Thumb Rules That Help You Make Asset Allocation Decisions Simple

Till the recent past, all of us had a family doctor who had this amazing ability to predict how long a fever would last, that too without conducting any medical test.

- Ajit Menon

Similarly, an experienced cook is able to tell the quantity of ingredients required to cook food for an entire event. A tailor can tell the length of cloth required to stitch a suit by just looking at the body structure. Even before google maps came into existence, an experienced cabbie on the streets of Mumbai could have given you a fair estimation of time required to reach a particular destination, that too for different hours of the day. And a good fielder is able to take a running catch without first calculating the trajectory, speed and direction of the cricket ball. Ever wondered how they do it?

All these are based on practical experiences. Over the years these professionals developed insights into their trade taking away the need for scientific measurements that are accurate to the last digit. These roughly correct measurements are often referred to as thumb rules. There are wide ranging debates on the origin of Rules of Thumb or what is commonly known as Thumb Rule. As per the Merriam Webster Dictionary, it is a general principle regarded as roughly correct but not intended to be scientifically accurate. They are a layman’s guide to practical problems.

Like all other professions, the world of investments also has a fairly long list of useful thumb rules. Rules of thumb are a great starting point to help you manage your investments and portfolio.