Asset allocation — the split between growth assets (shares, property) and defensive assets (bonds, cash) — is the single most important driver of long-term portfolio returns and risk. Getting the allocation right for your age, goals, and risk tolerance is more important than picking the right individual shares or ETFs.
The Foundation: Growth vs Defensive
Australian investment portfolios are commonly described by their growth/defensive split:
| Category | Typical assets | Return driver | Risk |
|---|---|---|---|
| Growth (high risk) | Australian shares, global shares, property, alternatives | Capital appreciation | Higher — significant volatility |
| Defensive (lower risk) | Bonds, term deposits, cash | Income/capital preservation | Lower — limited downside |
Super funds in Australia are classified by their growth/defensive allocation:
- High Growth: 85–100% growth
- Growth: 70–85% growth
- Balanced: 50–70% growth
- Conservative Balanced: 30–50% growth
- Conservative: 0–30% growth
Age-Based Allocation Rules
Several rules of thumb link asset allocation to age:
Rule 1: “100 minus age” (traditional)
$$\text{Shares %} = 100 - \text{Your age}$$
Age 30: 70% shares / 30% bonds Age 50: 50% shares / 50% bonds Age 65: 35% shares / 65% bonds
Limitation: With Australians living well into their 80s and 90s, this rule is considered too conservative — particularly at younger ages.
Rule 2: “110 minus age” (adjusted for longevity)
$$\text{Shares %} = 110 - \text{Your age}$$
More commonly recommended for Australian conditions:
| Age | Shares % | Defensive % |
|---|---|---|
| 25 | 85% | 15% |
| 35 | 75% | 25% |
| 45 | 65% | 35% |
| 55 | 55% | 45% |
| 65 | 45% | 55% |
| 75 | 35% | 65% |
Rule 3: “120 minus age” (aggressive, for long retirements)
For investors with a long time horizon or those following the FIRE movement, 120 minus age reflects higher risk capacity:
$$\text{Shares %} = 120 - \text{Your age}$$
Australian Portfolio Allocation Examples
Accumulation phase (age 30, long horizon):
| Asset | Allocation | ETF example |
|---|---|---|
| Australian shares | 30% | VAS |
| Global shares (unhedged) | 45% | VGS |
| Global shares (hedged) | 10% | VGAD |
| Bonds | 10% | VAF |
| Cash | 5% | — |
| Total | 100% | — |
Pre-retirement (age 55, 10 years to retirement):
| Asset | Allocation | ETF example |
|---|---|---|
| Australian shares | 25% | VAS |
| Global shares | 30% | VGS |
| Property/infrastructure | 10% | GLIN |
| Australian bonds | 20% | VAF |
| International bonds | 5% | VIF |
| Cash/term deposits | 10% | — |
| Total | 100% | — |
Retirement (age 65–70, drawing income):
| Asset | Allocation | ETF example |
|---|---|---|
| Australian shares (high yield) | 20% | VHY |
| Global shares | 20% | VGS |
| Bonds | 30% | VAF |
| Cash/term deposits | 20% | — |
| Infrastructure/alternatives | 10% | GLIN |
| Total | 100% | — |
How to Calculate Your Required Allocation
Step 1 — Identify your time horizon: When do you need this money? Under 3 years: mostly defensive. Over 10 years: mostly growth.
Step 2 — Assess your risk tolerance: Can you stomach a 30% portfolio drop without selling? If not, reduce growth allocation.
Step 3 — Apply a starting rule: Use 110 minus age as a starting point for shares allocation.
Step 4 — Adjust for your situation:
- Stable job, high income, long horizon → more growth
- Near retirement, dependent on savings → more defensive
- High existing super balance relative to income needs → can afford more growth
Step 5 — Review annually: Rebalance when allocation drifts more than 5% from target. See Portfolio Rebalancing Australia.
Expected Returns by Allocation
Historical approximate returns for Australian portfolios (long-run, before fees):
| Allocation | Expected return p.a. | Worst year (approx.) |
|---|---|---|
| 100% growth | 8–10% | −35% to −50% |
| 80% growth | 7–9% | −28% to −40% |
| 70% growth | 6–8% | −24% to −33% |
| 60% growth | 6–7% | −20% to −27% |
| 50% growth | 5–7% | −15% to −20% |
| 30% growth | 4–5% | −8% to −12% |
Higher allocations to growth deliver more return over time — but require tolerance for significant short-term volatility.
Related Calculators
- Investment Calculator Australia
- Retirement Calculator Australia
- FIRE Number Calculator Australia
- Investment Calculators hub
Frequently Asked Questions
What is the best asset allocation for a 40-year-old Australian? Using the 110-minus-age rule, a 40-year-old would hold approximately 70% growth assets and 30% defensive. This might translate to 60–65% shares (Australian + global ETFs), 5% property/infrastructure, 25–30% bonds and cash. The right split depends on individual risk tolerance, income stability, and retirement timeline. General information only.
How often should I rebalance my portfolio in Australia? Most evidence supports annual rebalancing, or rebalancing when any asset class drifts more than 5% from its target. More frequent rebalancing generates unnecessary tax events (CGT) and brokerage costs. Directing new contributions toward underweight assets is a low-friction rebalancing method.
Should my super and personal portfolio have the same allocation? Not necessarily — they can be considered together as one combined portfolio. Many investors hold higher-risk assets in super (benefiting from the 15% earnings tax rate) and more defensive assets outside super. What matters is the total portfolio allocation across all accounts matching your goals and risk tolerance.
This article provides general financial information only. Asset allocation decisions should reflect your personal circumstances, risk tolerance, and investment goals. For advice tailored to your situation, speak with a licensed financial adviser through the ASIC financial advisers register or MoneySmart.