One of the greatest challenges with investing is that nobody can predict the future. This makes estimating the value of your investments far from an exact science.
After all, you have no idea what the market will do tomorrow, let alone 20 years from now. This is where rules of thumb like the 10-5-3 Rule come in handy.
The 10-5-3 Rule offers a simple way to estimate future investment returns based on how much of your portfolio is in stocks, bonds and cash.
Let’s take a look at how the 10-5-3 Rule works and see whether it’s reliable enough to use for your portfolio.
What is the 10-5-3 Rule?
The 10-5-3 Rule is a guideline that assumes you can expect the following average annual returns over the long term:
10% from stocks ;
5% from bonds ; and
3% from cash and cash equivalents, such as Treasury bills and money market funds .
These percentages aren’t arbitrary.
According to the Wells Fargo Investment Institute, large-cap stocks returned 10.5% on an annualized basis from 1926 through 2025. Long-term Treasury bonds returned 5%, short-term T-bills 3.3%.
But it’s important to distinguish between historical averages and future expectations.
“There’s a big difference between what the market has averaged historically and what an investor is actually going to experience,” says Wealth Guide Financial Founder Mike McCracken .
McCracken considers the 10-5-3 Rule a decent starting point if you’re new to investing . For more serious planning , though, you probably need more depth.
How can you use the 10-5-3 Rule?
One practical use for the 10-5-3 Rule is to estimate a portfolio’s average annual return based on its asset allocation.
Christopher Walsh , regional marketing director and financial advisor at Capital Choice Financial Group, says you can do this by multiplying the percentage of your portfolio invested in each asset class by its corresponding expected return.
For example, say you have $100,000 invested as follows:
60% in stocks : $60,000 earning a hypothetical 10% would generate $6,000.
30% in bonds : $30,000 earning 5% would generate $1,500.
10% in cash : $10,000 earning 3% would generate $300.
If you add those amounts, you’ll get a hypothetical average annual gain of $7,800, or a 7.8% annual rate of return.
Walsh likes to pair the 10-5-3 Rule with the Rule of 72 , which estimates how long it takes an investment to double. To use the Rule of 72, simply divide 72 by your average annual return.
At 7.8%, your portfolio would roughly double every nine years, assuming consistent returns and no contributions or withdrawals.
Of course, neither rule accounts for the stock market’s inevitable ups and downs , which is why they’re better used as guidelines rather than planning tools.
Does the 10-5-3 Rule still apply in 2026?
You may have read that past returns do not guarantee future results. This disclaimer is included in investment disclosures for a reason, apart from federal regulations.
Indeed, it’s a foundational market rule: What stocks did over the last decade may not match what they do in the next decade.
For instance, Vanguard’s July 2026 capital markets forecast projects that U.S. stocks will return anywhere from 4.2% to 6.2% in the coming decade. That’s a lot lower than the 10% assumption used in the 10-5-3 Rule. Vanguard also projects U.S. bonds to return 4.3% to 5.3%, U.S. cash 3% to 4%.
Walsh prefers to plan using a 7% to 9% average annual return assumption, depending on time horizon and risk tolerance.
He believes the 10-5-3 Rule is more useful for younger investors because historical averages are generally taken over a 30-year or longer time period. So “you really need a good long runway to improve your probability” of reaching these averages.
McCracken takes a more cautious view, particularly when planning for retirement.
“When I’m working with someone getting ready to retire, I’m much more interested in what happens when the market doesn’t cooperate,” he says. “A retirement plan needs to work in good markets, bad markets and everything in between.”
He prefers to use more conservative assumptions and stress-test what happens in uncooperative markets.
What are the limitations of the 10-5-3 Rule?
The biggest limitation of the 10-5-3 Rule is that it makes the market sound more predictable than it actually is. “If only it were that simple,” McCracken says.
Some years, you may earn more than the rule predicts, while other years may return less. McCracken points to 2022, when investors “with a traditional stock-and-bond portfolio learned a painful lesson.”
Rising interest rates caused both stocks and bonds to tumble, resulting in the fourth-worst year for the S&P 500 since its 1957 inception, with a loss of 18%, and a 13% decline for the Bloomberg Aggregate Bond Index.
The rule also overlooks investment fees and taxes, as well as contributions or withdrawals, all of which can impact your overall return.
Another important consideration is your level of diversification . Walsh cautions that investors holding only a handful of stocks may see returns that differ substantially from historical market averages.
He recommends diversifying across companies and sectors, with exchange-traded funds ( ETFs ) offering one relatively inexpensive way to do so. Still, even a diversified portfolio won’t eliminate market losses.
If you’re retired, you should be especially careful about using the rule. A market decline early in retirement can significantly alter how long your savings last. This is known as sequence of returns risk .
As McCracken puts it, “You don’t get to spend your average rate of return, you can only spend the actual returns you receive.”
Should you use the 10-5-3 Rule?
The 10-5-3 Rule can have a place in your toolkit. But it’s not a substitute for true financial planning.
Ultimately, your investment time horizon, risk tolerance and financial goals should determine how you structure your portfolio, especially when you’re investing for major goals like retirement.
McCracken suggests asking yourself a different question: “What rate of return do you actually need to earn to make your retirement plan work?”
If you can reach your goals with a 5% rate of return, for example, there’s little reason to take unnecessary risk to chase 10%.
The goal should be to reach your goal taking on only as much risk as you need and can stomach.
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