Understanding the 70/30/10 Money Rule for Stock Investing

Ever wonder why some investors seem to ride market waves with less stress? A lot of them follow a simple math formula that tells you how much to put in stocks, bonds, and cash. It’s called the 70/30/10 rule, and it can be a solid starting point for anyone looking to build a balanced portfolio without hiring a financial wizard.

What the 70/30/10 rule actually means

70/30/10 rule is a portfolio allocation guideline that suggests investing 70% of your capital in growth assets (usually equities), 30% in income‑generating assets (like bonds or dividend‑paying stocks), and keeping the remaining 10% in cash or cash‑equivalents for liquidity and emergencies. The idea is to capture market upside while smoothing out volatility with more stable instruments, and still have a safety net for unexpected expenses.

Why it works for many investors

The rule hits three core needs: growth, stability, and liquidity. By allocating the majority to stocks, you stay exposed to long‑term capital appreciation, which historically outpaces inflation. The 30% slice of bonds or similar assets acts like a shock absorber, delivering regular interest and lowering overall portfolio swing. Finally, the 10% cash buffer prevents you from selling assets at a loss when a short‑term cash crunch hits.

Psychologically, the split feels intuitive. Most people naturally think, “I want my money to work for me, but I don’t want to risk everything.” The 70/30/10 rule translates that feeling into a concrete plan, making it easier to stick to a strategy during market ups and downs.

How to apply it to a stock market portfolio

1. Determine your total investable amount. This should be money you won’t need for at least a year.
2. Calculate 70% of that sum. Put this portion into a diversified mix of Australian and global equities. Exchange‑traded funds (ETFs) tracking the ASX 200 or a global index are a low‑cost way to achieve breadth.
3. Allocate the next 30% to fixed‑income instruments. In Australia, consider Australia Government Bonds, corporate bond ETFs, or high‑quality dividend‑paying shares that behave like bonds.
4. Reserve the final 10% in a high‑interest savings account or a short‑term money market fund. This cash should be easily accessible.
5. Review your allocation quarterly. If market moves push any bucket far outside its target range, rebalance by moving money back to the appropriate slice.

Rebalancing is the glue that keeps the rule effective. Without it, a booming equity market could push the stock portion to 80% or more, inadvertently increasing risk.

Adapting the rule for Australian investors

Australian investors face a few unique factors: the superannuation system, franking credits, and a relatively high proportion of domestic listings on the ASX. When building the 70% stock slice, you might want to include a mix of ASX‑listed blue‑chips (like BHP, CSL) and overseas exposure through international ETFs. This spreads currency risk and taps into growth markets that aren’t represented in the local index.

For the 30% bond component, the Australian bond market is dominated by government securities, which are often considered low‑risk. Adding a handful of corporate bond ETFs can boost yield without dramatically increasing credit risk.

Cash in Australia earns modest interest, but high‑yield savings accounts offered by neobanks can be competitive. Keeping the cash in an account that offers franking credit‑eligible dividend reinvestment can also enhance the overall return.

Comparing 70/30/10 with other common allocation models

When you line the models up, the 70/30/10 sits nicely between aggressive growth and defensive stability. It’s not a one‑size‑fits‑all, but it’s a practical default from which you can tweak percentages to match your personal situation.

Common pitfalls and how to avoid them

• Ignoring rebalancing. Markets will move the equity slice up or down. Set a quarterly reminder to bring each bucket back to target.
• Over‑concentrating within each bucket. Diversify within equities (different sectors, countries) and within bonds (government vs corporate, varied maturities).
• Using the rule as a “set‑and‑forget” for many years. Life changes-salary bumps, mortgage payoff, or a new dependents-should trigger a fresh allocation calculation.
• Leaving cash idle. Even the 10% buffer should earn some return; consider a high‑yield savings account or a short‑term money‑market fund.
• Chasing trends. Resist the urge to move a portion of the bond slice into a hot tech stock just because it’s booming.

Quick checklist for using the rule

• Calculate total investable capital.
• Assign 70% to diversified equities (mix of ASX and global ETFs).
• Assign 30% to bonds or bond‑like assets (government bonds, corporate bond ETFs).
• Keep 10% in an easily accessible high‑interest cash vehicle.
• Schedule a quarterly rebalance.
• Review personal circumstances annually and adjust percentages if needed.