Average Investing

Appropriate asset allocation is a key component of investing. It tailors a portfolio to an individual’s investment goals, timeframe, risk appetite and risk tolerance. There are a plethora of asset classes available to the individual investor and choosing a pertinent allocation can be difficult. Investing dogma would dictate a diversified portfolio, with a higher proportion of ‘riskier’ investments initially that tapers to a more cautious allocation as retirement looms.
The expanding number of financial independence blogs represent an increasing repository of investing information for those with similar aims. Some readers might follow the investment advice of those blogging about their progress towards FI; what if they chose to use an asset allocation that represented an average of all the portfolios? And what would that look like: an all-out, total stock market equity-fest? A mind Bogle-ing three-fund portfolio? A set in stone permanent portfolio? We wanted to find out.

Finding the numbers

We generated a list of FI blogs from various resources, including Fire Hub and the FIRE-UK subreddit. We didn’t include blogs based outside the UK or portfolios that used a currency other than GBP (£). We asked the author(s) of each blog to provide their age and a breakdown of their asset allocation.
If there was no reply or no means of contacting the author directly (via blog, email or social media) we searched their site for a description of their asset allocation. If this was not available, we excluded the blog.

Figure 1. Data collection flowchart

What did we find?

Though we contacted forty-seven different bloggers, we were only able to collect data from seventeen of them (36%). The average age of those surveyed was 38yrs old (range 26yrs – 55yrs). Average (mean) asset allocation can be seen below.

Figure 2. Average asset allocation of surveyed FI bloggers. Unlabelled wedges: P2P (1.4%, cyan), commodities (0.6%, purple).

Every blogger had at least some equities in their portfolio (mean 67.6%, range 7 – 100%), making it the most commonly held asset class. This was followed by property (15.3%, 0 – 68%), bonds (8.9%, 0 – 25%) and cash (4.7%, 0 – 40%). P2P (1.4%, 0 – 10%) and commodities (0.6%, 0 – 10%) were the least popular asset classes. Indeed, only two of those surveyed held any commodities whatsoever. Other asset classes (1.5%, 0 – 10%) made up the remaining allocations and varied in their description from ‘exotic investments’ through to endowment policies.

One to rule them all

Equities are the popular choice in many portfolios for their high return, although that comes with a higher volatility too. The ‘100-age’, or even ‘120-age’, rules are ways of choosing an appropriate equity allocation for your portfolio.
Our results show that equity allocation was (weakly) negatively correlated with age (r = -0.12). I.e. the older the blogger, the lower their equity allocation. The trend approximately matched a ‘105-age’ strategy*.

Figure 3. Equity allocation plotted against current age.

Bar one outlier, no portfolio held less than 25% equities. Arguably one might have expected an overall higher equity allocation in an FI ‘accumulation’ portfolio: the better returns on equity could allow you to reach your FI number more quickly.

Figure 4. The ratio of equities to bonds in each portfolio plotted against current age. Those portfolios without a bond allocation were excluded (n=3) as their ratio was ∞.

The name’s…

Bonds. The corollary to reducing equity holdings as you age is a rising bond allocation. The lower-volatility nature of bonds is thought to make them better holdings closer to retirement, though there was no correlation between bonds and age (r = 0.001) in our data.
The ratio of equities-to-bonds in portfolios did downtrend with age, although this was a very weak correlation (r = 0.06). Overall we had expected a lower bond allocation, certainly in the portfolios of younger bloggers. The predilection for bonds may represent those nearing FI who wanted to shield their capital from market dips (and hence delay the time to FI).

Mi casa

The UK is often said to be a nation obsessed with buying houses. Although some might plan to rent long-term, the majority are likely to end up purchasing property. We hypothesised that those with no property allocation would have a high cash allocation, as they save towards a house deposit (e.g. H2B ISA, LISA, cash savings) and keep liquidity high. As being mortgage-free will be a part of many peoples’ FI plans, we also thought that property allocation would increase with age.

The ‘liquidity factor’ failed to materialise; there was no correlation between cash and property allocation (r = 0). The highest cash holding (40%) was, however, in a portfolio that held no property.
Our other housing hypothesis was borne out slightly better – no blogger under 30yrs held property but everyone over 40yrs owned some. Property allocation weakly correlated with age (r = 0.18).

Figure 5. Property allocation plotted against current age.

A pinch of salt

Generating data for only 36% of blogs was disappointing. The lack of responses probably stems from a combination of unchecked email accounts, unchecked junk/spam folders and an unwillingness to share personal financial information with a stranger (fair). Those who did respond represented some of the most popular names in UK FI blogging. Most wanted to remain anonymous, though there was a strong representation amongst our animal-based peers with data coming from both the Foxy Monkey and the FI Fox himself.

There are idiosyncrasies in the data we were provided that might also skew the results. The data is likely to represent a blend of actual and idealised asset allocation, though this may not have had a measurable impact on the results. Some will count their property as part of their portfolio as it makes up part of their net worth; others will have excluded it as it’s not part of an investment portfolio. This may partly explain the large range of property allocation (between 0% and 68%). Those who’ve just bought a first house are likely to have a higher proportion of their net worth allocated to property. Conversely those who don’t own property or have done so for a while may have more invested in other assets.

Similarly, some may have felt cash holdings (inc. emergency funds) didn’t count towards their investment portfolio and excluded this from their asset allocation. We tried to provide a broad range of asset class options, though excluded things such as cryptocurrency – this could have been part of the ‘other’ category though. Overall there’s enough small variations in the way bloggers perceive their asset allocation that this might have impacted the results.

Final thoughts

The average FI blogger we amalgamated was 38yrs old, with an equity allocation approximating to a ‘105-age’ rule and a diversified portfolio that included holdings in all major (and some alternative) asset classes. Not exactly mind-blowing stuff.
If we were to run our small experiment again we would definitely want to generate a larger data set, so that it’s more representative. We’d perhaps provide clearer instructions as to what we’d like, whether that’s asset allocation as a percentage of net worth, or of perceived ‘investment portfolio’, or some other framing of the question.
This experiment is not meant to be a methodologically robust, highly scientific analysis of the FI blogging community. Rather, we thought it’d be interesting to see how much FI bloggers stick to some of the classic investing tropes and have some fun with the numbers.

If you have a question that you’d like our data set to try to answer, comment it below or get in touch. In the near future we’ll play around with the ‘average FI portfolio’ and see how it would have fared as an investment strategy!


Mr. MedFI

* Trendline: y = 110-1.14x. The ‘110-age rule’ would have the trendline y = 110-x.

6 thoughts on “Average Investing

  1. Thanks for analyzing this. I’m one of your contributors. My results suggest a ‘137-age’ strategy! My equity share has probably been between 75% and 98% over the past 25 years and will likely stay in that range in all future years. I didn’t include my home residence in my property investments as I don’t regard it as a part of my portfolio. Others may have included it so that may have impacted on the results.
    It might be interesting to compare expected returns and expected volatility for the average allocation here and for some of the outliers.


    1. Thanks for the comment! Yes I think in retrospect giving clearer instructions on whether to include property or not may have led to a more robust set of results. Fear not, the next post is about the expected returns and volatility for the Average Investing portfolio!


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: