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:
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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 :)