Get the Tata Capital App to apply for Loans & manage your account. Download Now

Blogs SUPPORT
Loans For You
Loans for Business
Investment
Insurance
Apply

Quick Links for loans

Quick Links for Insurance

Investment

Offers Quick Pay
Back

Equipment Finance

Avail Digital Equipment Loans
up to Rs. 1 Crore

  • Attractive ROIs
  • Customizable Loan tenure
Know More
Back

Equipment Leasing

Avail Leasing solutions
for all asset classes

  • Up to 100% financing
  • No additional collateral required
Know More
Back

New Commercial Vehicle Financing

  • First time user
  • Retail and strategic Clients
Know More
Back

Used Commercial Vehicle finance

  • Repurchase
  • Refinance
  • Top up
  • Balance Transfer
Know More
Menu  
 
Apply Now

Tata Capital > Blog > The ‘100 Minus Age’ Rule of Asset Allocation – What Is It and Should You Follow It?

Wealth Services

The ‘100 Minus Age’ Rule of Asset Allocation – What Is It and Should You Follow It?

The ‘100 Minus Age’ Rule of Asset Allocation – What Is It and Should You Follow It?

Asset allocation involves spreading investments across asset classes like equities, debt, and cash to balance risk and reward based on financial goals and risk tolerance.

One popular method for determining asset allocation is the ‘100 minus age’ rule, which tailors your investment mix as you age. This method suggests subtracting your age from 100 to find the percentage of your portfolio to allocate to equities, with the remainder in safer investments like debt instruments.

But what exactly is this rule, and should you follow it? Keep reading to find out.

What is the ‘100 Minus age’ rule?

The’ 100 minus age’ rule is a simple guideline for determining the appropriate mix of equities and debt in an investor’s portfolio based on age.

According to this rule, you subtract your age from 100 to get the percentage of your portfolio that should be allocated to equities. The remainder should be allocated to debt and other safer investments.

For example, if you are 30 years old, the rule suggests that you should invest 70% (100 minus 30) of your portfolio in equities and the remaining 30% in debt. Conversely, if you are 60 years old, you should have 40% in equities and 60% in debt.

What are the benefits of this rule?

The ‘100 minus age’ rule is a simple yet effective method for managing your investment strategy over time. Here are the key benefits:

  • Simplicity

This rule is easy to use. Anyone can calculate their desired asset allocation by subtracting their current age from 100. It’s particularly beneficial for novice investors who may feel overwhelmed by complex asset allocation strategies.

  • Age-based risk management

The rule suggests that younger investors can take on more risk by investing more in equities since they have more time to recover from market fluctuations. As investors age and approach retirement, their priority should be to preserve capital and generate a stable income stream by allocating more to debt and other stable investments.

  • Enhanced returns

Aligning investment strategy with risk tolerance and time horizon can enhance returns. Younger investors benefit from the growth potential of equities, while those closer to retirement prioritise stability with bonds. This approach helps capture market growth during the high-risk phase and preserve capital during the low-risk phase, optimising long-term returns.

Should you follow the ‘100 minus age’ rule?

While this rule is a helpful starting point, it may not suit everyone. Here are some factors to consider:

  • Risk tolerance

An individual’s risk tolerance could differ from the rule’s suggestion. If you are more risk-averse, you might prefer more bonds, even at a younger age. Conversely, you might opt for more equities if you have a higher risk tolerance.

  • Financial goals

Your financial goals, like buying a house or planning for retirement, should influence asset allocation. The rule might need adjustments to align with these goals. For instance, an investor who is nearing a significant financial milestone might want a more conservative allocation.

  • Market conditions

The rule assumes stable market conditions, which isn’t always the case. Market fluctuations can significantly affect optimal asset allocation. A conservative portfolio in a bullish market might miss capital gains, while one heavily invested in equities during a bearish market can incur substantial losses. Adjusting based on market conditions can help mitigate these risks.

To end

The ‘100 minus age’ rule is a useful asset allocation guideline, offering a simple way to balance risk and reward as one ages. However, it’s important to consider one’s individual circumstances and financial goals when applying this rule.

Regularly reviewing your portfolio and consulting with financial professionals can help you customize your investments to align with your goals. At Tata Capital Wealth, our experts can help you select the optimal investment strategies that align with your financial goals and risk tolerance.

Visit our website to start your investment today!

Build Your Wealth with Expert Guidance from Tata Capital!

Apply now
Popular Searches
aif full form pms vs mutual fund bnpl meaning aif taxation debt investment options debt syndication perpetual bond unlisted equity shares meaning gold etf vs gold bond plot plus construction loan
Disclaimer

Most Viewed Blogs

Trending Blogs

Calculator

Personal Loan EMI Calculator

Personal Loan EMI Calculator
Home Loan EMI Calculator

Home Loan EMI Calculator
Business Loan EMI Calculator

Business Loan EMI Calculator
Used Car Loan EMI Calculator

Used Car Loan EMI Calculator
Two Wheeler Loan EMI Calculator

Two Wheeler Loan EMI Calculator
Loan Against Securities Calculator

Loan Against Securities Calculator
Loan Against Property Calculator

Loan Against Property Calculator
More Tools
Our Subsidiaries
Our Other Websites

Useful Links and Resources

Most Important Terms & Conditions - Home Loans

Download in your preferred language

Download

Policies, Codes & Other Documents

Most Important Terms & Conditions - Home Loans

Download in your preferred language

Download

Tata Capital Solutions & Services

Uh oh, something went wrong

Please try again later.