Posted by: Labdhi Mehta on Jul 10, 2017, 06.30 AM IST
1. This is a rule of thumb developed over the years in the attempt to provide guidance for equity and debt allocation decisions.
2. As per this rule, one should take 100 and subtract the current age, the resulting number is the percentage that must be allocated to equities and remaining to the debt asset class.
3. As the age increases the allocation to equities keeps declining, reducing volatility and risk of the portfolio.
4. The issue with this rule is it is not aligned with the financial goals which are the actual purpose of creating a financial portfolio and building a corpus.
5. This rule might be a good starting point. However, various factors like life expectancy, age of retirement, financial goals and even the risk profile of the investor should be considered before making the asset allocation decision.