Are you a smart investor? These 5 investment rules can give a reality check

Investment Advice: Investing can be overwhelming for beginners as there are many things one needs to keep in mind. This is where the thumb rules of investing could help. The Thumb rule will provide great assistance to first-time investors by giving them an idea of the investing world.

Here are 5 thumb rules that can be useful for investors: 

1. Emergency Fund rule 
Before investing, one needs to have an emergency fund i.e the money one can use for financial emergencies. According to the rule, one must keep in hand funds equal to the cumulative expense of at least 3-6 months. This fund should be kept liquid and easily accessible.

2. Rules 72, 114 and 144 
a) Rule 72 
This thumb rule helps an investor in estimating the number of years in which the investment will double. To know the estimated number of years, one has to divide the number 72 by the expected rate of return. 

Example- If an investor keeps the expected rate of return at 20 per cent, then he/she needs to divide 72 by 20 (72/20) which comes to 3.5 years. Thus, the investment will double in 3.5 years.

b) Rule 114
Same as rule 72, if an investor wants to know the estimated number of years the investment will triple, he/she needs to divide the expected rate of return by 114.

c) Rule 144
Similar to the above rules, if an investor wants to know the estimated number of years the investment will quadruple, he/she needs to divide the expected rate of return by 144.

3. Minimum 10% investment Rule 
Investing is not the ideal option that comes to mind when a person starts earning but investing early can help in building wealth for the future. According to this rule, one has to invest 10 per cent of their current salary and increase it by 10 per cent every year.

4. 100 Minus Age rule 
If one is confused about the asset allocation of equity and debt, then the 100 minus age rules will help. As per this rule, one has to subtract his/her age from 100. The result can be invested in equity and the balance in debt 

Eg if someone is 20 years old 

100-20= 80  

80 percent of the portfolio should be equity and 20 per cent should be debt. 

5. 4 % withdrawal rule 
This is not an investment thumb rule but is worth knowing about. This rule is for retirees to ensure a steady income stream without spending their savings at a fast pace. According to the thumb rule, retirees should withdraw 4 percent of their retirement corpus to manage their living expenses. These expenses should not exceed Rs 4 lakh per year. 

Disclaimer: This article is for informational purpose only. It is not a recommendation you should or should not use the thumb rules mentioned