What does the 120 rule in investing primarily guide an individual in?

The 120 rule in investing is a guideline that suggests how to determine the percentage of stocks an individual should hold in their investment portfolio based on their age. Specifically, the rule states that an individual should subtract their age from 120 to find out the ideal percentage of their portfolio that should be allocated to stocks. For example, a 30-year-old would potentially have 90% of their portfolio invested in stocks (120 - 30 = 90). This approach emphasizes a more aggressive asset allocation toward equities for younger investors who have a longer time horizon to recover from market fluctuations, in contrast to older investors who may prefer safer, more stable investments as they approach retirement.

This rule is particularly beneficial for those looking to balance growth potential through equities while managing risk as they age. It encourages a dynamic approach to investing, allowing individuals to adjust their asset allocation as they progress through different life stages.