I worked at Goldman Sachs and helped manage over $5.5 billion.
Rules of thumb were crucial for making split-second decisions.
Here are 10 investing rules of thumb I rely on:
Rules of thumb were crucial for making split-second decisions.
Here are 10 investing rules of thumb I rely on:
1. 4% rule
You can withdraw 4% of your portfolio every year and never run out of money.
If you have a $1.5 million portfolio, you can withdraw ~$60,000 a year.
Some say it should be 3%.
Others say it should be 6%.
I like to meet everyone in the middle at 4%.
You can withdraw 4% of your portfolio every year and never run out of money.
If you have a $1.5 million portfolio, you can withdraw ~$60,000 a year.
Some say it should be 3%.
Others say it should be 6%.
I like to meet everyone in the middle at 4%.
2. Rule of 72
How long it’ll take for your investments to double in value.
Calculate it by dividing your expected rate of return from 72.
Here’s what it looks like with an 8% return:
72/8 = 9 years to double.
But there’s also another way to use this rule of thumb…
How long it’ll take for your investments to double in value.
Calculate it by dividing your expected rate of return from 72.
Here’s what it looks like with an 8% return:
72/8 = 9 years to double.
But there’s also another way to use this rule of thumb…
2.5: Rule of 72 cont.
It can also tell you your *required* rate of return.
If you want to 2x your money in 10 years, the rule of 72 will tell you what % return you need.
72/10 years = 7.2% return required.
In other words, you need a 7.2% return to 2x your money in 10 years.
It can also tell you your *required* rate of return.
If you want to 2x your money in 10 years, the rule of 72 will tell you what % return you need.
72/10 years = 7.2% return required.
In other words, you need a 7.2% return to 2x your money in 10 years.
3. Rule of 114
Similar to the rule of 72, this rule shows you how many years it takes to 3x your money.
Calculate by dividing 114 by your expected rate of return.
114/8% return = 14 years to 3x your investment.
Similar to the rule of 72, this rule shows you how many years it takes to 3x your money.
Calculate by dividing 114 by your expected rate of return.
114/8% return = 14 years to 3x your investment.
4. Rule of 144
Shows how many years it’ll take to 4x your money.
Calculate by dividing 144 by your expected rate of return.
144/8% return = 18 years to 4x your investment.
Shows how many years it’ll take to 4x your money.
Calculate by dividing 144 by your expected rate of return.
144/8% return = 18 years to 4x your investment.
5. How much to invest in bonds
Tradition says invest your age as a % of bonds.
So a 20 year old will have bonds make up 20% of their portfolio.
That’s too conservative, even for the risk averse.
So if you want bonds in your portfolio, invest 120 minus your age in them.
Tradition says invest your age as a % of bonds.
So a 20 year old will have bonds make up 20% of their portfolio.
That’s too conservative, even for the risk averse.
So if you want bonds in your portfolio, invest 120 minus your age in them.
6. 5/25 Rule
When to rebalance your assets:
If large asset classes increase or decrease by an absolute 5% it’s time to rebalance.
If small asset classes increase or decrease by 25% of their size it’s time to rebalance.
When to rebalance your assets:
If large asset classes increase or decrease by an absolute 5% it’s time to rebalance.
If small asset classes increase or decrease by 25% of their size it’s time to rebalance.
7. 7 year rule
If you want to be conservative, don’t invest money you expect to need in the next 7 years.
If you want to be aggressive, don’t invest money you’ll need in the next 5 years.
Stocks are volatile, not investing short term money ensures it doesn’t lose value.
If you want to be conservative, don’t invest money you expect to need in the next 7 years.
If you want to be aggressive, don’t invest money you’ll need in the next 5 years.
Stocks are volatile, not investing short term money ensures it doesn’t lose value.
8. Stock market average return
On average the stock market has returned ~10% a year over its lifetime.
If you want to be aggressive in your calculations, assume 10%.
If you want to be conservative, assume 8%.
Then calculate the impact of inflation.
On average the stock market has returned ~10% a year over its lifetime.
If you want to be aggressive in your calculations, assume 10%.
If you want to be conservative, assume 8%.
Then calculate the impact of inflation.
9. The 5% rule
No more than 5% of your portfolio should be in a single stock.
Tying your net worth to an individual company is risky.
Limiting each company to 5% of your portfolio hedges against that risk.
No more than 5% of your portfolio should be in a single stock.
Tying your net worth to an individual company is risky.
Limiting each company to 5% of your portfolio hedges against that risk.
10. 10/5/3 rule
The long term average annual rate of return for stocks, bonds, and other cash equivalents.
- Stocks: 10%
- Bonds: 5%
- CDs, HYSAs, etc: 3%
This may not always be accurate in the short term.
But these have been the historical average return over the long term.
The long term average annual rate of return for stocks, bonds, and other cash equivalents.
- Stocks: 10%
- Bonds: 5%
- CDs, HYSAs, etc: 3%
This may not always be accurate in the short term.
But these have been the historical average return over the long term.
TL;DR:
1. 4% rule
2. Rule of 72
3. Rule of 114
4. Rule of 144
5. How much to invest in bonds
6. 5/25 Rule
7. 7 year rule
8. Stock market average return
9. The 5% rule
10. 10/5/3 rule
1. 4% rule
2. Rule of 72
3. Rule of 114
4. Rule of 144
5. How much to invest in bonds
6. 5/25 Rule
7. 7 year rule
8. Stock market average return
9. The 5% rule
10. 10/5/3 rule
Thank you for reading!
If you enjoyed this thread, follow me @WOLF_Financial for more.
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If you enjoyed this thread, follow me @WOLF_Financial for more.
If you want me to see me explore this content some more, sign up to my weekly newsletter: marketmadness-newsletter.beehiiv.com
This should be 120 minus your age in other assets and the rest in bonds so if you’re 20 you’re 100% not in bonds and if you’re 25 you’re 5% bonds
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