Rule: Subtract your age from 80. The difference is the percentage of your corpus that should be invested in stocks.
Exception: If an individual has a sound financial base, he can allocate a higher percentage to equities. In this case, he should subtract his age from 100 instead of 80. So, at 70, he can still have 30% invested in equities.
1% difference in return between a conservative and an aggressive portfolio can result in a difference of more than 30% in the value of these corpuses after 30 years.
20.4% is the annualised return from the UTI Mastershare fund since its launch in 1986. Magnum Equity fund, launched in 1990, has given an annualised return of 16.4%.
Equities are risky, but they are also the only asset class that can help beat inflation. A conservative allocation is low on risk, but can’t match the returns of a portfolio that’s aggressive on equities.
Over the long term, the 1.6% difference in returns can lead to a big gap in the values of the portfolios.
Mutual funds can reduce the risk of investing in stocks. The risk varies depending on the type of fund. Sectoral and thematic funds carry the highest risk, followed by diversified funds and index funds. Then there are hybrid funds that invest in a mix of debt and equity. As the investor grows older, he should gradually shift his money to less risky options.
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