The way retirement planning works is pretty simple. Identify needs and goals, identify the mix of asset class that satisfies the goal, execute the plan and review the plan frequently. But the key is to balance Equity Percentage in Portfolio so that risks are not too high or too low.
Equity is one financial instrument that provides great protection against inflation. And since Inflation is one BIG ASSUMPTION we make about the future needs, Equity has to be a significant part of your long term financial goals – of course this depends on our Willingness and Capability to take risks.
So what should be Equity Percentage in Portfolio? Well there is no straight answer for this question. But there is an interesting thumb rule which could be use.
% of Equity you should own = (100 – Your Age)%
So this formula says that the % of Equity in your portfolio reduces as you age. Meaning as you grow older the % of Equity in your portfolio decreases. The younger you are the more the Equity holding percentage. Isn’t that self explanatory, think about it?
Note that % of Equity in your portfolio depends on your WILLINGNESS and ABILITY to take risk which you can read about here.
