Six rules almost every investor has heard. All of them contain a grain of truth. That's exactly why they're dangerous — a rule that is always wrong gets discarded; a rule that is usually right gets applied everywhere, including the places it quietly destroys value.
The following six have earned near-universal acceptance. Each one deserves a harder look.
1. "100 minus your age in bonds"
The steelman: age-based asset allocation is a reasonable proxy for declining risk tolerance and a shrinking time horizon. It is easy to explain and easy to execute.
The problem: the rule was written when the average retirement lasted ten years, not thirty. At 60, "40% bonds" made sense when you might live to 70. It makes considerably less sense when you might live to 90 — two more decades of compounding sitting in an asset class that, at today's real yields, may not keep pace with inflation after tax.
The fix is not to ignore bonds but to model your actual situation: longevity expectations, other income (pension, property, business), and genuine risk tolerance — not imagined risk tolerance tested only in bull markets. A 65-year-old with a defined-benefit pension and low spending needs can carry far more equity than the rule suggests. A 45-year-old with a volatile income and no emergency fund probably cannot.
The practical implication: use age as a starting point, not an answer.
2. "Sell in May and go away"
The steelman: seasonality in equity returns is real, and May–October has historically underperformed November–April in several developed markets.
The problem: the effect is statistically weak and highly inconsistent. A rule that relies on 10–12 data points per decade, varies by market cycle, and ignores taxes and transaction costs is not an edge — it is a pattern-matching exercise that produces the appearance of one. You also need to be right twice: on the exit in May and the re-entry in October. Miss the best weeks of October and the calendar strategy costs you more than the seasonality ever saved.
The deeper problem is what this rule trains you to do: trade on schedule rather than on substance. Discipline about when you trade is genuinely valuable. Discipline that is pegged to a calendar date rather than a valuation or a fundamental change is noise masquerading as process.
3. "Diversify into everything"
The steelman: diversification is genuinely the only free lunch in finance. Spreading risk across uncorrelated assets reduces portfolio volatility without reducing expected return. This is not an opinion; it is mathematics.
The problem: "diversify" has drifted into "own as many things as possible," which is not the same thing. Beyond roughly 20–30 stocks spread across sectors and geographies, incremental diversification reduces risk almost imperceptibly while guaranteeing that your best positions are diluted below the level where they can move the needle.
There is also a correlation problem that strikes exactly when you need protection: in a genuine crisis, correlations across "diversified" positions converge toward one. Your 40 stocks in different sectors all fell together in 2008, 2020, and every other major dislocation. Real diversification requires different risk factors, not just different tickers.
Own enough positions to avoid catastrophic single-stock risk. Beyond that point, more holdings are often an excuse for research avoidance.
4. "Dollar-cost average, always"
The steelman: automatic, regular investing removes emotion from the equation and ensures you buy through downturns rather than fleeing them. For most retail investors, DCA versus not investing at all is the right comparison — and DCA wins easily.
The problem: the comparison that actually matters for investors who have a lump sum is DCA versus immediate deployment. Historically, lump-sum investing has outperformed dollar-cost averaging roughly two-thirds of the time, across major equity markets, because markets rise more often than they fall. Systematic DCA into a rising market means your average cost is higher than your first entry.
The mechanism works against you when time in market matters more than timing the market — which is most of the time. DCA remains sensible for investors adding fresh income each month. For investors sitting on accumulated cash, the evidence tilts toward deploying promptly and tolerating the short-term variance.
5. "Never try to time the market"
The steelman: market timing as practiced by most investors — selling on fear, buying on euphoria, rotating into last year's winners — destroys value systematically. The data from DALBAR and every major fund research house tells the same story: the average investor earns significantly less than the average fund because of entry and exit decisions.
The problem: "never time the market" is routinely misapplied to mean "never let valuation influence position sizing." Those are different claims. Rebalancing away from expensive assets toward cheap ones is not timing — it is process. Trimming an equity position from 80% to 65% after a multi-year bull run is not timing — it is risk management.
The rule is a vaccine against a genuine disease (reactive trading). But it should not be an argument against adjusting position sizes in response to meaningful changes in expected return. Valuation-aware allocation is not the same thing as predicting the next crash.
6. "Rebalance on a fixed schedule"
The steelman: quarterly or annual rebalancing enforces discipline and ensures the portfolio does not drift into a risk level you never intended. Compared to never rebalancing, calendar-based rebalancing improves risk-adjusted outcomes.
The problem: the right comparison is not calendar versus nothing — it is calendar versus threshold-based. Rebalancing because it is December burns transaction costs and, in taxable accounts, crystallises gains on a clock rather than when it is optimal. Research consistently shows that threshold-based rebalancing — adjusting when an asset class drifts beyond a set band, say ±5% from target — delivers comparable risk reduction with fewer trades and lower tax drag.
Fixed schedules also create predictable behaviour that markets can front-run. Threshold-based rules are triggered by market moves, not dates.
The one thing to take away
None of these rules is worthless. All of them are right in some context and wrong in another — which is the exact condition that makes a heuristic dangerous. The discipline is not to reject them wholesale but to ask, each time: what is this rule actually optimising for, and am I in that situation?
A checklist of context questions is worth more than a list of rules. Write yours in your research notes before the market forces the question.