Following the 40-30-20-10 rule offers a structured but not personalized approach to balancing risk and return, allowing you to build solid assets over time.
Have you ever wondered how you should distribute your assets e.g. between stocks and bonds?
How much percentage should you allocate to each category to maximize your returns while ensuring long-term financial security?
It is a common dilemma, and the 40-30-20-10 rule presents itself as a starting point for those who wish to optimize money management, without necessarily relying on a financial advisor.
This rule, known for at least half a century, suggests dividing assets into four parts: 10%, 20%, 30%, and 40%.
It is therefore necessary to determine the total value of your assets, even if not very precisely, but I advise you not to throw out random or "affectionate" numbers. For example, valuing properties is not always easy.
Finally, remember to exclude your first home, as it is not considered an investment, and check if there are any mortgages to consider.
Once you have determined the value of your assets, apply the 40-30-20-10 rule as follows:
10% in liquidity
This portion can be kept in a current account, deposit account, or Treasury Bills (BOT) with a maximum maturity of one year. The choice of instrument depends more on costs than on performance. For example, 10 thousand dollars in bots that yield 3%, but with the cost of operation equal to 100 dollars are less convenient than a deposit account with a lower net rate which costs nothing.
20% in short-term investments
Dedicate this portion to euro-denominated bonds with a maturity of less than 5 years. This part of the portfolio provides short-term stability in case of emergencies.
30% long-term
Assign this percentage to long-term bonds, both in euros and other currencies. If you have a large wealth you can also consider shares with low volatility and consistent coupons, such as those in the utilities sector.
40% long-term in stocks and real estate
This is the part of your assets destined to grow over time. Both assets offer appreciation potential and can represent a solid but difficult investment to sell. Remember that these are the last assets you should invest in if needed.
Following the 40-30-20-10 rule offers a structured but not personalized approach to balancing risk and return, allowing you to build solid and versatile assets over time.
Original article published on Money.it Italy 2024-01-08 07:00:00. Original title: La regola del 40-30-20-10: guida pratica per ottimizzare il tuo patrimonio
