Fresiah Kinyua
Content Writer | Transcriptionist | Digital Marketer
Published May 16, 2024
As we all know, in investing, it is critical to lower risks and boost profits. Well, this rule explains how you will receive varying returns from different asset types. Here is what the rule states in asset allocation.
· 10% of your assets is for high-risk assets.
· 5% of your assets is for medium-risk assets.
· 3% of your assets is for low-risk assets.
Any investment with a significant percentage potential of loss or underperformance is considered high-risk, also known as high-return. With the 10% part of the rule, despite its danger, they provide the potential for significant returns.
As for medium-risk investments, the 5% part of the rule prioritizes long-term growth while providing some protection against short-term declines in the market. These provide marginally lower yields but are generally safer.
The 3% part of the rule is low-risk investing, meaning there’s a low probability of incurring losses.These are the safest even if they have lower yields.
Pros of the 10-5-3 Rule
· Diversification
Investors may control volatility and generate longer-term returns that are more stable by distributing their assets throughout these categories.
· Balanced returns
With market volatility, it helps you figure out how to properly balance risk and possible return.
Con of the 10-5-3 Rule
· Inflation and Taxes
Taxes and the impact of inflation on the value of the money are not factored in by the 10-5-3 rule.
Certainly, the rule can be used to grow and manage your investment portfolio. Making educated financial judgments and maximizing the advantages of implementing the rule can eventually be achieved by speaking with a financial advisor.
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