Accredited Financial Counselor (AFC) Practice Exam

The 120 rule is a guideline used for asset allocation in investment portfolios, particularly in determining how much to invest in stocks versus bonds as one approaches retirement. According to this rule, you subtract your age from 120 to find the percentage of your portfolio that should be allocated to stocks.

In Janie's case, at 45 years old, you would perform the following calculation:

120 - 45 = 75.

This means that according to the 120 rule, Janie should have 75% of her portfolio invested in stocks. The purpose of this rule is to provide a balance between growth potential and risk, as younger investors typically have a longer time horizon to recover from market fluctuations, allowing for a higher percentage of stocks in their portfolios.

This approach is aligned with a growth-oriented investment strategy, deemed appropriate for someone who has several decades before retirement. Hence, investing 75% of her portfolio in stocks is an appropriate strategy under the guidance of the 120 rule.