There are various strategies existing for investors to guide them on investing in particular mutual funds, stocks or bonds etc., . One of such rules is the “100 minus age rule”, which aims to align asset allocation with an individual’s age and risk preferences.
The rationale behind this rule is that as you get older, you may have a shorter investment time horizon and a lower tolerance for risk. Therefore, the rule suggests reducing your exposure to more volatile assets like equities and increasing your allocation to more stable assets.
To understand simply with an example, let’s say you’re a 30 years old individual. The rule suggests at this age your investment should be with proportion of the difference between 100 & your age, i.e. (100-30)% = 70%. The proportion of your investment should be like 70% Equity (Equity MF’s, Alt Investments, Stocks.) 30% Debt (Debt MF’s, FD, Bonds etc.), reflecting a more diversified approach to investing.
This rule does not guarantee your asset allocation. Your asset allocation can be affected by a lot of other factors like risk tolerance, circumstances, financial goals, and investment knowledge, when determining asset allocation.
So, if you pick the 100 minus age rule, you must have an asset appetite, which can gain results for you in future or when you have no more capability of risk appetite. Another way is to invest in a debt fund if you have a low risk appetite to achieve your financial goals in a shorter time frame.
One has to take important rest decisions after thoroughly going through all the stages of risks, circumstances, and consulting with a financial expert to come up with a proper conclusion of your financial decision.