One of the most popular in the world of private investment is the rule of 100. We do not like generalizations, but we like rules that allow us to simplify the management of our money and thus save time. By applying this rule we are talking about the diversification of risk by different assets.
What Does the Rule Mean in Investments?
The rule of 100 tells us the percentage of assets that we should allocate to risky investments. Simply put, the percentage of investment in risky assets should be 100 less your age.
Practical Example of the Rule of 100
You can easily determine what your exposure to risky or variable return products should be by applying the 100 rule. Imagine you are 30 years old, this means that your financial assets should have a 70% exposure to risky products. If you happen to be 60 years old, then the exposure will be 40%.
The concept is logical because the closer to the retirement age the less risky our investment should be because safety and stability at these times are of immense importance. Similarly, the newer the greater the exposure, because it is considered that even if the investment does not run the best way there is always a longer period of time to recover it.
What to Think About This Rule
As I said earlier there is logic in the 100 rule, but even so, I believe the investor should not be governed by this rule, but rather by its ability to analyze the value of a particular investment or investment portfolio.
Imagine that, according to the latest indicators, you can not determine an investment opportunity that is likely to yield acceptable future returns and whose risk is equally acceptable or within your loss limits. However, you are faced with 50% of your financial assets not indexed to variable income, would you risk investing to comply with this rule? Probably not, because you do not find value in the investment and the real rule in this type of situation is to do nothing.
Sometimes doing nothing, or not investing, is the best investment decision, as well as the best advice you may ever have. To reinforce, when you come to the point where you decide to do nothing you are receiving advice from the man in the mirror, that is, the person you trust the most, yourself.
Therefore, I do not consider value in the 100 rule, however, I recognize that it is an excellent incentive for younger people to venture into the worlds of risky investments.
What is the Best Investment of All?
Do you know the best risk-free investment? Did you know that it is possible to earn close to 20% per year without risk? Do not believe? Know that debt reduction allows you big gains, without risk and without having to pay taxes. In order to earn money in this way, we suggest that you look at our tips for building your family budget so as to free up liquidity for that investment.