Last Updated: April 17, 2023, 08:40 IST
Everyone wants to invest their money wisely to see good returns. But they get confused about where to invest their savings and in what ratio. You must have encountered the same difficulty and found it tough to choose between equities and other assets. One rule that can help you in this situation is the 100 minus age rule. One of the most popular rules of investment, the 100 minus age rule can help you allocate money across fixed income and equity and create a more balanced portfolio.
How the 100 minus age rule works
The 100 minus age rule is based on a simple principle. The amount of an investor’s investment in stocks must be 100 minus their age. The remaining amount should be in bonds. For example, if the investor’s age is 30, 70 percent of their portfolio must be invested in equities (equity mutual funds, stocks and more) and the remaining in debt (bonds, debt mutual funds and fixed deposits).
How does this benefit investors?
The 100 minus age rule is based on the probable risk-taking appetite of the individual. Investors are likelier to take more risks and have a longer time to watch their investments mature when they are younger. This means that they can invest more of their income in equities to get good returns in the long term. As people age, they are liable to prefer fixed and regular income over market risks, which means that the allocation of savings in debt will be more.
The 100 minus age rule encourages a diversified portfolio that caters to an individual’s age. Under this rule, the savings will be effectively allocated across different sectors, creating a more balanced portfolio.
Things to keep in mind:
You have to keep a few things in mind before you start following the 100 minus age rule in your investment. The rule is generic in nature and does not consider the current market conditions, an individual’s risk tolerance and performance of specific stocks. You may alter the rule according to your wishes and taking your own goals, appetite for risk and current market conditions into account.
The 100 minus age rule is a great starting point if you are looking to invest your money. You can personalise it according to your needs, financial goals and the current market conditions to get the best results.
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