Hey there! Do you know about this 70/20/10 model? If you never read it before, don’t panic because today I’ll make it as simple as possible to understand. This rule could much easier and it allows traders and investor to upload their money smartly while giving them shot at the big bucks.
So, let’s start and see what is this rule all about, and how it is being implemented.
Understanding the 70/20/10 Rule
Suppose you have Rs. 100 for to engage in trading or investing in the stock markets. In place of putting all your money in one basket, which is risky you divide it into three baskets with the 70/20/10 rule where you invest 70% in moderately risky investments, 20% in slightly risky investments, and 10% in very high risks investments. Here’s how it works:
- 70% in low-risk investments (the safe zone).
- 20% in medium-risk investments (the balanced zone).
- 10% in high-risk investments (the adventure zone).
This way, you spread your money wisely so do not risk to lose all while at the same time having an opportunity to grab momentary high return rates.
The 70/20/10 guideline perfectly complements Angel One’s broad investing offerings, which include secure low-risk options, balanced medium-risk funds, and dynamic high-risk opportunities such as stocks and cryptocurrency. Angel One’s expert suggestions and smart tools offer a seamless path for traders of all levels. Open an account with Angel One– Click here
Let’s Break It Down!
1. 70% in Low- Risk Investments (The Safe zone)
This is where most of your money goes you are going to spend at least 70% here. These investments are completely secure as the saying; ‘there is no better place than being under a warm blanket on a rainy day’ goes. You know your money is well tucked and safe.
Examples:
- Fixed deposits
- Government bonds
- Debt mutual funds
- Blue sky, indicating large established corporations also known as blue-chip stocks.
Why go for low-risk investments?
They’re not flashy or exciting, but they keep your money safe and grow it slowly over time. As one puts a seed on the ground, it germinates and grows through the years.
2. 20% in Medium-Risk Investments (The Balanced Zone)
Here is where one begins to introduce a little heat into the portfolio. This part is for the slightly risky investments that open the way for higher revenues.
Examples:
- Large cap stock funds (focusing in equity of big businesses that are expanding).
- Balanced mutual funds (a mix of stocks and bonds).
Why medium risk?
This zone is like a see-saw. You are definitely making something out of it that I think is proportional to the risk that is being taken – it’s not too much of an speed rush though. They provide higher returns compared to low-risk investment products but are less risky than high-risk investment.
3. 10% in High-Risk Investments (The Adventure Zone)
Finally, the fun part! This is the set where you stand to get some small gains in an attempt to have bigger ones.
Examples:
- Emerging markets equity funds (investing in smaller companies with high growth potential).
- Digital currencies (Such as Bitcoin, Ethereum etc.)
- Most common retail level investment involving buying of stock for yourself.
Why take high risks?
Golfer great risks mean great rewards, but they also mean that you can swing both ways – up or down, very fast. This is why only ten percent of the money goes here, and it is like the frosting on a cake after you have eaten the cake, a luxury!
Why Should You Use the 70/20/10 Rule?
After that you might ask me, “Why split my money like this?” Why can I not just place everything together you ask? Well, here are some super simple reasons why the 70/20/10 rule is awesome:
Less Risk, More Peace of Mind
With 70 percent of your money safe in secure products, you can avoid the situation where everything goes up in smoke due to a wild market.
Balanced Growth
The 20% medium risk investments allow you to earn more with minimal risk associated with such investments.
Exciting Opportunities
In the 10% of those investments referred to as the high-risk portfolio, you can try to shoot for the stars. Thus even if you lost the above small portion you realize that it does not greatly affect the overall savings.
Diversification
Fancy word alert! In simple terms, diversification just means investing your money across a range and not putting all in one asset. It takes the view that if one investment is not profitable, the others will make up for that loss.
Flexibility
In its current form, you can actually twist the figures a little depending on your targets. For instance, if you are a beginner you can make it 80/15/5 to minimize the chances of having your bet routed.
The 70/20/10 rule in trading: how to apply it ?.
The use of this rule is very simple. Here’s how you can do it step-by-step:
Know Your Budget
Suppose you are invested with Rs. 10,000 to begin with.
Split It Into Percentages
Rs. 7000 (70 %) is invested in the low risk categories.
Rs. 2,000 (20%) is invested in moderate risk investment.
Out of Rs. 1,000 (10%) is invested on high risk.
Choose Your Investments
For low risk they can choose low risk instruments like bonds or fixed deposit.
In medium risk one can invest in mutual funds or large cap stocks.
High risk can be achieved by investing in either small cap stocks or cryptocurrencies.
Stick to the Plan
Don’t let emotions take over. No matter how attractive the market is, always follow the rule to the letter.
Review and Adjust
The categorisations should then the adjust the percentages to the right figures every 6 months or so. If one part has become too large, make changes so that it is once again 70%, 20%, 10 %.
Angel One empowers traders to apply the 70/20/10 rule with diverse investment options, expert insights, and advanced tools for smart portfolio management. Open an account with Angel One– Click here
Conclusion
The 70/20/10 rule functions as a trading magic formula. It allows you to stay safe, grow your money, and even have some fun with high-risk investments. Whether you’re a newbie or an experienced trader, this guideline can help you navigate your investment journey with ease.
So, are you ready to test the 70/20/10 rule and become a clever trader? Start small, maintain consistency, and watch your money increase! Happy trading!
If you found this post useful, please comment “useful”. And I request you to Please share this post on Facebook/WhatsApp with those who need this.