7 Thumb Rules For Investing

One needs to know that there are thumb rules for almost everything, including tennis, as people tend to start with good service, and even there is a six-minute boiling rule for eggs. So, of course, investing is no exception here. When it comes to investing, there are at least seven thumb rules that help one ascertain how fast their money grows over investment stocks or how fast it loses its value, and there are some rules to make one’s investment process more accessible.

It can be challenging to choose suitable investments and formulating an investment strategy that maximizes returns. Still, when n it comes to investing, there are a plethora of rules to follow. Even though thumb rules can be pretty helpful, they should not be the main reason for investing or not investing in any stock or product as the main issue is the anticipated interest rate.

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Above all, thumb rules can be helpful as a source of information as no investment product can give one a 100 percent guarantee of the interest rate it will offer in few years down the line. While some people think that rules are limitations to their ability and at the same time others believe rules protect them from falling apart and same goes for investing as a rule of investing is followed by some investors and some people define their own rules when it comes to trading on the best trading app.

Lastly, if one is a beginner, then following the thumb rules can mitigate a lot of losses and increase their chances of making money from the market.

1. Rule of 72- one wants their money to double in value and look for ways to do so in the shortest time possible, so the Rule of 72 makes estimating the number of years it would take for one’s money to double quite simple. All one needs to do is divide the number 72 by the investment product’s rate of return, and the amount one would arrive at is the number of years it will take for their money to double.
2. Rule of 114- the ‘Rule of 72′ tells one how long it will take to double their income, and this Rule means them how long it will take to triple their money, and it has a mathematical formula that is close to Rule of 72. So people need to divide number 114 by the investment product’s rate of return to arrive at this result, and the rest years are the number of years it would take for their investment to triple.
3. Rule of 144- the Rule is most likely to be used to calculate the number of years it would take their investment to quadruple, and investors need to know that the formula uses the same rationale as the Rules of 72 and 114. So if one divides 144 by the predicted rate of return, they may get a very accurate estimate of how long it would take their money to quadruple, and it’s all because of this formula.
4. Emergency fund rule- one needs to know that life is uncertain, tables can turn in a blink of an eye, and anything can happen without prior notice. Even if one has a lot of investments, they may not be able to use them if they fail to have any liquid enough, and of course, there are penalties for withdrawing money early from their investment instruments. Therefore, one needs to have continuous funds as its Obvious investments are for financial security.
5. 10% retirement rule- When one is young, they aren’t likely to think about retirement. Still, if people start investing early using the 10% rule of investing for retirement, they can surely save a considerable corpus when they are about to retire. For instance, one started earning right after completing their graduation at 21 years, and their starting salary was said Rs 21,000, so by applying the 10% rule, they can easily save Rs 2000 every month. It might seem that Rs.2000 is a negligible amount, but the amount can grow in no time using the compounding interest.
6. Rule of 70- it is one of the most exciting rules when it comes to estimating how much their existing wealth will be worth in the next 10 or 20 years, and if one doesn’t spend or invest a single penny from it, its value is most likely to be way lower than it is now. It is mainly because of inflation. So to arrive at their desired figure, all people need to divide the number 70 by the current inflation rate.
7. 100 Minus age Rule- the Rule is most likely to help one determine the equity-to-debt asset allocation as they need to deduct their age from the number 100 as per this Rule. The percentage of equity exposure suitable for an investor is most likely to be the outcome, and the rest of the funds can be used to finance debt.

Hence you can follow the above rules, but it is vital to remember that these guidelines should not be mindlessly followed. One needs to know that a solid investment portfolio is one that helps people achieve their financial objectives while also considering their risk tolerance and time horizon, and of course, prudence cannot be neglected. You must follow the rules with caution.

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