What is the 10-5-3 Rule of Investment? (2024)

In the realm of financial planning and investment, various rules of thumb simplify complex concepts into easily understandable guidelines. One such rule is the 10-5-3 rule, a guideline that offers a broad-brush view of expected returns on different asset classes. This rule, while not an exact science, provides a helpful framework for investors to manage expectations and make informed decisions about their investment strategy.

1. Understanding the 10-5-3 Rule

The 10-5-3 rule is a simple rule of thumb in the world of investment that suggests average annual returns on different asset classes: stocks, bonds, and cash. According to this rule, stocks can potentially return 10% annually, bonds 5%, and cash 3%. While these figures are not guarantees, they serve as a guideline for investors to forecast potential returns and adjust their portfolio accordingly.

2. Asset Allocation and Diversification

A key component of using the 10-5-3 rule effectively in investment strategy is understanding asset allocation and the importance of diversification. This rule implicitly advises diversifying across different asset classes—equities, bonds, and cash—to balance risk and return. By spreading investments across these categories, investors can manage volatility and achieve more stable long-term returns.

3. Comparing the 10-5-3 Rule to the Rule of 72

Another popular rule in finance is the Rule of 72, which helps investors estimate how long it will take for their money to double at a given interest rate. The 10-5-3 rule complements this by providing a broad expectation of returns for each asset class. Together, these rules can simplify financial planning by offering a straightforward way to evaluate investment decisions and their potential outcomes.

4. Long-Term Financial Planning and Retirement

For long-term financial goals, especially retirement planning, the 10-5-3 rule can be a valuable tool. It helps investors understand the kind of returns they might expect over an extended period and plan their savings and investment strategies accordingly. For instance, if one is heavily invested in bonds and cash, the rule suggests a more conservative return, which might necessitate saving more or adjusting asset allocation for better growth prospects.

5. The Role of Inflation and Market Volatility

While the 10-5-3 rule offers a basic framework, it’s crucial to keep in mind factors like inflation and market volatility. The actual return rate on investments can be influenced by these factors, and therefore, the rule should be applied with a degree of flexibility. It’s important to periodically review and adjust your investment portfolio in response to changing market conditions and personal financial goals.

Final Thoughts

The 10-5-3 rule of investment provides a simple yet effective framework for investors to understand potential returns on different asset classes. It’s an excellent starting point for financial planning, helping to set realistic expectations and inform investment decisions. However, like all rules of thumb in finance, it should be used as a guideline rather than a strict directive. Always consider seeking financial advice before making any investment decisions. For more insights into investment strategies and financial planning, explore our other articles and resources.


What exactly does the 10-5-3 rule state?

The rule states that stocks, bonds, and cash yield average annual returns of approximately 10%, 5%, and 3%, respectively. This rule is a general guideline for investors to use when considering their asset allocation. It suggests that investors may expect an average annual return of around 10% from stocks, 5% from bonds, and 3% from cash over the long term. However, it is important to note that these figures are not guaranteed and can vary based on market conditions and other factors.

How should I use the 10-5-3 rule in my investment strategy?

Use it as a guideline to diversify your portfolio across different asset classes and to set realistic expectations for returns. The 10-5-3 rule can be used as a general principle for diversifying your investment portfolio. It suggests that 10% of your portfolio should be allocated to high-risk, high-reward investments, 5% to medium-risk investments, and 3% to low-risk investments.

By following this rule, you can spread your investment risk across different asset classes and investment types, such as stocks, bonds, real estate, and cash. This can help protect your portfolio from significant losses in the event that one asset class underperforms.

Additionally, the 10-5-3 rule can help set realistic expectations for returns. High-risk investments may offer the potential for higher returns, but also come with greater volatility and the potential for loss. Meanwhile, low-risk investments may offer more stability but typically provide lower returns.

Ultimately, using the 10-5-3 rule as a guideline can help you create a well-balanced and diversified investment strategy that aligns with your risk tolerance and financial goals. Keep in mind that this rule is just a starting point and should be adjusted based on your individual circ*mstances and preferences.

Is the 10-5-3 rule a reliable predictor of investment returns?

While it provides a general guideline, it’s not a guaranteed predictor due to factors like market volatility and inflation. The 10-5-3 rule is a general guideline for investing, suggesting an allocation of 10% of your portfolio in cash, 5% in bonds, and 3% in commodities. However, it is not a reliable predictor of investment returns. There are many factors that can affect investment returns, such as market volatility, inflation, and individual investment performance. Therefore, it is important for investors to consider their own financial goals, risk tolerance, and market conditions when making investment decisions, rather than relying solely on the 10-5-3 rule.

Can the 10-5-3 rule help with retirement planning?

Yes, it can assist in forecasting potential long-term returns, which is crucial in planning for retirement. The 10-5-3 rule suggests that over the long term, a diversified investment portfolio could expect a 10% return from stocks, a 5% return from bonds, and a 3% return from cash or cash equivalents. By using these estimates, individuals can project their potential retirement savings and make strategic decisions about their investment allocations to meet their retirement goals.

However, it is essential to remember that these are just estimates and actual returns can vary. Additionally, retirement planning involves many other factors, such as inflation, taxes, and individual circ*mstances, that should also be considered. While the 10-5-3 rule can be a helpful starting point, it should be used in conjunction with other retirement planning tools and advice from financial professionals.

Should I consult a financial advisor when applying this rule?

Yes, getting professional financial advice is recommended to tailor the rule to your specific financial situation and goals. A financial advisor can provide personalized guidance on how to apply the rule to your particular circ*mstances, help you understand the potential risks and rewards, and provide additional investment options to consider. They can also help you create a comprehensive financial plan that takes into account your long-term financial goals and needs.

