Another basic mantra on financial planning is the 10-5-3 rule. This rule simply tells you how different asset classes give you different kind of returns. As an investor, you should diversify your money into all of these asset classes to generate expected returns.
The different asset classes and returns which can be expected from them as per this rule are -
- Long term Equity options– Returns expected can be in the range of 10%#
- Debt options– Returns expected can be in the range of 5%#
- Savings account – Returns expected can be in the range of 3%#
Equity may give you higher return, but it is riskier as compared to other options, while debt investments will be comparatively safer, with moderate returns. Savings account means liquidity to meet any emergency needs.
Diversification is thus the key to financial planning.
#The assumed rate of return indicated above is for illustrative purpose and not guaranteed