Thumb Rules for Investing – Best Investing Tips

Investing smartly helps you grow your wealth, multiply your existing savings, and prepares for important life goals like a comfortable retirement, buying your dream home, or paying for your child’s education. While investing is important, doing so without direction can end in poor results, missed opportunities, and, ultimately, financial insecurity. Fortunately, the basic thumb rules for investment can give your funds direction and ensure you enjoy the maximum benefits.

In this article, we explore the top 10 investment rules of thumb so that you can invest consciously and fruitfully.

1.     Rule of 144

This rule helps you determine how long it will take for your investment to grow by 4 times at a given interest rate. You can use this formula to calculate the time to quadruple:

Time to quadruple = 144 / Interest rate

This rule assumes compounding returns and is a helpful tool for planning long-term finances.

Example:

Suppose you have invested Rs. 1 lakh in a mutual fund that generates 12% returns annually.

In this situation, the time it will take to grow your money four times will be:

144 / 12 = 12 years

This means that after 12 years, your invested amount will grow four times to become Rs. 4 lakhs.

This is a handy rule to plan for long-term goals like your children’s education or your retirement.

2.     Rule of 72

As the Rule of 144 helps you determine the time it will take to quadruple your money, the Rule of 72 is used to estimate the time it will take to double your investment at a fixed rate.

You can calculate it with this formula:

Time to double = 72 / Interest rate

It is a simple formula that can help you understand the power of compounding and plan your finances smartly. You can also use the rule of 72 to compare different investment options, such as FDs, that give a 6-7% interest vs mutual funds with 12-14% returns.

Example:

Suppose you invest Rs. 2 lakh in a fund that generates 12% returns in a year.

Using the rule of 72, the time it will take to double your investment will be:

72 / 12 = 6 years

This means that after 6 years, your investment of Rs. 2 lakhs will double to become Rs. 4 lakhs.

3.     Rule of 70

The Rule of 70 lets you understand how inflation will reduce the value of your wealth over time. Even if you don’t spend or invest anything, the real worth of your money will decrease due to rising prices.

You can calculate it with this formula:

Time taken for your wealth to be worth half = 70 / Inflation rate

This rule shows how many years it will take for your current wealth to lose half its purchasing power.

Example:

Say you have Rs. 20 lakhs in your bank, and inflation is 5%.

Using the rule 70 / 5 = 14 years

This means that in 14 years, your Rs. 20 lakhs will only be able to buy what Rs. 10 lakhs can buy today.

4.     The Emergency Fund Rule

The emergency fund rule states that you should always have 3 to 6 months of your monthly expenses saved in an emergency fund. This provides a financial safety net in times of unexpected situations like job loss, medical emergencies, or sudden home repairs.

It is important to save this amount in a liquid and low-risk place like a savings account, FD, or liquid mutual fund.

Example:

Let’s say your monthly expenses are Rs. 40,000

This means you should have a minimum emergency fund of at least 3 months, i.e., Rs. 40,000 x 3 = Rs. 1.2 lakhs.

However, your ideal emergency fund must be for 6 months, i.e., Rs. 40,000 x 6 = Rs. 2.4 lakhs.

5.     10% for Retirement Rule

This rule helps you plan and save for your retirement from an early age. It suggests that you should put aside at least 10% of your monthly income for your retirement corpus.

You can also increase your investment by 10% every year as your income grows. This small change can make a big difference in the long run.

Example:

Suppose you are 25 years old and earn Rs. 30,000 per month.

In this situation, your monthly contribution towards your retirement will be Rs. 3,000, and you will increase your investment by 10% every year.

Now, by the time you retire at 60, you will have invested for 35 years. This means your retirement corpus will grow to Rs. 3.4 crore.

6.     100 Minus Age Rule

The 100 Minus Age Rule is a simple thumb rule of investment that can help you decide how much of your investment you should allocate to equity and how much to debt. This is because the younger you are, the more risk you can take. As you grow older, you should shift towards safer investments.

You can calculate the allocation using this formula:

Equity allocation = 100 - Your age

Example:

Say you are 25 years old and want to invest Rs. 10,000 every month.

You can invest 100 - 25, i.e., 75% of your investments towards equity and the remaining Rs. 2,500 in debt instruments.

When you turn 30, you can invest 70% of the amount in equity and the rest in debt.

This is a simple way to balance growth and safety based on your age.

7.     10, 5, 3 Rule

The 10, 5, 3 rule gives you an idea of the kind of returns you can expect from different types of investments over the long term. This can help you select the right investment mix based on your goals.

