Asset Allocation Models

Asset allocation is the division of a portfolio across asset classes, primarily stocks and bonds, with cash and international stocks as further slices. A model is just a target for that division, written as percentages that add to 100. The classic example is 60/40: 60% stocks, 40% bonds. The model comes first; the specific ETFs that fill each slice come second.

It matters because the stock/bond split is the single biggest lever on how a portfolio behaves. Stocks carry the growth and the volatility; bonds carry the ballast. A portfolio's expected return and how deep its drops feel are driven far more by that ratio than by whether you picked one large-cap fund over a near-identical one. Choosing a model is really choosing how much of a decline you are willing to sit through in exchange for long-run growth. For the underlying trade-off between the two asset classes, see our stocks vs bonds guide.

Most model portfolios are labelled by where they sit on a risk spectrum, and the label maps to a stock/bond split:

• Conservative (income): roughly 20% to 40% stocks, the rest in bonds. Built to limit the depth of losses, at the cost of lower expected growth. It suits people near or in retirement, or anyone who cannot tolerate a large drop.
• Moderate (balanced): around 60% stocks and 40% bonds, the classic middle ground. Enough stock exposure to grow, enough bonds to soften downturns. It suits a mid-career investor with a medium time horizon.
• Aggressive (growth): about 80% to 90% stocks with a small bond sleeve. It accepts big swings for a higher expected long-run return, and suits investors with a long horizon who can hold through steep declines without selling.

These are points on a continuum, not fixed rules. Vanguard's LifeStrategy funds, a widely cited reference, run at 20/80, 40/60, 60/40, and 80/20 stock/bond mixes, which line up closely with these labels. Where you land is a personal call tied to your goals and how much volatility you can stomach.

The 60/40 portfolio, 60% stocks and 40% bonds, is the long-standing default for a balanced investor. The idea is simple: stocks provide the growth engine while bonds provide ballast, so the portfolio grows over time but falls less sharply than an all-stock one during a downturn. Historically the two asset classes often moved in opposite directions, so bonds cushioned stock declines.

It had a genuinely bad year in 2022, when rising interest rates pushed stocks and bonds down together and the usual cushion failed. That prompted plenty of "60/40 is dead" commentary. In practice it remains one of the most cited baseline models, and many investors still treat it as the neutral starting point they then adjust up or down in stock weight. It is a reference point, not a mandate.

The three-fund portfolio is a way to implement almost any allocation model with three broad index funds: US stocks (VTI or VOO), international stocks (VXUS), and US bonds (BND). You choose the stock/bond ratio to set your risk level, then split the stock side between US and international, commonly leaving 20% to 40% of stocks international.

That structure can express any of the models above. A moderate 60/40 investor wanting 30% of stocks international would land near 42% VTI, 18% VXUS, and 40% BND. An aggressive 90/10 investor would hold far more in the two stock funds and a thin bond slice. The three-fund approach is popular precisely because it separates the model (the percentages) from the implementation (three cheap, broad funds). For the exact tickers and ratios, see our best ETFs for a 3-fund portfolio guide, or the even simpler lazy portfolio variants.

Because risk tolerance usually falls as you approach the point of spending the money, many models tie the stock share to age. The best-known rule of thumb is 120 minus age: subtract your age from 120 to estimate the stock percentage, with the rest in bonds. A 30-year-old lands near 90% stocks, a 60-year-old near 60%, an 80-year-old near 40%. It replaced the older 100-minus-age rule, nudged upward because people live and stay invested longer, so a bit more stock exposure is often reasonable.

A glide path is the same idea made continuous: the allocation drifts from stock-heavy when young toward more bonds over time. Target-date funds automate exactly this. A 2060 fund might hold around 90% stocks today and gradually shift toward 40% to 50% as 2060 nears, doing the age-based rebalancing for you inside one ticker. These rules are starting points, not precise formulas; two people the same age with different goals can reasonably land in different places.

Core-satellite is a model for investors who want broad diversification but also a few specific bets. The core, usually 70% to 90% of the portfolio, is a large, low-cost, broadly diversified base in funds like VTI or VOO that sets the overall risk. The satellites are smaller positions, a sector, a theme, a growth tilt, or a single conviction stock, that let you express a view without betting the whole portfolio on it.

The appeal is that a bad satellite call dents but does not sink the portfolio, because the core carries the weight. The discipline is keeping satellites small and watching for overlap, since a tech satellite can double-count stocks the core already holds heavily. For sizing and the overlap trap, see our core-and-satellite ETF portfolio guide.

The stock and bond figures are rounded conventions, not prescriptions, and the international column refers to how much of the stock side sits outside the US. These are illustrative starting points; the right model for any person depends on their horizon, goals, and tolerance for a drop. For a fuller walkthrough of assembling one, see our how to build a diversified portfolio guide.

Picking a model comes down to three questions: how long until you need the money, how much of a temporary drop you can hold through without selling, and what the money is for. A long horizon and a strong stomach point toward the aggressive end; a short horizon or a low tolerance for losses points toward the conservative end; most people land somewhere near moderate. The 120-minus-age rule and the conservative/moderate/aggressive labels are just shortcuts for that judgment.

Maintaining a model is mostly about rebalancing. Over time a strong stock run pushes your actual mix above its target stock weight, quietly raising your risk, so you periodically sell a little of what grew and buy what lagged to return to target. Most investors rebalance once a year or when a slice drifts more than about 5 percentage points. See our how to rebalance your portfolio guide for the mechanics and the tax note.

Walnut is an AI investing app that sits on top of your existing brokerage rather than replacing it. Connect any major US broker, then chat through Claude, ChatGPT, or the built-in assistant to see how your real holdings map to an allocation model: what your actual stock, bond, and international split is right now, how far it has drifted from a target model you have in mind, and how each slice has performed against the S&P 500. You can build baskets around a chosen model and track them against target weights. Walnut reads your account read-only by default, and any trade waits for your approval. It does not tell you what to buy or which model to pick.