Thumb Rules of Investing

When it comes to investing, doing so smartly is the number one rule. When you invest smartly, you can grow your wealth quickly, multiply your existing savings and prepare for upcoming life goals and dreams. 

Investing without direction can end in poor results, huge losses, missed opportunities and ultimately financial trouble. The thumb rules for investing are guiding principles that can help you invest in a well-directed manner. With these rules you can ensure that you reap maximum returns and benefits out of each investment. 

In this article, we explore the top 6 investing rules of thumb so that you can invest consciously and fruitfully. 

1. Rule of 144 

The rule of 144 is a thumbrule of investment that calculates how long it would take for you to quadruple your investment. To find out, simply take the number 144 and divide it by the annual rate of return your investment is expected to yield.

For example, if your investment is projected to earn a return of 7% per year. Dividing 144 by 7 gives us approximately 20.5. This suggests it could take a little over 20 years for your initial investment to quadruple in value.

2. Rule of 72 

Similar to the first rule, the rule of 72 helps you estimate the general growth potential of your investment. Divide 72 by the annual rate of return on your investment to calculate how long it will take before your investment doubles in value. 

3. The Emergency Fund Rule 

Unexpected events and financial challenges are a part of life. The Emergency Fund principle recommends setting aside funds to cover 3 to 6 months of your essential living expenses. This provides a financial cushion to fall back on during difficult times.

4. 10 Percent for Retirement Rule 

The 10% rule of thumb for retirement savings recommends that you save at least 10% of your pre-tax income towards your future retirement goals. Doing this consistently can help accumulate a large corpus through the power of compounding. 

For example, If your monthly income is ₹80,000, aim to set aside ₹8,000 each month towards your retirement savings.

5. 100 Minus Age Rule 

According to this rule, when you subtract your age from 100, the number you get is the total percentage of your portfolio that can be allocated to equities or high-risk investment options. As you grow older, this number diminishes, suggesting you should invest in lower-risk options. 

6. 4% Withdrawal Rule 

If you are retired, the 4% rule can help you make your retirement savings last for longer. It suggests that you withdraw 4% of your retirement savings annually while adjusting for inflation so that you have a steady income stream while preserving funds for the long term. 

Final Thoughts 

Smart investing involves understanding key principles and making informed choices. A crucial aspect is selecting the right platform to manage your investments. 

Consider reputable options like Tata Capital Moneyfy, which provides a secure environment and diverse investment choices to help you grow your wealth effectively.

To know more, visit the Tata Capital Moneyfy website or download the Tata Capital Moneyfy App today!