What is this '100-(100 minus)' rule? Why do experts in the world of investment consider it a 'golden rule'?

The biggest question in the world of investment that troubles everyone is "How much money, where to invest?". How much money should be invested in risky but high-return avenues like equity (Stock Market), and how much money should be kept in safe but low-return avenues like debt (FD, government bonds)? The answer to this one question determines the picture of your entire financial future.

If you are also confused about this, then do not worry. Financial experts have found a very simple and effective solution to this, which is called the '100- (100 minus)' rule. It is also called The 100-Year Rule. This is not bookish knowledge, but a practical formula, which investors around the world adopt to keep their portfolios balanced. Know about this 'golden rule' and understand how it can work.

What is the '100- (100 minus)' rule?

This rule is a simple formula for asset allocation, i.e., dividing your investment into equity and debt. The rule says:

100 minus your age (100 - Age) = Percentage of investment in equity (%)

The figure that comes out of this formula, you should invest that percentage of your total equity investment, i.e., stock market-related instruments (such as direct stocks, equity mutual funds). And the remaining part should be invested in debt, i.e., fixed-income safe instruments (such as Public Provident Fund-PPF, Fixed Deposit-FD, Debt Mutual Fund).

Understand how it works with an example?

The beauty of this rule lies in its simplicity. Let us understand it with the example of investors of three different ages.

Example -1
Investor 1: Riya, age 25 years
Formula: 100 - 25 = 75
Meaning: Riya should invest 75% of her total investment in equity and the remaining 25% in debt.

Why should I invest?
Because Riya is young. Her risk-taking capacity is high, and she has many years left in her career. Even if the market corrects, she has a lot of time to recover. Higher equity exposure will help her build good wealth in the long term.

Example-2
Investor: Amit, age 40 years
Formula: 100 - 40 = 60
Meaning: Amit should invest 60% of his investment in equity and 40% in debt.
Why should I invest?
Amit is in the middle of his career. He has family responsibilities too. Hence, he cannot take as much risk as Riya. His portfolio will strike a good balance between growth and safety.

Example-3
Investor: Mr. Sharma, age 55 years
Formula: 100 - 55 = 45
Meaning: Mr. Sharma should invest 45% of his investment in equity and 55% in debt.
Why should I invest?
He is close to retirement. At this stage, his priority is to keep his savings safe, not to take big risks. More investment in debt will give him a stable income and protect him from big market fluctuations.

Through the three examples, you must have understood that as you age, this rule automatically reduces the risk in your portfolio. It is just like when you slow down your car by changing gears in the city traffic after driving fast on the highway.

Why do experts consider it a 'golden rule'?

Very simple: You do not need to be a financial expert to understand or apply it.

Automatic adjustment with age: It eliminates your biggest worry about when to take how much risk. It automatically makes your portfolio conservative with your age.

Control over emotions: When the market rises a lot, we become greedy, and when it falls, we become afraid. This rule prevents you from making wrong decisions by getting carried away by emotions and maintains discipline.

Personalized: It does not give the same formula for everyone, but changes according to your age, which makes it a personal strategy to a large extent.

Is this rule set in stone for everyone?

No. It is very important to remember that the '100 ' 100-year' rule is a starting point, not a rule set in stone. It is called a 'rule of thumb', that is, a rough estimate rule. Experts now recommend adding some more things to it.

Your Risk Appetite

It may be that you are comfortable taking a risk of 70% even at the age of 40, or you want to take only a 50% risk even at the age of 25. You should change this rule a little according to your risk-taking ability.

New versions of the rule

Nowadays, the life expectancy of people has increased, and inflation is also high. Hence, some experts now recommend adopting the '110 ' age' or '120 - age' rule, so that there is scope for growth in your portfolio in the long term.

Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.