How often do we find ourselves amidst a situation where we are in need of a hand to guide us through the problem or a support system that can assist paving our way through to the destination? Well, thumb rules follow the same kind of procedure too. These guides or thumb rules help us in keeping our processes intact. Elaborately, these rules offer the provision of certain specified instructions which are applied to achieve respective goals.

Given that there are various thumb rules of investing too. The rules help investors
in making it through the risky route of investment. Using these rules, the risk factor of different forms of investment are reduced. While there are a variety of rules, the three most popular are discussed below.

Investing Rule of Thumb #1: 100 Minus Your Age

Management and allocation of assets are one of the most significant parts of investing. This is one of the oldest rules of investing. It says that your investment portfolio must be balanced between your stocks and your bonds with respect to your age. According to the rule, your stocks should be 100 minus your age, while rest must go to your bonds’ portfolio.

For instance, you are a 40 years old individual. So, 40% of your assets must be invested in bonds while resting of the 60% in stocks. However, with time, investors have modified the rule from 100 to 120. So now, financial planners subtract your age from 120. Under that rule, your 67% funds would go to an investment of stocks while 33% will go to bonds.

Does it help?

Although every investment is unique in nature and must be evaluated on basis of the circumstances at hand. However, 120 minus your age rule helps financial planners in reducing the risk and involvement of investor in the investing activities. It also helps in balancing your funds with a certain ratio.

Investing Rule Of Thumb #2: The Rule of 72

It is one of the most popular thumb rules of investing. According to this rule, your
funds double based with respect to your annual rate of return earned divided by
72. For instance, if you are earning a return of about 8% return rate on your stocks, your funds will double in (72/8) = 9 years. This rule is great for financial planners and counselors to help out their clients in choosing the right path of investment.

Does it help?

This rule is a quick way of forecasting the multiplication of your invested funds. It helps you in understanding the opportunity cost of your investments. However, the rule does not take unforeseen circumstances into account and only obtains a tentative number. Hence, relying on it completely might get you in trouble. However, it does help you in analyzing the investment of your funds while making a decision of investment. You can easily understand whether this investment would have good returns or should your money be pulled out and invested somewhere else.