Consulting a financial advisor can ultimately help you make well-informed financial decisions and maximize the benefits of applying the rule.

Does this rule take inflation into account?

The 10-5-3 rule does not directly account for inflation, so it’s important to consider inflation’s impact on your real returns. No, the 10-5-3 rule does not take inflation into account.

This material has been provided for informational purposes only, and is not intended to provide investment, legal or tax advice. Check with your tax advisor to determine what tax credits and tax deductions may be available for your business. Finhabits does not provide tax, legal or accounting advice. Investment advisory services offered through Finhabits Advisors LLC, an SEC registered investment adviser. Registration does not imply a certain level of skill or training. Past performance is no guarantee of future returns. There are risks involved with investing. Insurance services offered through Finhabits Insurance Services LLC, a licensed producer in certain states. Finhabits Advisors LLC is not a fiduciary to insurance products or services.​
What is the 10-5-3 Rule of Investment? (2024)


What is the 10-5-3 Rule of Investment? ›

The 10-5-3 rule suggests that over the long term, a diversified investment portfolio could expect a 10% return from stocks, a 5% return from bonds, and a 3% return from cash or cash equivalents.

What is the rule of 10 5 3? ›

The 10,5,3 rule

Though there are no guaranteed returns for mutual funds, as per this rule, one should expect 10 percent returns from long term equity investment, 5 percent returns from debt instruments. And 3 percent is the average rate of return that one usually gets from savings bank accounts.

What is the 10 rule in investing? ›

A: If you're buying individual stocks — and don't know about the 10% rule — you're asking for trouble. It's the one rough adage investors who survive bear markets know about. The rule is very simple. If you own an individual stock that falls 10% or more from what you paid, you sell.

What does Warren Buffett mean by "don't lose money"? ›

Buffett's investment strategy stands out because of his aversion to losses. Instead of accepting losses, he tends to double down on his positions or even increase his investments when they go against him. He believes that if you like a stock at a certain price, you should like it even more when the price goes down.

What is Warren Buffett's golden rule? ›

"Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1."- Warren Buffet.

What is the 10 and 5 rule? ›

The idea behind the 10:5 rule is that anytime you find yourself within 10 feet (3 meters) of someone, you should smile and make eye contact. When you are within 5 feet (1.5 meters) of someone, you should greet them with a friendly hello or other greeting.

What is the 10 to 3 rule? ›

Understanding the 10-3 Rule for ADHD: The Basics

The concept is simple: for every 10 minutes of focused work, your child takes a 3-minute break. This approach not only helps maintain their attention but also prevents burnout and frustration.

What is the 5 rule of investing? ›

This sort of five percent rule is a yardstick to help investors with diversification and risk management. Using this strategy, no more than 1/20th of an investor's portfolio would be tied to any single security. This protects against material losses should that single company perform poorly or become insolvent.

What is the #1 rule of investing? ›

1 – Never lose money. Let's kick it off with some timeless advice from legendary investor Warren Buffett, who said “Rule No. 1 is never lose money.

What is the Warren Buffett 70/30 rule? ›

A 70/30 portfolio is an investment portfolio where 70% of investment capital is allocated to stocks and 30% to fixed-income securities, primarily bonds.

What will never lose value? ›

Things that don't depreciate in value are things that don't lose their qualities as time passes or things that actually increase in value with the passage of time. These include goodwill, luxurious items, high-quality art, gems, alcoholic beverages, and land.

What is the number one rule of investing don't lose money? ›

Longtime Berkshire Hathaway CEO Warren Buffett ranks as one of the richest people in the world. Buffett is seen by some as the best stock-picker in history and his investment philosophies have influenced countless other investors. One of his most famous sayings is "Rule No. 1: Never lose money.

How to stay poor by Warren Buffett? ›

Warren Buffett: 12 Things Poor People Squander Money On
  1. Neglecting Personal Development. ...
  2. Relying On Credit Cards. ...
  3. Frequenting Bars and Pubs. ...
  4. Chasing the Latest Technology. ...
  5. Overspending on Clothes. ...
  6. Buying New Cars. ...
  7. Unused Gym Memberships. ...
  8. Unnecessary Subscription Services.
Apr 22, 2024

Why does Warren Buffett dislike gold as an investment? ›

Warren Buffett has been vocal that he feels gold lacks value because it lacks usefulness. A key principle of value investing, as Buffett practices it, says you should only invest in things that serve some practical purpose.

What is the Buffett's two list rule? ›

Buffett presented a three-step exercise to help streamline his focus. The first step was to write down his top 25 career goals. In the second step, Buffett told Flint to identify his top five goals from the list. In the final step, Flint had two lists: the top five goals (List A) and the remaining 20 (List B).

What was Warren Buffett's best quote? ›

Warren Buffett Motivational Quotes
  • “The most important thing to do if you find yourself in a hole is to stop digging.”
  • “Price is what you pay, value is what you get.”
  • “The most important quality for an investor is temperament, not intellect.”
  • “Remember that the stock market is a manic depressive.”
Dec 17, 2023

How to solve 3 5 times 10? ›

3 divided by 5 is 0.6. Multiply by 10 to get 6. As long as the bottom number is divided and the other numbers are multiplied the order doesn't really matter, it only matters once addition and subtraction etc. come into it.

What goes into 3 5 and 10? ›

LCM of 3, 5 and 10 is 30. In Maths, the LCM of any two numbers is the value which is evenly divisible by the given two numbers.

What is the rule of 10 in math? ›

The powers of 10 are of the form 10x, where x is an integer. 10x is read as '10 to the power of x'. If x is positive, we simplify 10x by multiplying 10 by itself x times. For example, 103 = 10 × 10 ×10 (3 times) = 1000. If x is negative, then we apply the property of exponents, a.

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