stream behaves a lot like a fixed-income asset. It’s a source of stability that most investment guidelines never account for.
In practice, that means younger investors, who have decades of paychecks still ahead of them, can afford to take significantly more risk with their money. According to Choi’s formula, a person in their 30s should very likely be 100% invested in stocks because, even if the market drops sharply, they have an enormous bond-like asset working in the background: future earnings.
As Choi puts it, “Even if you’re 100% stocks in your financial portfolio, that is a very small amount of risk you’re actually taking in proportion to the total lifetime resources you have coming your way.”
The Most Important Thing You Can Do for Your Financial Future
For all the complexity of Choi’s formula, he is quick to remind listeners of something fundamental. Asset allocation matters. But the most important variable in your financial life is how much you’re able to save.
“It is shocking how many Americans, even Americans who are not so far away from retirement age, have never tried to figure out how much money they might need in retirement,” Choi says.
His advice is to build a plan. It doesn’t need to be complicated; a simple spreadsheet that maps out how much you expect to save each year between now and retirement, grown at a conservative assumed rate of return, can tell you a great deal about whether you’re on track. And if you’re not, the time to act is now.
“It’s not good enough to say, ‘I can’t afford to save today,'” he says. “Because what you’re saying is my future self can afford to not have that money. You should at least be wide-eyed and cognizant of what you are choosing for your future self.”
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