Thursday of Thumb Rules 👍👍
8 general guidelines that make you a smarter investor.
#1.
100 Minus Your Age Rule
Determine your equity vs debt asset allocation.
At 30Y, 100-30 = 70.
Ideal asset allocation = 70% investment in Equity & 30% in Debt.
If investing ₹5k monthly at 30Y, allocate ₹3.5k in equity, and ₹1.5k in debt.
Why?
Simple.
As you grow older, you will have lesser time to stay in the market and tide over volatility, so equity allocation keeps reducing with age.
#2.
Rule of 72
Tells you approx. how many yrs it will take to 2x your investment?
Divide expected return rate by 72.
E.g: Expected return is 12%
72/12 = 6. Meaning your investment will double in 6Y if ROI is 12%.
Another way to use this:
Find the "Required Rate" of return to double your investments in the time you have.
72/8 years = 9%
So, to 2x your money in 8Y, you will need an ROI of 9%.
How to find it for 3x?
#3.
Rule of 114
Tell you no. of years needed to 3x your investments.
Divide 114 by the rate you expect.
114/9 ~ 12.5Y to 3x your investment @ 9% ROI.
#4.
Rule of 70
Calculate the inflation impact on your wealth.
70 / Inflation Rate
That's no. of yrs after which the current wealth will be 1/2 its present value.
Say you have ₹12L & inflation is 5%, it will be worth only ₹6L in 14Y (70/5)
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#5
5/25 Rule
When you should go for asset rebalancing.
For larger asset classes in your portfolio, consider rebalancing when their absolute value changes by 5%.
For smaller assets, consider rebalancing when their absolute value changes by 25%.
#6.
10% to Retire Rule
Start investing when you start earning.
Invest 10% of present pay for retirement. Keep % same or more as your pay.🔼
You are 24Y & earn ₹25K pm ▶ Invest ₹2.5K for retirement goal.
More here: https://kuvera.in/goals/retirement…
#7.
Emergency Fund Rule
How much should you keep aside for contingencies?
AT LEAST 6M worth of all your expenses e.g rent, food, bills, EMIs.
Pro tip
Keep it in liquid funds. Check out SaveSmart on Kuvera here https://kuvera.in/explore/save-smart…
#8.
10/5/3 Rule
Tells you the long-term avg returns on stocks, bonds/debt & cash.
- Stocks: 10%
- Debt: 5%
- Bank savings a/c: 3%
While this could vary at specific times, these are the long-term historical avg returns of respective asset classes.
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