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Asset Allocation by Age Isn't Enough: What a Bank Checks Instead

Philipp 6:03 Episode 5 of Money Decisions

Asset Allocation by Age Isn't Enough: What a Bank Checks Instead

How much of your money belongs in stocks? Most people answer with a gut feeling. A banker separates two things the feeling confuses: how much risk you can handle, and how much you can afford — and only one of them should be setting your allocation.

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How Much of Your Money Should Be in Stocks?

There is no universal percentage, and the honest answer does not come from a questionnaire. Your risk capacity sets the ceiling: three checkable facts, namely how long until you need the money, how stable your income is, and whether a cash buffer stands between a market fall and a forced sale. Risk tolerance, the feeling a questionnaire measures, can pull you below that ceiling but must never push you above it. UK regulation has required firms to establish both since 2011, and the regulator's own review found that many advisers assessed the feeling while failing to account for the capacity.

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