How much of my salary should I put on index funds for the long term?

Index funds are a low-cost way of investing in the stock market and making returns that can beat inflation and benchmark returns.

The most famed value investor in the world, Warren Buffet has this to state for investing in index funds.

Pearls of Wisdom from Value-Investor Warren Buffet

This holds true as other venues of investment are having various clauses tied to them

In comparison, Index Funds are passively managed (hence low expense fees) and emulate the benchmark to which they are marked. They are not dependent on specific sectors or companies but perform on an aggregate of the entire benchmark.

Now coming to the question,

How much should you dedicate towards Index Funds from your salary?

Here you need to ask yourself a few questions:

  • Do you have loans or any other financial commitments?
  • Are you setting aside money for any future plans like vacation, car, home, education, etc.?
  • How much time can you dedicate to tracking your investments?
Approach to Investing

Ideally, one should invest in equity as follows

%Investment in Equity = (100 – Age of an individual)%

Now, assuming you do not have time to track your investments on a daily or weekly basis and have some financial commitments, it would be advisable to go as follows:

  1. 50% Index Funds
  2. 25% Mutual Funds – Large Cap, Balanced & Flexicap/Multicap
  3. 15% Stocks – Large Cap Marquee Names (sectors like Capital Goods, FMCG, Banking, IT, Pharma, etc.)
  4. 5% Sovereign Gold Bonds
  5. 5% Non-Convertible Debentures(NCDs) – Rating Exceeding AA at the least
Ideal Diversified Investment Portfolio

Also, sharing some more posts linked to this, that you can utilize to make your investment analysis

Hope this helps

You can follow my blog or Facebook page on investing for getting insight into other stocks.

Happy Investing!!

References:

  1. What does a healthy investment portfolio look like?
  2. Our Investment Process

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