| How much to put into equity? Understand the difference between Gambling. Speculating and Investing |
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Traditional Belief
(100– Your Age)% of your assets should go into equities. The rest in bonds or fixed income instruments.
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Sensible belief
It is all a matter of
price and value. Equity valuations rather then your age should be the deciding factor. |
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The Traditional belief is based upon the premise that being a risky asset class the percentage of equity in your portfolio should diminish, as you grow older. The sensible belief is that an equity investing is all about value and price . We talk about age being the deciding factor because at a younger age people can take much larger risks. They have time in their hand.ALternatively once a person approaches retirement he would normally like to cut down on his risk portfolio.
Gambling : When the fortune is decided by luck. The invisible hand decides it all
Speculating : When the position is larger then what your net worth warrants. You do not know what you are doing and would possibly sell all that you bought if the price falls
Investing : When you know what you are doing, luck has no role in your fortunes and you are prepared to buy more if the stock falls.
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