Financial Planning: The 10-5-3 Rule (2024)

FAQs

Financial Planning: The 10-5-3 Rule? ›

The 10-5-3 rule can be used as a general principle for diversifying your investment portfolio. It suggests that 10% of your portfolio should be allocated to high-risk, high-reward investments, 5% to medium-risk investments, and 3% to low-risk investments.

The 10, 5, 3 rule. This is the expected long-term return from equities 10%, bonds 5%, and cash 3%.

Do not subtract other amounts that may be withheld or automatically deducted, like health insurance or retirement contributions. Those will become part of your budget. The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings.

The Rule of 72 is not precise, but is a quick way to get a useful ballpark figure. For investments without a fixed rate of return, you can instead divide 72 by the number of years you hope it will take to double your money. This will give you an estimate of the annual rate of return you'll need to achieve that goal.

One simple rule of thumb I tend to adopt is going by the 4-3-2-1 ratios to budgeting. This ratio allocates 40% of your income towards expenses, 30% towards housing, 20% towards savings and investments and 10% towards insurance.

The 10-5-3 rule is a simple rule of thumb in the world of investment that suggests average annual returns on different asset classes: stocks, bonds, and cash. According to this rule, stocks can potentially return 10% annually, bonds 5%, and cash 3%.

It aligns with common retirement planning guidelines. Many financial experts recommend saving 10-15% of your income annually for retirement. Since many employers match 3-5% of income in retirement accounts, the seven percent rule gets you well on your way towards meeting typical retirement savings targets.

The 40/40/20 rule comes in during the saving phase of his wealth creation formula. Cardone says that from your gross income, 40% should be set aside for taxes, 40% should be saved, and you should live off of the remaining 20%.

By age 35, aim to save one to one-and-a-half times your current salary for retirement. By age 50, that goal is three-and-a-half to six times your salary. By age 60, your retirement savings goal may be six to 11-times your salary.

How long does it take to double money at 8%? ›

The result is the number of years, approximately, it'll take for your money to double. For example, if an investment scheme promises an 8% annual compounded rate of return, it will take approximately nine years (72 / 8 = 9) to double the invested money.

One of those tools is known as the Rule 72. For example, let's say you have saved $50,000 and your 401(k) holdings historically has a rate of return of 8%. 72 divided by 8 equals 9 years until your investment is estimated to double to $100,000.

Divide 72 by the interest rate on the investment you're looking at. The number you get is the number of years it will take until your investment doubles itself.

The 90/10 rule in investing is a comment made by Warren Buffett regarding asset allocation. The rule stipulates investing 90% of one's investment capital toward low-cost stock-based index funds and the remainder 10% to short-term government bonds.

The 4% rule for retirement budgeting suggests that a retiree withdraw 4% of the balance in their retirement account(s) in the first year after retiring, and then withdraw the same dollar amount, adjusted for inflation, every year thereafter.

1 is never lose money. Rule No. 2 is never forget Rule No. 1.” The Oracle of Omaha's advice stresses the importance of avoiding loss in your portfolio.

The 75/15/10 rule suggests devoting 75% of your income to living expenses, 15% to investing, and 10% to savings. This guideline can be a flexible way to prioritize your long-term financial future when deciding how to budget and allocate your income, which you can adapt based on your situation.

To apply this rule of thumb, budget for the following: 20% down payment: Aim to make a 20% down payment on your new car. 4-year repayment term: Choose a repayment term of four years or less on your auto loan. 10% transportation costs: Spend less than 10% of your total monthly income on transportation costs.

Cardone says that from your gross income, 40% should be set aside for taxes, 40% should be saved, and you should live off of the remaining 20%.

What is 15-15-15 investment policy? The 15-15-15 investment policy suggests investing 15% of your income for 15 years in mutual funds yielding 15% annual returns. This strategy leverages compounding to grow savings significantly over time, aiming to achieve long-term financial goals. How to calculate 15-15-15 rule?