Here’s how it works:

10% average annual return from equities (like stocks or equity mutual funds)

5% return from debt instruments (like PPF, EPF, or bonds)

3% from savings accounts or fixed deposits (after adjusting for inflation)

Example:

If you invest Rs. 1 lakh each in different instruments,

Rs. 1 lakh in equity will grow to Rs. 1.10 lakh in a year

Rs. 1 lakh in PPF will grow to Rs. 1.05 lakh in a year

Rs. 1 lakh in the savings account will grow to Rs. 1.03 lakh in a year

8.     Rule of 114

This rule tells you how long it takes to triple your investment at a given rate of return. You can calculate it with this formula:

Time to triple = 114 / Interest rate

Example:

Suppose you invest Rs. 1 lakh at an annual return of 12%.

Time taken to triple your money = 114 / 12 = 9.5 years.

This means that in 9.5 years, your investment of Rs. 1 lakh will become Rs. 3 lakhs.

9.     4% Withdrawal Rule

The 4% withdrawal rule helps you plan how much money you should withdraw from your retirement corpus every year without running out of funds. It ensures you have a steady income in retirement while still having enough money to earn returns.

According to the rule, you should withdraw only 4% of your total retirement savings in the first year. In the next years, you can increase that amount based on inflation.

Example:

Suppose you have a retirement corpus of Rs. 1 crore.

Year 1: Withdraw Rs. 4 lakhs (Rs. 33,000 every month)

Year 2: Withdraw Rs. 4.2 lakhs (assuming inflation is 5%)

Year 3: Withdraw Rs. 4.41 lakhs (assuming inflation is 5%)

10.  Net Worth Rule

This rule helps you understand if you are building enough wealth for your age. You can calculate it with this formula:

Target net worth = (Your age x annual income) / 10

If your actual net worth is above the target net worth, you can be called wealthy.

Example:

Suppose you are 35 years old with an annual income of Rs. 10 lakhs.

Your targeted net worth should be (35 x 10) / 10 = Rs. 35 lakhs.

Benefits of Using the Thumb Rules of Investment

The thumb rules of investment serve as guidelines for investors to make smart, quick, and efficient investment decisions. Here are the benefits they offer:

1. Quick decision-making: With these thumb rules, investors can evaluate investment opportunities and make decisions without performing an in-depth analysis. Thus, individuals desiring to adopt a less time-intensive approach to investing can benefit, in particular, from the thumb rules of investment.
2. Accessible to all: The investment rules are easy to understand. So, even investors with a limited understanding of the financial markets can use them to make investment decisions.
3. Lowering risks: Thumb rules based on a risk management approach help investors develop a basic framework for diversification and asset allocation. This makes the investor’s portfolio balanced and diversified, further reducing risks.
4. Starting point: Investors can use the thumb rules of investment to develop a basic strategy and start their journey in the financial markets. They can create a more comprehensive plan as they gain knowledge and experience.

Tips for Investing in the Indian Financial Market

Apart from the thumb rules discussed above, investors can benefit from the following tips to invest in the Indian financial market:

1. Portfolio diversification: If you allocate your funds into different asset classes like stocks, mutual funds, fixed deposits, etc., you have a diversified portfolio. Diversifying your portfolio reduces your risks.
2. Controlling emotions: Getting emotional is common during investing. However, emotion-led decisions can result in poor investment choices. Thus, make sure you keep your emotions in control. 
3. Long-term investments: Long-term investments allow you to lower risk and enjoy the benefits of compounding. So, stay invested for a longer period.
4. Staying updated: Read the latest news and trends to stay informed about the financial market. Do your homework and necessary research.

Key Takeaways for Investment Rules

• Use the Rule of 72, 114, and 144 to estimate how long your money will take to double, triple, or quadruple based on the expected return rate.
• Follow the minimum 10% rule to invest at least 10% of your income every month to build long-term wealth.
• If you’re just beginning, first set up an emergency fund equal to 3–6 months of expenses.
• Follow the 10-5-3 rule to set realistic return expectations.
• The 100 Minus Age Rule helps you decide how much to invest in equities vs. debt based on your age.
• Use the 4% Withdrawal Rule during retirement to ensure your savings provide a steady income while lasting throughout your life.
• Monitor your net worth regularly to stay aligned with your financial goals.

Conclusion

These 10 thumb rules of investment allow you to make smarter choices, allocate your assets appropriately, and manage your investments effectively.  To make your investments even more effective and to maximize your returns, invest through reputed platforms like Tata Capital Moneyfy.

Tata Capital Moneyfy offers a secure and reliable platform with a diverse range of investment options to grow your wealth, diversify your portfolio, and reap the full benefits of your investment choices. To know more, visit the Tata Capital Moneyfy website or download the Tata Capital Moneyfy App today!