Life Kit

Want to protect your money? Diversify your investments

February 24, 2026

Key Takeaways Copied to clipboard!

  • The Rule of 120 (120 minus your age) provides a simple starting point for calculating your optimal stock versus bond allocation, suggesting more stocks when younger and fewer as you age. 
  • Diversification involves balancing risk and return by holding both stocks (ownership shares, riskier) and bonds (lending contracts, more predictable) in a portfolio, as they often behave differently during economic downturns. 
  • For simplicity and effectiveness, investors should focus on keeping their strategy straightforward, potentially using an all-in-one solution like a target date index fund, rather than overcomplicating the mix of assets. 

Segments

Rule of 120 Allocation
Copied to clipboard!
(00:00:30)
  • Key Takeaway: The Rule of 120 (120 minus age) suggests a percentage allocation for stocks versus bonds.
  • Summary: The Rule of 120 is a simple calculation where 120 minus your age determines your recommended stock allocation; for example, a 30-year-old should target 90% stocks and 10% bonds. This formula reflects the general principle of favoring more stocks when young and shifting toward bonds as one ages. This allocation serves as a starting point, and personal comfort level with risk should ultimately guide the final strategy.
Stocks Versus Bonds Defined
Copied to clipboard!
(00:03:05)
  • Key Takeaway: Stocks represent company ownership with higher risk and return potential, while bonds are lending contracts offering more predictable, lower returns.
  • Summary: Stocks are shares of ownership in a company, making them riskier because company performance dictates investment growth or shrinkage. Bonds are contracts where you lend money to a government or corporation in exchange for stated interest payments, making their returns more predictable. Risk and return are two sides of the same coin; higher risk (more stocks) offers a chance at higher returns, while lower risk (more bonds/cash) limits downside but also limits upside potential.
Age-Based Allocation Strategy
Copied to clipboard!
(00:06:42)
  • Key Takeaway: Long-term investors far from retirement can tolerate higher stock risk, while those nearing the need for funds should shift toward safer assets like bonds and cash.
  • Summary: Generally, younger investors should maintain a higher allocation to stocks to allow time for portfolios to rebound from volatility. As retirement approaches, the strategy should shift toward stability, incorporating more bonds, conservative stock funds, or cash in high-yield savings accounts. The ability to stick with the chosen asset allocation during tough times is more critical than hitting an exact target percentage.
Short-Term Goal Investing
Copied to clipboard!
(00:08:43)
  • Key Takeaway: For money needed in the near term (e.g., within five years), prioritizing capital protection over growth via high-yield savings or CDs is advisable.
  • Summary: When investing for short-term goals like a house down payment in five years, the primary concern is protecting the principal from market loss. Since the stock market carries the risk of negative returns at any point, it is often better to use safer options like high-yield savings accounts or Certificates of Deposit (CDs). While these may lose slightly to inflation, they protect against significant short-term losses.
US Versus International Stocks
Copied to clipboard!
(00:09:51)
  • Key Takeaway: Diversifying beyond U.S. stocks by including international funds provides exposure to different economic conditions and sectors, mitigating concentration risk in U.S. tech.
  • Summary: Investment management often assumes a strategy should include international stocks, even if online advice sometimes promotes U.S.-only index funds like the S&P 500. An S&P 500 fund is heavily influenced by large U.S. tech companies, creating sector concentration risk. International funds offer exposure to developed economies (like Canada, UK) and potentially higher-growth emerging economies (like China, India), balancing the portfolio’s risk profile.
Small Cap and REIT Diversification
Copied to clipboard!
(00:15:10)
  • Key Takeaway: Diversification can be achieved by adding small-cap/mid-cap stocks for growth potential and REITs for real estate exposure, though REITs often correlate with stock market downturns.
  • Summary: Investors can diversify within the U.S. market by incorporating index funds focused on small-cap or mid-cap companies, which are theoretically riskier but offer growth potential outside of mega-cap stocks. Real estate exposure is typically gained through Real Estate Investment Trusts (REITs), often accessed via a REIT index fund. However, REITs tend to perform similarly to stocks during major economic downturns, potentially offering less diversification than expected.
Commodities and Simplicity
Copied to clipboard!
(00:19:01)
  • Key Takeaway: Commodities like gold can hedge against inflation and downturns, but there is no industry consensus on their necessity, favoring simplicity in overall strategy.
  • Summary: Commodities are physical goods like gold, oil, or wheat that can be invested in via tracking funds; gold, for instance, often performs well during downturns and hedges inflation. Despite gold’s recent price jump, there is no industry consensus on whether commodities must be included in a standard portfolio. The best approach is generally to keep the investment strategy simple to avoid making emotional changes at the wrong time.