In a bull equity market, human beings conjure magical investment formulae. Here’s the worst equity investing advice I have heard:
Your exposure — in percentage terms — to equity investments should be 100 less your current age. So if you are a 27-year old, your exposure to equity instruments should be 100 - 27 = 73%, with the remaining 27% in debt instruments.
Source: Leading personal finance magazines published in India.
Advice is cheap. Following them is quite expensive.
Further reading:
- Unwanted Advice: ICICI Bank — We Want You To Be Perpetually Indebted To Us
- How to Choose the Right Financial Investments to Reach Your Financial Goals — Part #1
- Tweets on 2008-03-05
- A Real-Life Lesson: The Value of Being Debt Free, Having Independent Health Insurance, and an Emergency Fund
- Tweets on 2008-08-05 — Ours is Now an Economy Based on Waste
{ 1 comment… read it below or add one }
Pradeep Mishra 11.14.07 at 4:41 pm
Hmm, I have heard of this formula as well.
Well its both right and wrong in a sense, how you probably took it..
What the publisher said in the article : 100 - 27 = 73
money - age = money
My take aways from the “cheap” advice:
The figure 100 (%) is not 100 % of your over all networth.
Its the amount you want to invest. Mind you this “investment amt” can be any where from 10% - 30% of your take home, monthly. Also this balance figure 73% is a Max exposure based on your risk personality profile.
The balance (if i din hear him wrong) wasnt whole debt, but MF and debt. Usually an average risk-averse person (of the said age) likes to invest 35 - 45 % in equity, 50-55% MF and balance (5-10%) in debt.
(for more details go to http://www.icicidirect.com/personal finance
you may also want to take the self - risk orientation check)
Well, all this apart from your home expence (~25% of your take home), EMIs (30-40% of take home).
See.. now it sant look that bad