Skip to content

Financial Planning Tip #5: The Rule Of 100 – Use This To Plan And Invest In Long Term

After nearly a year of blogging and coming up with my series of Financial Planning Tips, I have finally come up with my #5 tip: The Rule of 100 – Use This To Plan And Invest For Long Term and for my other 4 tips, refer below:

  1. Financial Planning Tip #1: Pay Yourself First
  2. Financial Planning Tip #2: Learn How To Set A Budget
  3. Financial Planning #3: Start Today, Not Tomorrow
  4. Financial Planning Tip #4: Settle Your Basic Financial Planning

Why The Introduction Of This Financial Planning Tip?

Rule Of 100

There is a good sign that I am seeing in most people now – they are more open to the idea of

  • Investment (concept of making your money work harder and realizing your retirement) and
  • Dollar Cost Averaging (averaging out the volatility of the financial market to ensure steady growth).

With This Open-ness In Mind, What’s Next?

Once you are opened to the idea of investment, the next planning stage is actually to ask how should you be planning – Into What? What’s the percentage? What’s My Risk Appetite? For How Long?

Thus Introducing The Concept Of The Rule Of 100 To Answer The Above

The Rule Of 100 is a commonly used financial term or guideline to help balance your Investment Portfolio in the long term (plan according to your milestone like for Wedding Fund, Children’s Education, Retirement Funding).

For Risk Appetite

In Simple Term, how much risk can you personally take? If you have never asked yourself this, just take this into consideration: If you have a $1, how much can you lose out of it?

  • If you can lose $0.90 or in return to earn extra $0.90 – you are a Risk Taker (more Equities as compared to Bonds related)
  • If you can lose $0.50 or in return to earn extra $0.50 – you are a Balanced Risk Taker (balanced of Equities and Bonds related)
  • If you can lose $0.20 and do not mind earning extra $0.20 – you are Risk Adverse (more of Bonds than Equities related)

For The Percentage Of Investing Into…

This is where the Rule of 100 will come in. Basically just take your current age (e.g. I am now 28) and I will take that and minus off 100 (i.e. 100 – 28 = 72) so this 72 would mean that 72% would go into Equities Related. And the remaining 28% would go into Bonds related.

Therefore Rule Of 100 says, at my age of 28:

  • 72% would go into Equities
  • 28% would go into Bonds

Take Risk Appetite into Consideration…

Now you know how to apply the Rule of 100, you can take your risk appetite into consideration and you can consider my suggestion: Risk Taker (+10%), Balanced Risk Taker (+0%), Risk Adverse (-10%)

So this would mean that if I am a Risk Taker, my actual investment portfolio would be:

  • 72% + 10% = 82% of Equities
  • 28% – 10% = 18% of Bonds

A Risk Adverse Taker:

  • 72% – 10% – 62% of Equities
  • 28% + 10% = 38% of Bonds

Taking Rule of 100 Into Long-Term:

As you slowly approach to your Milestone (also means that you are getting older), your initial investment profile would change according to the Rule of 100. E.g. if I am now 40 years old, my initial profile of 72% and 28% would change to 60% of Equities, 40% of Bonds.

What To Invest Into:

As can see from above, you do not have choices of just plain Equities and Bonds and you can have other choices, commonly known as Alternatives, like:

  • Commodities
  • Property Related – or known as REITS

What To Invest Into?

The Above Chart Is For Illustration Only

And having a combination of the above would actually help you to smooth out the Economic Market Condition.

Do note that what I am suggesting above is not the only choice – please consult your Financial Planner in planning and investing for the long term.

And there you have it, the Rule of 100 to help you plan (what investment portfolio) and invest in the long term to help achieve your desired milestones!

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.