How much equity should you have? Asset allocation by age
About 100 minus your age in equity, 10% gold, the rest debt. See the mix by age, how far each falls in a 30% crash, and how to rebalance without tax.
6 min read
How much of your money should be in equity? It's the most important investing decision you'll make: it decides most of how much your portfolio grows, and how far it falls in a bad year. Which fund you pick matters much less.
A common rule of thumb: equity of about 100 minus your age, about 10% in gold, and the rest in debt. Then shift it up or down by about 10 points for how you'd feel watching it fall.
Asset allocation by age
| Age | Cautious | Balanced | Growth |
|---|---|---|---|
| 25 | 65% | 75% | 80% |
| 35 | 55% | 65% | 75% |
| 45 | 45% | 55% | 65% |
| 55 | 35% | 45% | 55% |
| 65 | 25% | 35% | 45% |
Why does equity fall with age? The closer you are to needing the money, the less time you have to wait out a fall. At 30, a crash is a sale on what you'll hold for decades; at 60, it's a cut to what you'll live on next year.
What counts as debt: FDs, savings, debt funds, and your EPF, PPF and NPS's bond part. Count them all, even the ones you can't sell. Leave out the home you live in.
How far each mix falls in a bad year
Figure 1 from the Asset mix calculator
How far each mix falls in a year equity drops 30%
- 100% equity, 0% debt−30%
Long-run return about 11% a year
- 80% equity, 20% debt−22.6%
Long-run return about 10.2% a year
- 60% equity, 40% debt−15.2%
Long-run return about 9.4% a year
- 40% equity, 60% debtSmallest fall−7.8%
Long-run return about 8.6% a year
How to read it
- 1Debt keeps earning while equity falls, cushioning the drop. The price is a lower long-run return: about 9.4% a year for 60/40 against 11% for all equity.
Pick the mix whose bad year you could sit through without selling. A plan you abandon in a crash does worse than a more cautious one you stick with. What pausing your SIP in a market fall really costs shows why.
When your mix drifts: rebalancing
Markets move your mix for you. After a few good years for equity, a 40-year-old aiming for 60% equity can find themselves at 80%, with no gold at all.
Figure 2 from the Asset mix calculator
A 40-year-old's mix after a run-up in equity
- Equity80%
- Debt & cash20%
- Equity60%
- Debt & cash30%
- Gold10%
How to read it
- 1Equity has grown to 80% of ₹50 L.
- 2The target is 60% equity, 30% debt and 10% gold.
Two ways back:
- Sell and move it now: sell ₹10 L of equity into debt and gold. With 40% of the equity being gain, that costs about ₹35.8K in LTCG tax.[1]
- Steer new money: put every new rupee into debt and gold until the mix catches up. That needs ₹16.67 L of new money, about 42 months at ₹40K a month, and costs no tax.
Left alone, equity would keep drifting up, to about 83% in five years.
Try it with your numbersAsset Allocation PlannerEnter what you hold in equity, deposits, EPF and gold. See your mix against the target for your age, and the cheapest way back.
What this doesn't mean
- "100 minus age" is a starting point. Your goals' dates matter more than your age: money for a house in three years shouldn't be in equity at 25.
- Returns are assumptions. Equity at 11% and debt at about 7% a year are long-run averages; the fall is a stress test, not a forecast.
- No fund is recommended. Allocation is about the mix, not the product.
Target equity = 100 − age, ±10 for cautious or growth, kept between 20% and 80%; 10% gold; the rest debt. For illustration only, not investment advice.
Sources
- [1]Union Budget 2024-25: Budget speech (capital gains: 12.5% LTCG, ₹1.25 lakh exemption, 20% STCG) (opens in a new tab)Ministry of Finance, Government of India · 23 Jul 2024