Many consider the “100 minus age” rule as a smart investing approach for a happy retirement life.
The 100 minus age rule is known as the rule of thumb developed over the years for better asset allocation.This rule says how much of each investment type you need to hold in your portfolio at a specific age.
100 minus age rule says you should take 100 and subtract your age to find out the percentage of your assets to be allocated in stocks or equities. For instance if you are 40 years old, then subtract 40 from 100: the resultant is 60, which means you need to allocate 60% of your portfolio to stocks, balance 40% can be invested in corporate bonds, government bonds, fixed deposits, post office deposits and/or any other less risky financial assets.
This helps in diversification of your portfolio across various financial assets.
The 100 minus age rule basically says what proportion of your portfolio should be invested in equity.
Which means as you move towards 100 years, you should gradually decrease your allocation to equity and increase your allocation into less risky assets. In other words, you should gradually reduce your risk as you get older.
Some have modified the rule to 110 minus your age or 120 minus your age. Whatever be the rule, the main objective is to reduce your asset allocation in risky assets over time.
Does it mean that you should go by the rule? Well, you can, but it largely depends on your net wealth.
If you have enough for retirement, you can even go for 100% equity. It depends on your investing strategy and financial goals in mind.
The 100 minus age rule is not applicable to all scenarios.
