James Choi’s Formula: How Much Should You Invest in Stocks?

The percentage of your portfolio in stocks drives your long-term returns more than almost any other decision you’ll make. Rules of thumb try to simplify that decision, but they don’t involve much information about your actual life. A new formula from Yale finance professor James Choi does.

Choi’s model made a splash when The Wall Street Journal covered it under the headline “A Yale Professor’s Investment Formula Says You Need More Stocks.” His mathematical framework challenges the idea that stock allocation should shrink as you age, and he’s published it as a public spreadsheet that investors can use themselves.

The implications for retirees and pre-retirees are worth understanding.

How James Choi’s Investment Formula Works

The Choi formula calculates your stock allocation by treating your total wealth as the sum of two things: your investment portfolio today, plus the present value of all future income you expect to receive. Social Security, pensions, and future paychecks all count. The formula then works out what share of that total wealth you want in stocks, and calculates the portfolio percentage needed to get there.

Because guaranteed income sources are stable and don’t track markets, the formula treats them like bonds. When you have a lot of them, your portfolio can carry more equity.

The model is built on a paper Choi co-authored through the National Bureau of Economic Research. What separates it from age-based rules is this: it uses your actual financial picture rather than a single proxy variable. The “100 minus age” rule uses one number to represent your entire financial life. Choi’s formula uses income, savings and investments, risk tolerance, and future earning capacity.

How Your Social Security and Future Income Are Like a Bond

Your Social Security check and any pension income you receive cover a portion of your spending every month regardless of what markets are doing. That regularity is what makes them function like bonds in Choi’s model. Your portfolio never has to do the work those income streams already handle, which frees it to carry more equity risk than your age alone would suggest.

Most allocation guidelines ignore this. They treat your investment portfolio like it’s your only financial asset. Choi’s formula accounts for the full picture.

A worker early in their career might reasonably hold 100% of their investment portfolio in stocks. Decades of future paychecks can offset any downturns without touching their investments. A 55-year-old with substantial savings and fewer working years ahead faces a different calculation. More of their lifetime wealth has moved into their portfolio, so that portfolio’s performance matters more.

Three questions worth asking yourself before running the formula:

• What income do you have coming in beyond your portfolio?
• How do your current savings compare to your future earning power?
• How would you respond if your portfolio dropped 30%?

The answers shape the formula’s output more than your age does.

How Savings vs. Income Shifts Your Recommended Stock Allocation

The more of your lifetime wealth that’s already in your portfolio, the lower the equity allocation Choi’s formula recommends. There’s more to protect and less future income to cushion a bad market year. The Wall Street Journal used a 50-year-old couple to show how much the output shifts depending on that ratio.

Investor Profile	Portfolio Value	Choi Recommendation	“100 Minus Age”	Vanguard Target Fund
50-year-old couple, $160K income	$400,000	88% stocks	50% stocks	~50% stocks
50-year-old couple, $160K income	$800,000	53% stocks	50% stocks	~50% stocks
70-year-old retired couple, $72K Social Security, higher risk tolerance	$1,000,000	64% stocks	30% stocks	31% stocks

The first couple’s 88% allocation looks aggressive. The formula’s logic: most of their lifetime wealth is still in the form of future paychecks, not in their portfolio. When more of your total wealth has landed in your investment accounts, the formula reduces the equity percentage. At $800,000, the same couple drops to 53%, because there’s more to protect and less future income to cushion a downturn.

The 70-year-old couple’s 64% recommendation is the most striking figure in the table. It’s more than twice what “100 minus age” would suggest. The explanation is in the next section.

How James Choi’s Formula and the Bucket Strategy Share the Same Logic

The insight behind both approaches is the same: when guaranteed income covers your near-term spending, your portfolio can behave like long-horizon money. Choi’s formula arrives there through math; the bucket strategy arrives there through structure.

The bucket strategy divides assets by time horizon. Near-term expenses sit in cash or short-term bonds; money you won’t need for a decade or more goes into equities. The logic is that protecting your short-term spending means your long-horizon money can weather a bad market year without forcing you to sell.

Choi’s formula reaches the same conclusion through different math.

For the 70-year-old couple with $72,000 in combined Social Security income, their guaranteed income handles everyday spending. Their portfolio never has to cover near-term expenses on a fixed schedule. The entire $1 million can behave like long-horizon money because the short-term need is already handled elsewhere.

That’s why 64% stocks makes sense for them. Social Security refills every month on its own, outside the portfolio. It does what the near-term bucket does, except it’s permanent and doesn’t deplete.

The logic is the same whether you’re bucketing assets or running Choi’s math: figure out what income you’ve locked in before deciding how much risk your portfolio has to carry.

Higher Stock Allocations Come With a Catch

A higher stock allocation is only sustainable if you can hold it when markets fall. That’s the variable Choi’s formula can’t measure for you.

A higher equity percentage is sustainable only if you can hold it when markets eventually drop. A 30% portfolio decline changes real decisions about spending, work, and withdrawals, not just numbers on a screen. Investors who held through 2008 and March 2020 came out well; those who sold into cash at the bottom locked in losses at the worst possible moment.

Would you hold your allocation through a drawdown like that? If you’d be forced to sell or shift to cash when markets fall, a more aggressive stock allocation probably isn’t right for you regardless of what the formula produces.

Your industry matters too. Jobs in finance, real estate, and tech tend to track economic cycles. If your income and your portfolio can both decline at the same time, you’ve lost two buffers simultaneously. That kind of correlation is worth building into your thinking before pushing your equity allocation higher.

The formula produces a starting point. Your actual behavior in a bad market is the variable it can’t account for.

How to Apply James Choi’s Formula to Your Portfolio

Figure out what income you have outside your portfolio. Add up your Social Security, any pension, and other guaranteed sources, then ask what share of your spending those sources cover. The portion left over is what your investments have to fund. That remainder is what Choi’s formula uses to set your equity allocation, and it’s a more honest basis for the decision than your age.

Allocation decisions depend on your full financial picture, the same inputs that go into a thoughtful financial plan. The core 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 ratio determines how hard your investments have to work.

The Boldin Planner, featuring Boldin AI, lets you map this out. Open the Portfolio section and adjust your stock and bond mix. Watch how your withdrawal picture changes. Add your Social Security projections and any pension or annuity income. Seeing what share of your spending is already covered by guaranteed sources is exactly what Choi’s formula is asking you to calculate. Running the numbers inside your actual plan gives you a clearer basis for the decision than any rule of thumb can.

Frequently Asked Questions