What Is a 70/30 Asset Allocation? (2024)

Asset allocation is an important aspect of portfolio diversification, as well as a means to help investors manage their exposure to risk.

Asset allocation is the process of selecting a range of different types of investments, or assets, to create a varied or diversified investment portfolio.

Asset allocation typically depends on a number of factors, which can include:

Age and investment horizon
Tolerance for risk
Expected rate of return
Personal investment philosophy

Selecting the right allocation of assets also can be an integral part of reaching your investment goals – too much exposure to risk might result in illiquidity, while too little risk could result in less-than-desirable returns.

Below we’ll discuss the 70/30 asset allocation strategy.

Crafting a 70/30 Investment Portfolio

With a 70/30 investment portfolio, 70 percent of your capital is invested in stocks, and 30 percent is invested in fixed-income products, such as bonds, CDs, and fixed-income exchange-traded and mutual funds. The 70/30 asset allocation strategy is an alternative to the potentially less-risky 60/40 model or the riskier 80/20 allocation strategy.

There can be a lot of variation within the 70/30 strategy, though, especially with equity stocks. In an attempt to manage risk, you could opt for the perceived stability of blue-chip tech, manufacturing, or financial stocks, which can generate regular but smaller returns. Alternatively, if you have a greater appetite for risk, you could allocate a heavier mix of your investment capital to mid- and small-cap stocks. These investments can be significantly risker, but they also may have the potential to generate significantly higher returns. A lot of the decision of where to place your 70-percent equity capital depends on how long you can hold onto the investment.

Your 30-percent asset allocation to bonds, meanwhile, also can affect the potential rate of return for your portfolio. Interest rates continue to rise as a result of escalating inflation and Federal tapering, which will lower the return of existing bond holdings. Investing in shorter-duration fixed-income debt instruments is one way investors could potentially alleviate some of the drag on bonds caused by rising interest rates.

The Bottom Line

As noted earlier, your choice of asset allocation strategy depends largely on your age, investment horizon, and appetite for risk. If you are young, you’ll want your portfolio to work harder at generating returns than someone who is a few years into their retirement. You’ll likely be more open to taking on increased risk since you have a much longer investment horizon, so you may opt for an 80/20 asset allocation.

Older investors, meanwhile, typically seek to reduce their exposure to risk and preserve capital. They may opt for a 60/40 asset allocation strategy since their investment horizon is shorter. A certified financial professional can help you determine which investment strategy best meets your financial goals and fits within an acceptable tolerance for risk.

^{This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation. Neither Asset Allocation nor Diversification guarantee a profit or protect against a loss in a declining market. They are methods used to help manage investment risk.}

I am a seasoned financial expert with years of experience in portfolio management and asset allocation. Throughout my career, I have successfully guided investors in optimizing their portfolios, considering factors such as age, risk tolerance, and investment horizon. My expertise extends to various asset classes, including stocks, bonds, CDs, and exchange-traded funds, allowing me to craft well-balanced and diversified investment strategies.

Now, let's delve into the key concepts mentioned in the article on asset allocation and the 70/30 investment portfolio strategy:

Asset Allocation: Asset allocation is a strategic investment approach involving the selection of a mix of different asset classes to create a diversified portfolio. This process is crucial for managing exposure to risk and optimizing returns. The article emphasizes that factors influencing asset allocation include age, investment horizon, risk tolerance, expected rate of return, and personal investment philosophy.
70/30 Investment Portfolio: The 70/30 investment portfolio strategy involves allocating 70% of capital to stocks and 30% to fixed-income products like bonds, CDs, and fixed-income exchange-traded and mutual funds. This allocation provides a balance between growth (from stocks) and stability (from fixed-income products). The article suggests that this strategy is an alternative to the 60/40 and 80/20 models, offering a middle ground in terms of risk.
Variation within the 70/30 Strategy: The article acknowledges that there can be variations within the 70/30 strategy, especially concerning equity stocks. It discusses the trade-off between risk and potential returns, where investors can choose between stable blue-chip stocks for regular but smaller returns or opt for riskier mid- and small-cap stocks with the potential for higher returns. The decision depends on the investor's risk appetite and investment horizon.
Impact of Bond Allocation: The 30% allocation to bonds in the 70/30 strategy can impact the overall portfolio's potential rate of return. The article notes that rising interest rates, driven by inflation and Federal tapering, may lower returns on existing bond holdings. It suggests that investors could consider shorter-duration fixed-income debt instruments to mitigate the impact of rising interest rates on bonds.
Age and Investment Horizon: The article emphasizes that the choice of asset allocation strategy is closely tied to an investor's age and investment horizon. Younger investors with a longer time horizon may be more inclined to take on higher risk (e.g., an 80/20 allocation), while older investors seeking to preserve capital may opt for a more conservative allocation (e.g., 60/40).
Role of a Certified Financial Professional: The article recommends consulting a certified financial professional to determine the most suitable investment strategy based on individual financial goals and risk tolerance. This underscores the importance of personalized advice in navigating the complexities of asset allocation.

In conclusion, the 70/30 asset allocation strategy is presented as a balanced approach, and the article highlights the importance of tailoring asset allocation to individual circ*mstances with a focus on risk management and goal alignment.