Hello, YieldAlley readers! In this issue:

🌮 From TACO to TART? US stock futures sink as Trump threatens blanket 15% to 20% tariffs (Sherwood)

🐶 This Is DOGE 2.0 (Wired)

2️⃣ A Recipe for Doubling Your Stock Returns, Again and Again (New York Times)

👑 The Oval Office is getting even more shiny and gold (Sherwood)

🧭 The 60/40 Portfolio: A 150-Year Markets Stress Test (Morningstar)

The world of investment advice has witnessed a fascinating evolution over the past few decades, particularly in how we think about balancing stocks and bonds in our portfolios. What began as the simple "Rule of 100" in the 1990s has progressively shifted to the Rule of 110, and now the Rule of 120 in the 2020s. Understanding this evolution—and why it matters in today's interest rate environment—can help you make more informed decisions about your own portfolio allocation.

These allocation rules provide a simple framework for determining how much of your portfolio should be invested in stocks versus bonds based on your age. The formula is straightforward: subtract your age from the rule number (100, 110, or 120), and the result represents the percentage you should allocate to stocks, with the remainder going to bonds.

Rule of 100 (1990s Era)

Rule of 110 (Transitional Period)

Rule of 120 (2020s Standard)

The progression from 100 to 120 isn't arbitrary. Rather, it reflects fundamental changes in how we live and retire. One finance professional mentioned that when he started investing in the 1990s, the Rule of 100 was standard practice. But as people began living longer and enjoying more years in retirement, the investment community recognized that retirees needed their portfolios to last longer and continue growing.

This shift represents a complete reversal in thinking. Under the Rule of 100, a 60-year-old would have been heavily weighted toward bonds (60%) with only 40% in stocks. Today's Rule of 120 flips this entirely, suggesting 60% stocks and 40% bonds for the same individual. The rationale is clear: with potentially 25-30 years of retirement ahead, investors need the growth potential that stocks provide to maintain purchasing power over time.

The evolution of these rules took on new significance when the Federal Reserve began aggressively raising interest rates in early 2022, responding to inflation that peaked near 10% by mid-2022. This marked a dramatic shift from the prolonged low-interest-rate environment that had persisted since the 2008 financial crisis.

Many investors were close to 100% in stocks and 0% even in their 40s and 50s. They felt that the return profile and overall low interest rate environment pre-pandemic meant they were getting more “value” from stocks. But this changed when the Fed started raising rates in early 2022.

These allocation rules should serve as starting points, not rigid mandates. Market conditions, interest rate environments, and personal circumstances all play important roles in determining your optimal allocation.

The dramatic interest rate increases of 2022 fundamentally altered the bond landscape. After years of historically low yields that made bonds less attractive relative to stocks, rising rates suddenly made fixed-income investments more compelling. Bonds that had been yielding 1-2% were replaced by new issues offering 4-5% or higher.

This shift prompted many investors to reconsider their allocations. Those who had been overweight in stocks relative to the traditional rules found bonds becoming attractive again. The key insight is that allocation rules should be flexible enough to account for changing market conditions while still providing a framework for age-appropriate risk management.

While the Rule of 120 provides a solid foundation, several factors should influence your final allocation decision:

Reasons to Increase Stock Allocation:

Reasons to Increase Bond Allocation:

Market Timing Considerations:

The most important lesson from the evolution of these allocation rules is that they should serve as guidelines, not gospel. The investor who shared his experience in the transcript provides a perfect example: despite being in his mid-40s during the pandemic (suggesting a 75% stock allocation under Rule of 120), he was actually 100% invested in stocks because of the low interest rate environment and his personal risk profile.

This approach worked well until conditions changed. When the Fed began raising rates in 2022 and inflation spiked, bonds suddenly became more attractive, prompting a strategic shift back toward fixed income. This real-world example demonstrates that successful allocation requires:

The evolution from the Rule of 100 to 120 reflects our growing understanding of longevity, market dynamics, and the need for growth even in retirement. However, the 2022 interest rate shock reminded us that no rule can account for all market conditions.

Use the Rule of 120 as your starting point, but remember that the best allocation is one that:

Whether you end up with the standard Rule of 120 allocation, a more conservative approach, or even 100% stocks depends on your unique situation. The key is making that decision thoughtfully, with full awareness of both the opportunities and risks involved.

As markets continue to evolve and life expectancies extend further, don't be surprised if we eventually see discussions of a "Rule of 130." The principles, however, will remain the same: start with age-appropriate guidelines, adjust for current conditions, and maintain the flexibility to adapt as your life and the markets change.

Government Money Market Funds (7-Day Yields)

Brokered CD Rates (6-Month Rate)

ETFs (30-Day Yields)

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