finance industry

[ANALYSIS] Rule of 120: A practical method of asset allocation and minimizing investment risk exposure 

Den Somera

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[ANALYSIS] Rule of 120: A practical method of asset allocation and minimizing investment risk exposure 

Raffy de Guzman/Rappler

'The Rule of 120 is indeed awesome. It’s an easy-to-understand investment risk formula for all ages.'

Let me run you through one of the practical methods of asset allocation which, at the same time, serves as a guide for minimizing one’s investment risk exposure before we proceed to find more stocks with good short-term and long-term potentials.  

This subject has become an equally urgent matter for consideration as the number and profile of present-day investors in the stock market has grown and expanded wider as they included investors in their teens up to those in their 70s, or even 80s.   

This is the so-called Rule of 120.  Its name was derived from its very formula of simply subtracting one’s age from 120.  In turn, the resulting figure (or difference) is then expressed as the equivalent percentage of how much of one’s investible money can be devoted to equity or stock investments. 

The Rule of 120 was previously known as the Rule of 100.  It was modified to take into consideration the longer life expectancy of the modern-day man.

Its underlying principle is to help guide investors determine just how much money they should allocate from their savings for stock or equity investments, in order to maximize their chances to earn more, at the same time, help manage to minimize their risk exposures.

For those who are not yet familiar with what equity investment is, this simply means the acquisition of ownership in a private business enterprise to grow one’s money or financial resources.  It could be ownership participation into a company being created, or to one that is newly created only or existing company that has long been operating. 

In the stock market, it generally refers to buying and/or trading of shares of listed stocks in anticipation of income from dividends, either in the form of cash or stocks, and capital gains, which is realized when the value of the stock rises.

Underlying principle 

Individuals of different ages have different tolerance for investment risks.  This is because an individual of 75 years of age obviously has a relatively shorter life expectancy and limited productivity at such age than by an individual who is just 25 years of age or younger.  

As in the case of younger individuals, they have a relatively longer time horizon before them.  This makes them have a higher tolerance for risk and losses.    

Older individuals, on the other hand, have limited productivity and shorter life expectancy.  This makes them unable to afford big losses much less recurrent losses.  

So, the Rule of 120 was invented to provide a practical approach on how one may allocate or calculate the amount of money one may risk on stocks or equity investments.  


Again, this is how it simply works: If you are 25 years old, deduct it from 120, and you will get the resulting figure (or difference) of 95.  This means that 95% of your savings can or should be invested in equity or stocks.  

If you are 35 years old, you can allocate 85%.  It’s 75% if you are 45 years old, 65% if you are 55 years old, 55% if you are 65 years old, 45% if you are 75 years old, and 35% if you are 85 years old.    

The significance of Rule of 120 becomes more explicit when we examine its impact in the case of an 85-year-old investor.  

An 85-year-old is still allowed by Rule of 120 to still indulge in equity investments up to 35%. The risk exposure of 35% is undeniably still significant.  However, it is not big enough as in unduly exposing the money of the elderly from being completely wiped out.  Yet, it can still afford the elderly from earning a significant return.  Remember, while equity investment is always risky, it comes with a higher investment payback.  

According to the Rule of 120, an 85-year-old investor can or should invest 35% of his or her money into stock investments with the remaining 65% in more conservative fixed-income products like treasury bills or bonds.  

Without the Rule of 120, the 85-year-old investor would been confined in investing his or her money in a very secure fixed income instrument like the treasury bills with net interest earnings of 4.5% per year.  

In this case, the net earnings yield from the treasury bills will be P45,000.00 for every P1.0 Million placement. 

On the other hand, if the 85-year-old investor invested his or her P1 million according to the Rule of 120, total earnings could be as big as P115,000, which is 150% over and above the P45,000 income from purely interest earnings.  

The P115,000 earnings were derived from the following: earnings of P82,818 from stock investment (per the assumptions in the following paragraph below); and earnings of P32,500 (P650k x 4.5%) from investment in treasury bills.  

Stock investments were distributed into three of the several best performing stocks last year, namely: P150k in GT Capital Holdings, Inc. (GTCAP) whose market price grew 36.01%, P100k in SM Prime Holdings, Inc. (SMPH) whose market price grew 26.13%, and P100k in Jollibee Food Corporation (JFC) whose market price grew 26.19%.  

The Rule of 120 is indeed awesome.  It’s an easy-to-understand investment risk formula for all ages.  It provides individuals of any age a practical method of how to ride on the higher returns of stock or equity investments at sensible levels of risks.    

Four more stock picks 

Last time, we recommended no less than nine stock picks.  These were GT Capital Holdings, Inc. (GTCAP), Manila Electric Company (MER), Ayala Corp. (AC), Aboitiz Power Corporation (AP), DMCI Holdings, Inc. (DMC), Megaworld Corporation (MEG), Robinsons Land Corporation (RLC), International Container Terminal Services, Inc. (ICTSI), and Philippine Long Distance Telephone Company (TEL). They were selected on the basis of their operating results and resultant market performances.

Today, we have four more stock recommendations.  Not selected in any order of preference, we start with the Bank of the Philippine Islands (BPI).  BPI has the following subsidiaries: BPI Asset Management and Trust Corp., BPI Investment Management Inc., BPI Capital Corp., BPI Direct BanKo, Inc., BPI International Finance Limited, BPI Remittance Centre Hong Kong Ltd., BPI (Europe) Plc., BPI/MS Insurance Corp., and has 869 local branches, one branch in HK, and two branches in London.  

BPI has a P/E Ratio of 11.7x, and is estimated by my young friends in the market, to have an 11.3% target price upside equivalent to P128.00 per share.  

Next is SM Investments Corporation (SM).  SM has interests in BDO Unibank, Inc. and China

Banking Corporation, “The SM Store,” SM Supermarket, SM Hypermarket, SaveMore, Walter Mart Supermarket, Inc., Alfamart, with property developer SMPH, equity investments in premium buildings through Neo Group, Philippine Urban Living Solutions, CityMall, in leisure  through Belle Corporation, in logistics via the 2GO Group, Inc. and Airspeed, in food with Goldilocks, and mining through Atlas Consolidated Mining & Development Corporation. 

SM has a P/E Ratio of 14.8x and an estimated share price upside of 10.11% from its target price of P997.00.

Another is Alliance Global Group, Inc. (AGI).  The subsidiaries of AGI are Emperador Inc., Megaworld Corporation, Golden Arches Development Corporation (McDonald’s fast-food), Travellers International Hotel Group, Inc., Alliance Global-Infracorp Development, Inc.  AGI has also diversified into infrastructure with the Fort Bonifacio-Makati Sky Train project.  

At a P/E Ratio of 6.0x, AGI has an estimated share price upside of 11.10% from its target price of P12.70.

Last but not the least is JG Summit Holdings, Inc. (JGS).  JGS has the following subsidiaries: JG Summit Petrochemical Corp., CP Air Holdings Inc., URC, RLC, Robinsons Bank Corporation; an 11.3% stake in PLDT Inc. and a 26.4% interest in Meralco.

JGS has a P/E Ratio of 19.3x and an estimated share price upside of 10.97% from its target price of P44.00.

Watch out for more stock recommendation updates.  The year is barely starting. –

The article has been prepared for general circulation for the reading public and must not be construed as an offer, or solicitation of an offer to buy or sell any securities or financial instruments whether referred to herein or otherwise.  Moreover, the public should be aware that the writer or any investing parties mentioned in the column may have a conflict of interest that could affect the objectivity of their reported or mentioned investment activity.   You may reach the writer at

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