Dear Reader, We, as investors have a lot of questions in mind regarding Equities. We all know that equities are an asset class only give returns as well as create wealth. But, questions are – how we can multiply it, how much we have to invest, how much I should withdraw to keep my principal intact and many more. Today, we will understand the rules which normally used by financial planners or advisors to answer our questions. These rules are interesting, easy to calculate in our daily lives. But one should be clear about the result as it may be approximate and may not be exact answers which we are looking for. It will up to you, your risk profile and depend on your financial advisor. How Much Should You Invest In Equities? 100 Minus Your Age Rule. One of the basic ideas while investing in equities is to reduce the exposure as you grow older. But, apart from age, there are also many other factors affecting your asset allocation which makes risk profiling an important exercise. For the rest of us, this rule easily gives an idea of the extent of equity exposure, considering the age. For eg., if your age is 40, your equity exposure should be at (100-40 = 60) 60%. The balance would be invested in debt and other safer asset classes. Note that this old rule is contested by many experts today who argue that 100 be replaced by 110 or 120 or even higher considering the need for wealth creation, longer life expectancy and low debt returns.
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