What is the 100-age rule of asset allocation?

Once you’ve built up your savings and started investing, the next question is, what should be your portfolio split? Proper asset allocation is based on the investor’s risk profile. As one gets older, the risk appetite decreases and investments should reflect the appetite to protect one’s interests. The “100 minus age” rule helps people understand the appropriate asset allocation based on an investor’s age. Since equity is the riskiest asset class, using the age minus 100 rule, investors can determine the percentage of equity in their portfolio. If the investor is 25 years old, the portfolio should consist of 100-25, or 75 percent equity and the rest should be debt instruments.