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rules of thumb

Sorry to Rain on your Parade

I wanted to take a brief moment to remind our readers of a fundamental investing truth that tends to get overlooked, forgotten, or deliberately disregarded during times of market euphoria. Think about this. If you had a million dollars at the beginning of 2016 to invest and I said that over the year that there would be a Supreme Court vacancy, the Cubs would win the World Series, interest rates would rise, and Donald Trump would become president – would you invest that million dollars in the market? I would bet that many people would not. They would guess that 2016 would be a dismal year for market returns. Yet, in 2016 the Dow returns 13.4% and the S&P 500 returned 9.5%! With all of that uncertainty and the improbable happening, the market still had a great year of returns. Those who stayed invested were rewarded. Those who sold (say, […]

Why Designations Matter

Throughout my career I have had the occasion to talk with several financial advisors, planners, insurance agents, brokers, and other industry professionals about some of the reasons why people choose to pursue or not to pursue designations. I have heard differing views on the topic and thought I’d share some of my insights as to why I chose and still choose to pursue designations and degrees. Before I do, let me start by talking about some of the reasons why the advisors I have spoken to decide not to earn a designation. More often than not, the typical answers that I receive are not having enough time, not sure which designation to pursue, lack of funding to afford the designation, and lack of support on earning the designation – either from their employer or family. On the latter two points, some companies may not be able to “support” the designation […]

4 rules to break – for now

As you may know if you’ve been reading here for very long, from time to time I review financial rules of thumb – today I’ve got a bit of a twist on the “principles of pollex” concept: Here’s a very interesting article that I found today that tells about some of the old, time-honored sage pieces of advice that aren’t necessarily true – for the time being. Enjoy – I’ll be back next week! http://www.smartmoney.com/spending/budgeting/4-traditional-money-rules-to-break–for-now-1296858154544/

Organization, Efficiency & Discipline

Simplification is usually beneficial to any pursuit.  If you can break down the basic principles of whatever “big thing” it is that you’re hoping to accomplish into simple concepts, you’ll do well in your pursuit. This is true for whatever you’re hoping to accomplish – climbing Mount Everest (train, prepare, keep going up); write a book (gather information, organize, keep writing); or get a college degree (show up, pay attention, study).  In preparing for retirement, I’ve always broken the concepts down to organization, efficiency, and discipline. Organization In order to get things started, it’s important to know where you are in your financial life.  When you’re getting driving directions from Google Maps, the first thing they ask you is where you’re starting from.  The same goes for “mapping” your financial path.  Gather together your information and organize it so that you know what assets and what liabilities you have.  This […]

Principles of Pollex: Debt Reduction

(In case you’re confused by the headline: a principle is a rule, and pollex is an obscure term for thumb. Therefore, this on-going series is all about Financial Rules of Thumb.) Try as we might, there are times when debts just overtake us.  Quite often it is one of several things that causes this to happen – either we’ve had unexpected expenses hit us “alla sudden-like”, or perhaps a layoff or lean time with income.  Or maybe we just didn’t pay attention and debt grew out of control. How’d I Get Here? The reason we’re in this position is important, because we can’t let the debts continue to increase – so the first order of business in reducing your debts is to stop the bleeding.  Figure out what the cause of the debt was, and work out a way to stop increasing the debt (if possible).  If it’s just regular […]

Principles of Pollex: Auto Purchases

(In case you are confused by the headline: a principle is a rule, and pollex is an obscure term for thumb. Therefore, this on-going series is all about financial Rules of Thumb.) Buying a car is such a common activity that many folks don’t give much effort to following any “rules” around this purchase.  I’ve often suggested a couple of rules that you may find useful or interesting… The Decision to purchase a car in the first place You need to be certain that your decision to purchase is based on a real need.  Too often we get caught up in our desires and “keeping up with the Jones’s” when it comes to auto purchases.  If your current car is providing you with service and isn’t beginning to fall apart, you should consider delaying a purchase until it actually makes sense for you. The reason I say this is because […]

Principles of Pollex: The Rule of 72/Rule of 78’s

(In case you are confused by the headline: a principle is a rule, and pollex is an obscure term for thumb. Therefore, we’re talking about Rules of Thumb.) In this installment of our ongoing Principles of Pollex series, we’re going to talk about two Rules from the financial world that are actually real, true, undisputed Rules, rather than the guidelines we’ve talked about before.  These two Rules are not open to interpretation.  The first is about investments, and the second is about loans.  Both are useful in their own ways… Rule of 72 The Rule of 72 is a quick and easy way to determine when an invested amount will double in value, given a particular fixed rate of return.  Please take note that this only works with a fixed rate of return.  The actual formula is as follows: 72/R = Y (where Y = the number of years to […]

Principles of Pollex: Investment Allocation

(In case you are confused by the headline: a principle is a rule, and pollex is an obscure term for thumb.  Therefore, we’re talking about Rules of Thumb.) In this installment of the Principles of Pollex, we address a compelling Investment Allocation Rule of Thumb:  Invest X% of your money in bonds, and the remainder in stocks – where “X” is equal to your age.  According to this rule, if you’re 35 years old, you’ll have 35% invested in bonds and 65% invested in stocks. What’s Good About It Absent any other allocation strategy, at least this strategy provides you with a method for scaling back your exposure to stocks over time.  It’s important to understand that your risk exposure should be continually reducing as you reach closer and closer to your goal. On top of the structure, using such an allocation strategy will require you to be more conservative […]

Principles of Pollex – Saving 10% of Income

(In case you are confused by the headline: a principle is a rule, and pollex is an obscure term for thumb.  Therefore, we’re talking about Rules of Thumb.) I like rules of thumb, as a rule of thumb… I think we all want for most difficult issues in our lives to be boiled down to a simple, easy to understand statement.  These rules are everywhere, all around us, cropping up more and more every day.  Heck, there’s even a whole website dedicated to rules of thumb, where you can find rules on all kinds of subjects, as diverse as how to outrun a crocodile to changing your answers on a test. With the popularity of rules of thumb in mind, I wanted to address a few financial rules of thumb that you see pretty regularly – and assess whether they’re useful or not…  This may become a somewhat regular feature. […]

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