Deciding how much of your portfolio to put in stocks is the kind of question that can keep you up at night because there’s no obvious answer. In practice, this stock allocation (the percentage of your portfolio in equities instead of bonds and cash) is one of the biggest drivers of your long‑term returns.
Rules of thumb and target-date funds try to simplify the process, but those investment frameworks don’t involve much information about your actual life.
A new formula from Yale finance professor James Choi made a splash when The Wall Street Journal covered it with the headline, “A Yale Professor’s Investment Formula Says You Need More Stocks.” His mathematical model challenges the idea that stock allocation should shrink over time — and he turned it into a public spreadsheet that investors can use, with some surprising implications for retirees and pre-retirees.
This approach, based on a paper Choi co-authored, can often result in a more aggressive recommendation. The reasoning behind it is worth a quick look.
How Future Earnings Change Your Stock Allocation in Retirement
The key point is that most allocation guidelines treat your investment portfolio like it’s your only financial asset, when it isn’t. Choi’s formula takes factors like your income, savings and investments, risk tolerance, and the value of future earnings into account.
For example, if you have years of earned income ahead of you, or a pension, or Social Security benefits, Choi likens those income streams to a large, stable bond. They don’t follow what the stock market does on any given day.
This means younger and older investors can likely afford to hold more risk in their equity allocation than simple age-based formulas suggest. A young worker early in their career might have 100% of their portfolio in stocks because years of future labor income can offset any downturns. If you’re 55 with substantial savings and fewer working years ahead, the same portfolio risk would affect a larger share of your lifetime wealth.
As you go deeper into retirement and your income streams dwindle, Choi’s formula adjusts accordingly, reducing the stock allocation. But the logic is anchored to a more complete picture of your income, benefits, savings rate, and spending.
What makes Choi’s formula feel more like financial planning than a rule of thumb
A rule of thumb like the “100 minus age” rule (e.g., if you’re 60, keep 40% of your portfolio in stocks) uses one variable to stand in for your whole financial life. Choi’s formula instead accounts for the same factors that shape a thoughtful financial plan.
A useful way to apply this to your situation is to ask yourself the questions a good advisor would:
- What income do you have coming in beyond your portfolio?
- How do your current savings compare to your future earning power?
- How would you react if your portfolio dropped 30%?
Treating a portfolio like it exists in a vacuum leads to bad estimates of how much risk you can actually carry. This is the same logic the Boldin Planner is built on: pull in your income sources, projected benefits, and spending, and portfolio decisions get a lot clearer.
Why Savings and Income Matter More Than Age Alone
The Journal used a 50-year-old couple as an example. In one scenario, they earn $160,000 and have $400,000 to invest; in the other, they have $800,000 to invest. Choi’s formula recommends 88% stocks (12% in bonds and cash) in the first scenario, which drops to 53% in the second. When more of your total wealth is already in your portfolio, the formula puts less of it in stocks because you have more to protect and less need to overextend for growth.
An even more intriguing example involved a 70-year-old retired couple with $72,000 of combined annual Social Security income and $1 million in investable net worth. If they have a higher risk tolerance, Choi’s formula puts them at 64% stocks compared to 30% using “100 minus age” and 31% using Vanguard’s Target Retirement Income fund.
That allocation will likely look too risky to some readers. But the point is that what’s right for you depends on your full financial context, not a fixed formula based on age.
How Market Volatility Affects Your Financial Plan
Choi’s framework is useful because it challenges conventional advice that can be too conservative. It provides an occasion for you to revisit your financial situation and investment strategy, but there’s some necessary nuance.
Higher stock allocations are sustainable only if you can really stay the course when markets eventually drop. A 30% portfolio decline can have a substantial effect on your life decisions, not just your portfolio’s numbers.
Would you be forced to sell or shift to cash in a bad market year? If the answer is yes, then a more aggressive stock allocation probably isn’t right for you.
For workers, your industry also matters. Your income could be tied to economic cycles, as with jobs in finance, real estate, and tech. This means your job security and your stock holdings might both go south at the worst possible time. Correlations like that are worth taking into account when considering adjustments to your investment strategy.
Choi’s Formula Is Another Take on the Bucket Strategy
The bucket strategy divides your assets by time horizon. Near-term expenses sit in cash or short-term bonds, and money you won’t need for a decade or more goes into equities. The point is that protecting your short-term spending means your long-horizon money can weather a bad market year without you having to sell anything.
Choi’s formula arrives at the same idea, with a twist. Guaranteed income like Social Security is functionally doing what the near-term bucket does, except its outside your portfolio and refills on its own every month. Your investable assets never have to cover ordinary expenses on a schedule. That’s why a 64% equity allocation works for a retired couple pulling $72k a year from Social Security. The whole $1M portfolio can afford to be long-horizon money because the short-term need is already handled elsewhere.
The logic, whether you’re bucketing or running Choi’s math, is to figure out what income you’ve got locked in before deciding how much risk your portfolio has to carry.
See How Much You Rely on Withdrawals Using the Boldin Planner
Whatever you make of Choi’s spreadsheet, the principle behind it is that allocation decisions hinge on your full financial picture. The key question is how much of your spending you’ll need to withdraw from your portfolio versus what’s covered by Social Security, a pension, or other guaranteed income. That’s what determines how hard your investments have to work.
The Boldin Planner lets you map that out. Adjust your stock and bond mix in the Portfolio section and watch how your withdrawal picture changes. Add your Social Security projections and any pension or annuity income. This will give you a good idea of how much of your spending is already covered, which is exactly what Choi’s formula is asking.
Key Takeaways
- Your brokerage account portfolio is one piece of your financial profile. Social Security, a pension, and any future paychecks provide bond-like income, absorbing some of the risk your stocks carry. That’s why Choi’s model often lands on higher equity percentages than age-based rules do in the years just before and after you retire.
- A higher equity allocation is only worth holding if you can actually hold it. Would a rough market year push you to sell? If your paycheck tends to shrink when stocks fall, then a more aggressive mix is probably riskier than the model assumes. That’s the stress test worth running before you make any changes.