How to Use the 10-5-3 Rule of Investments in Asset Allocation
Updated: 2022-03-17T01:30:00Z

 

If you search the "10-5-3 Rule" in Google or Yahoo or any search engine for that matter, most of the first page results will be in the field of Customer Service.

 

How to Use the 10-5-3 Rule of Investments in Asset Allocation
"assorted-silver-and-gold-colored-coins-on-gray-surface" by Steve Johnson is licensed under CC0

 


     

    The 10-5-3 Contact Rule as defined in the Forbes website:

     

    • At 10 feet: Look up from what you are doing, and acknowledge the customer with direct eye contact and a nod.
    • At 5 feet: Smile, with your lips and eyes.
    • At 3 feet: Verbally greet the customer and offer a time-of-day greeting (“Good Morning”). Use a tone of voice appropriate to your work area or where you encounter the customer.

     

    Somehow, this rule was able to find its way to finance and has become one of the solid guidelines for asset allocation.

     

     

    What Is 10-5-3 Rule in the World of Finance?

     

    These numbers correspond to the annual interest yield of an investment.

     

    • At least 10% for investments that can be considered High Risks like Stocks.
    • At least 5% for Medium Risk investments like Bonds.
    • At least 3% for Low Risk investments like Cash Deposits.

     

    Meaning if you plan to invest your hard-earned money, make sure to look for investment vehicles that offer at least these interest rates.

     

    As diversification is the key in protecting your investments, using this approach will help you survive any financial storm that may come.

     

     

    The Rule of 72

     

    If you want to know how many years it will take to double your money, then the Rule of 72 got you covered.

     

    How does it relate to our 10-5-3 rule?

     

     

    Harnessing the Power of Division

     

    You need to divide 72 with the interest yield. The result will be the number of years it will take to double your money.

     

    • 72/10 = 7.2 years
    • 72/5 = 14.4 years
    • 72/3 = 24 years

     

    Regardless of how much is your investment amount, it will still take the same years to double it. Given the interest remained the same.

     

    Obviously, the higher the interest yield, the better. But remember that the risk will also be higher. You need to do your due diligence in doing the research before entering an investment.

     

    Don't just trust blindly because a friend of a friend or some individual in social media is telling you that this is a good investment. Be your own judge.

     

     

    The Enemy of All Investments Is Inflation

     

    According to the Philippine Statistics Authority, the average inflation rate for the year 2021 was 4.5%.

     

    To retain your money's buying power, your investments' earnings must always be above the inflation rate.

     

    Read Article: Investment Interest Rate and Inflation Rate: An Inseparable Relationship

     

    For example, you've followed the 10-5-3 rule and diversified your investments.

     

    All in all, you have an 18% accumulated interest yield. Now, if we subtract the inflation rate of 4.5%. You still have 13.5% worth of profit.

     

    The above is just an ideal example if everything went right. But since we are governed by Murphy's Law: "It's supposed to be, 'If it can happen, it will,'". Not all of your investments will have a positive yield.

     

    But the fact still stands that if you properly diversified your investments, you will still win in the end.

     

     

     

    Closing Thoughts

     

    The 10-5-3 rule is ideal for investors with a long-term horizon. Make Time as your ally.

     

    Remember that Time will always correct market uncertainties. Our world is the one great evidence of this fact.

     

    This is not the holy grail of investment rules. It is merely a guide to point you in the right direction.

     

     

     

    What you should do today

     

    Do you have your own system when it comes to investment allocations? Share your perspective with others by commenting below.

     

    Want to know your money's future value?

     

    Read Next Article: Inflation: Future Money Value Calculator

     

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    Quote

     

    "Uncertainty actually is the friend of the buyer of long-term values."
    - Warren Buffett
     
     
     
    - The Introvert's Perspective by ÆlfRæd (ElfCounsel)
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