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Rule of 100
A Rule of Thumb that really works! |
The Rule of 100 is perhaps the simplest financial rule of thumb out there. It is also one of the most widely abused.
Simply put, you take 100 and subtract your age from it and the resultant sum suggests the maximum amount of your portfolio you should have exposed to Market Risks. So for example, if you are 25 years old, 100 – 25= 75 you should have 75% of your portfolio invested in the market to optimize your long term growth.
As I mentioned the rule of 100 is also one of the most abused. According to most statistics I have seen, the majority of Americans fail to start planning for retirement when they should and therefore there are not too many 25 year olds with 75% of their assets invested in the Market. They have Boats and Cars, and Big Screen T.V. ‘s.
Then there is the Senior Community (the people who hold 80% plus of U.S. Savings and Investment Dollars) if you are age 70 you should have no more than 30% of your Invested assets exposed to Market Risks (100-70=30). Here too the Rule of 100 is but a guideline but it too is often abused. I frequently come across Seniors that have portfolios with one of the Major Brokerage Firms that are too heavily weighted with risky market exposures. |
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