Is the formula 100 – age out dated now?

Nowadays Investing is accepted all over the world as profession. Many peoples not only hedge their wealth, but also make millions and billions with investing in Various assets. Out of them, Equity shares and Bonds or Debentures are one of the most favorite assets for investment. The peoples who know the importance of making portfolio, know the importance of right combination. There are many formulas and rules for it. 100 – age is one of it. The formula is something like it. Subtract your age from 100 and you will get the proper allocation for equity. The percentage equal to your age is correct allocation for bonds, fixed deposits, Or cash. The basic concept behind this is with increasing age, your risk appetite is reduced. Bonds are having low risk. Equity have high risk with them. Nowadays if you are following this rule, it is difficult for you to make Wealth or invest properly as investment world is changed so much now. Investopedia. One of the best website about finance also called that it is old nowadays. Even warren buffet is also not giving advise to invest as per this rule. My another role model Peter Lynch Mention that whenever you are investing in debt, you don’t know what you are losing. So what is a reality? Is it still good or we need better formula for investment. First of all I want to mention that, I am pure pro Equity, My most favorite statement about Equity is Risk comes from Not knowing what you are doing. So possibly you will find my view similar with Mr. Buffet and Mr. Lynch. I accept that Investing is a subject where there is no one formula for success and no one will teach you how to be successful. Everyone has their own. So whatever I am going to wright, are my views and possibly different with your. Invest in any company after checking fundamentals. The rule came in time when Financial Engineering was not existed. Derivatives are existed but not so popular, ( Derivatives are in use from Roman times, in India Transaction of metals like Gold and Iron were taking place since many years, FMC is exist in India from many years. In fact it is one of the oldest Regulator., wikipedia). Other way of investments like ETF, mutual funds are not available easily. Information about companies is hard to find. People’s are not Financially Literate. Many peoples don’t have sufficient income to even buy Land. Internet was not there. So cost of trading is so big. Even peoples don’t have much information. Plus so many times marker were crash like mad. So many companies were actually not existed. But peoples were interested to buy shares of them. I don’t know about others. But it was reality in India somewhere around 80’s. How many time? In US peoples will tell you. From 1927 to 2008. Including all that small ones with no reasons. In India also, my grand parents teach me, market is a place where peoples lost there money. The rule formed in that time when Economy was in hand of government. Another way Bond issued by Govt or utility Companies were assumed as Risk less. Or even if some peoples decided to buy shares then they choose Government backed companies or some respected companies which they really know. Indian Examples are Tata motors, tata steel, HUL etc. But not for capital gains. For dividends. Portfolio theory, I don’t know how many of them even think about it. Plus, there were very few service sector organizations. The assumption that debt have low risk is false there were so many examples that when any company filled form for chapter 11, their value is nearly zero. Remember the Ford ? Now a days, Equities are not risky. There are Index funds which reduce the risk up to large extent. Peoples know that portfolio theory works well. If you need help from professionals, they are there. With all there tools. Even Channels like CNBC awaaz, Zee Business are ready to give help. ( I don’t know names Outside of India, but I am sure that they are there. Blomberg is possibly one name) Internet make our work half done. Like websites Motley fool in US, Money control in India. Yahoo Finance, Google Finance are always available. Even companies are ready to give information. Plus many of us know how diversification works. Our forefathers don’t know how to value any share as information is not available that time. Today financial world is everywhere around us. Even if you are not a shareholders of a company you are interested to know what is a dividend declared by say Microsoft or is any company is coming up with buyback program etc. THE REALITY IS DIFFERENT NOW… So it is difficult to say that the same rule is applied today also. The time is changed. We are living into different era. Going to close this post with my own thought. Investopedia gives a good formula. They came up with 120. I think that it is a time to think out of box. We hold Gold, land also. We need to include this and made a new formula. A FORMULA WHICH TEACH OUR FUTURE GENERATIONS BASICS OF FINANCIAL LITERACY.

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About Ashutosh Tilak

Tracking Indian Capital Market since 2010. Finance Student, On this blog I am writing about finance and Investing. You can contact me analystashu@gmail.com or @androidashu & @InsideFinanc on twitter