The 120 rule or a distinct monetary technique for every age | Myth-free investing | EUROtoday

There is not any common system for investing. The acceptable technique relies on many elements, one of the vital figuring out is age. Throughout life, priorities, threat tolerance, and the power to just accept losses change. The essential factor is to know adapt monetary choices to every life stage to construct stable and lasting wealth, as defined by the consultants at Myth-free investingING’s venture to talk brazenly about investments.

The younger folks and the energy of time

The early phases of life are often essentially the most favorable for taking dangers, in accordance with Ignacio Menéndez, head of market evaluation at ING. When you might be younger, with out massive household burdens and presumably with a few years forward of you, you’ve gotten the benefit of time. “This allows for greater risk tolerance, with a objective of achieving greater profitability in the long term, although there may be some scares along the way.”

However, time is just not a enough assure, “you also have to diversify [en productos financieros]”, underlines Menéndez. The most recommended products at this stage are usually common investment funds and ETFs (Exchange Traded Fund), a type of investment fund that is usually used to replicate the behavior of international markets, but with the difference that they are bought and sold on the stock market as if they were shares, offering flexibility and diversification in a simple way, as the expert clarifies.

Menéndez provides an indicative formula to know what risk can be assumed according to the different stages of life. “Sometimes the rule of 120 is used to estimate the percentage to allocate to variable income and fixed income according to the age of the investor. It consists of subtracting your age from 120, and investing the number you obtain in variable income,” he explains. “For example, an 80-year-old person would invest 40% in equities with this rule.”

Intermediate phases: prudence and clear targets

As the years go by, the funding profile tends to reasonable. Family duties, medium-term initiatives – corresponding to shopping for a house or elevating kids – and the necessity to have higher monetary stability often arrive on this section. “But personal goals are as important as age,” says Menéndez. “A young couple who saves for a down payment on a house cannot afford major shocks, while an older person who invests to leave as an inheritance to their children does not need stability and can invest in riskier products,” he provides.

The degree of economic data additionally turns into related. The extra expertise the investor has, the extra ready he might be to know market cycles and keep away from impulsive choices. On the opposite, those that let themselves be carried away by feelings or fashions run the chance of promoting on the worst second.

At this stage, it’s advisable to mix fairness and stuck earnings property, prioritizing blended funds or ETFs that cut back volatility with out utterly giving up development.

Retirement: stability and planning

Upon retirement, wealth administration modifications focus. The principle says that they need to cut back the share of the inventory market and enhance the share of fastened earnings, to offer extra stability to the property, “although the strategy depends a lot on the person,” as Menéndez factors out, and provides the American mannequin for example: “There is a lot of talk about the 4% rule for retirement: with a portfolio invested 50% in bonds and 50% in equities, and sufficiently diversified, you can get between 3% and 4% of the assets each year to spend so that the money does not run out in 30 years.”

Each investor ought to analyze their state of affairs, bearing in mind features corresponding to the quantity of public pension they obtain, whether it is sufficient for his or her day by day bills, or if they should use a part of their property to pay for a trip or a home renovation. “Thus, he will choose one path or another, always aware that he does not have that much time ahead of him to recover his assets if a crisis comes and his investments sink,” recollects Menéndez.