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Asset Allocation is simply defining how much money will be distributed in how many and which asset class! It is one of the most prominent steps while investing in mutual funds or any other financial asset and must be executed wisely.

For the same, experts suggest several parameters and rules based on which an investor can stratify their asset allocation while investing in the different asset classes. One such popular rule suggested by experts in the ‘100 minus age’ rule!

Let us know what is the ‘100 minus age’ rule, how is applicable, and does it actually work. Also, we will know about alternate options than the ‘100 minus age’ rule, to define asset allocation.


What Is The ‘100 Minus Age’ Rule?

This rule is basically the easiest way to decide your asset allocation. This rule helps you decide how much percentage of your asset you can distribute in high-risk and low-risk investment as per your age and risk profile.

Typically, this rule explains supports the concept of ‘declining equity glide path’ where you decrease the allocation to equities each year or once every few years. This leads to reducing volatility and risk level in your portfolio.

The 100 minus age rule states that your portfolio’s percentage of equity assets must be equal to the difference between 100 and your age.

Understand it through an example: the rule says that if you are 30 years in age, then 100-your age that is 30 is equal to 70. Then as per the rule:

  • 70% of your total assets must be distributed in high-risk investments such as stocks and equity mutual funds.
  • The rest 30% of asset you must distribute in a safer investment like debt mutual funds, FD’s and other.


If you are 40 years in age, then 100-your age is equal to 60. Then as per the rule:

  • 60% of your total assets must be distributed in high-risk investments such as stocks and equity mutual funds.
  • The rest 40% of asset you must distribute in a safer investment like debt mutual funds, FD’s and other.


Typically, the rule says the older you get, the more risk-averse you become; thus, your asset allocation part must reflect the same.


Does The Rule Actually Work? 

The rule typically advises asset allocation percentage based on individual age and, how much risk he can take in that age. However, the rule finds difficulties in an application for a person who is in his early 30’s but still has risk-averse nature!

Also, defining asset allocation must consider other factors like risk appetite, planned time to reach the goals, and return requirements, instead of only considering age.


What is Another Alternate To Decide Asset Allocation? 

Basically, other than your age other major factors must be taken into consideration while stratifying your asset allocation in investment. these factors are explained below.


Risk/return profile

If you are an investor who wants to get high returns and is capable of taking high risks, then you can allocate your assets more in the Equity Mutual fund. In case you don’t want to play a risky game and are satisfied with guaranteed and moderate returns then you can look at debt mutual funds.


Goals/time horizon

Understanding the goal or objective of your investment is necessary because your investment goal will decide your investment tenure. Like suppose you need some money for tax saving it is most probably a near term goal because you need to file income tax return forms every year; if you need money for your retirement then it is a long term goal, buying a car can be a short term goal, higher education or marriage may be a mid-long term goal depending on your age and so on. Thus, classify your investment goals and based on that fix your investment tenure.


Match your risk with your goals

Now that you have classified your goal it’s time to match it with your risk. In case if you want to invest for your long-term goal but do not want to take a high amount of risk in an Equity Mutual fund, then in such a scenario you may look towards investing in Hybrid Mutual Funds. Matching your risk or say aligning, your risk with your goal helps you invest in a financial product with realistic expectations.


For more details or suggestions on Strategies To Decide Your Asset Allocation, you can get in touch with our executives, either make a call- 0612-6604453 or drop your query at- [email protected].


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For any kind of query, you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.


Happy Investing!


(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).