Investment Strategy : The Rule of 100
July 1, 2011 Leave a comment
The “Rule of 100” in investment.
For a newbie investor, they know that Stocks and Bonds are both profitable investment instruments.
So the next question they will be asking is how much stocks and bonds will they allocate in their portfolio? Is it wise to have a portfolio of stocks alone since, this investment promise a high returns? Or it is better to have a basket of bonds investment alone since, the risk it offers is low?
In INVESTMENT, there is a saying that “Whatever your age, or whatever your source of income. A bond will always be a part of your portfolio”.
The “Rule of 100” is an investment approach that will help any unsophisticated or newbie investor in allocating stocks and bonds in their portfolio. This is the simplest financial rule and mostly used by individual investor. In this rule, you don’t need to be a genius in allocating the stocks and bonds in your investment basket.
Example : Simply take 100 and subtract it with your age and the sum will be the suggested percentage of your exposure to equities (stock) market. Let’s say you are 25 right now, applying the rule of 100 by simply subtracting your age will result to 75. This mean that your portfolio should have a maximum 75% investment in stocks to optimized your long termed growth.
As you getting older, the rule of 100 will simply reduce your exposure to a risky stock market investment.
For a sophisticated investor they may say that this investment rule is an old school approach. But for me, I think this is good strategy for allocating our equities and bonds portfolio.