Through the last year I have been discussing with the group about the 60/40 rule, which is balancing your portfolio to 60% stocks and 40% bonds. Our recent market upheavals have encouraged us to consider a modification to that rule. Our first consideration was to apply the "age minus a certain number" method to reflect your growing level of conservative investments as you get older. But that seems even more out of touch with current market conditions.
We finally decided on a method proposed in Kiplinger's Personal Finance that touts that 50/50 is a good starting balance level, with a plus or minus applied based on your personal situation. If you're below 50 years of age, the 60/40, stocks to bonds ratio looks good. If you're tempted to go beyond that number, remember these numbers reflect the historical ability to improve your finances based on market fluctuations, not on your age.
I still believe in stocks, but after the last bashing, I do feel more comfortable with a 55/45 ratio. In a few years, I bet I'll change it to something closer to 50/50, but keep in mind, the more you change it, the more you lose the ability to make gains in small changes in the difference between one category of investment and another. Following "The Ground Rules" on our Home Page still give you the biggest bang for your buck. You're not making the most of your money if you're paying 20% on credit card debt. Stop it...and then see how far away from 50/50 you can get and still sleep well.
Wednesday, August 25, 2010
Wednesday, June 23, 2010
Not All Cash is Cash
With annual, or semi-annual, rebalancing, it’s awfully hard to not watch the markets ride the roller coaster and react to the changes. I choose to watch the action, but also choose not to change my allocation. But there’s trouble on the horizon.
I spent the past week sitting on the beach trying to read everything I could understand about certain investment products, and I think I have a much better grasp of bonds. The looming difficulties are the hints of inflation and the newcomers that have been recently loading up on bonds lately. Yes, lots of us are gun-shy about getting back into stocks and bonds seem to be a safe haven from the latest financial storm. But as soon as that warm fuzzy feeling subsides, there could be a large number of defectors from Bond Island.
Even more troubling is that when, not if, interest rates begin to rise, bond values start to fall. Plop…there goes the profit you were building with those ever-so-slightly-better returns on those bonds. They are indeed not foolproof.
What to replace them with? Dividend-paying stocks or funds that contain them. The important distinction here is that these products should be replacements for bonds, so they should be allocated to the “cash” side of the Mountain Method. If you have the choices available in your 401k or IRA you can also insert a few shares of REIT’s or Preferred stock funds. While it isn’t real cash, the interest it yields feels like it.
I spent the past week sitting on the beach trying to read everything I could understand about certain investment products, and I think I have a much better grasp of bonds. The looming difficulties are the hints of inflation and the newcomers that have been recently loading up on bonds lately. Yes, lots of us are gun-shy about getting back into stocks and bonds seem to be a safe haven from the latest financial storm. But as soon as that warm fuzzy feeling subsides, there could be a large number of defectors from Bond Island.
Even more troubling is that when, not if, interest rates begin to rise, bond values start to fall. Plop…there goes the profit you were building with those ever-so-slightly-better returns on those bonds. They are indeed not foolproof.
What to replace them with? Dividend-paying stocks or funds that contain them. The important distinction here is that these products should be replacements for bonds, so they should be allocated to the “cash” side of the Mountain Method. If you have the choices available in your 401k or IRA you can also insert a few shares of REIT’s or Preferred stock funds. While it isn’t real cash, the interest it yields feels like it.
Wednesday, May 19, 2010
Credit Card Solutions
Now that the feds have given us some credit card "protections", the credit card companies have found a way around some of the protection. The rules state that any payment "over the minimum" goes to the highest-interest part of your account. Therefore, the entire minimum goes to pay off whatever they'd like. Guess where that is? Yep, the lowest-interest parts of your charges. Your solution? More cards!
That's right. In the last post I criticized you for depending too much on credit cards. Now, I'll climb down from my high horse to share my credit card secrets. I have different cards for different purposes. A couple of them Mountain Mom and I use regularly that give us maximum cash back. The others I use for category-specific expenses. It helps immensely at tax time when I know that all credit card "A" charges go to, say, gasoline. It makes comparing budgets much easier when I can identify stuff in Quicken. If it's American Express, it's Dining Out.
In your case, you can control which payment goes where by keeping the high-rate charges on one card, and the super-high-rate charges on a different card. --Shame on you for paying interest on credit cards.-- Then, when you make a payment, you'll be in charge of where the money goes. Looking for some more credit cards? Find Them Here.
Better yet, pay them off and reap the rewards!
That's right. In the last post I criticized you for depending too much on credit cards. Now, I'll climb down from my high horse to share my credit card secrets. I have different cards for different purposes. A couple of them Mountain Mom and I use regularly that give us maximum cash back. The others I use for category-specific expenses. It helps immensely at tax time when I know that all credit card "A" charges go to, say, gasoline. It makes comparing budgets much easier when I can identify stuff in Quicken. If it's American Express, it's Dining Out.
In your case, you can control which payment goes where by keeping the high-rate charges on one card, and the super-high-rate charges on a different card. --Shame on you for paying interest on credit cards.-- Then, when you make a payment, you'll be in charge of where the money goes. Looking for some more credit cards? Find Them Here.
Better yet, pay them off and reap the rewards!
Wednesday, December 9, 2009
Evil Credit Card Debt
I can't believe how many of you are paying interest on your credit cards! Yes, I know you may not have enough to cash to buy stuff, but borrowing on your credit card is not the way to do it. Nothing saps your funds worse, unless you married Paul McCartney's wife.
Talk to your bank. Even a high interest loan is better than the higher interest loan the credit cards charge you, and then there are fees on top of that. Like those anti-crack commercials on TV: Don't Do It!
Fortunately, more of us are using debit cards. Your rights with them are different than credit cards, but they are a much better idea, unless you can pay off your credit card each month. Better yet, join those of us who are actually getting cash back from our credit cards. That will help pay off a more reasonable bank loan. Then you'll have some money to invest for your future fortune. Discipline is easy once you start...but start.
Talk to your bank. Even a high interest loan is better than the higher interest loan the credit cards charge you, and then there are fees on top of that. Like those anti-crack commercials on TV: Don't Do It!
Fortunately, more of us are using debit cards. Your rights with them are different than credit cards, but they are a much better idea, unless you can pay off your credit card each month. Better yet, join those of us who are actually getting cash back from our credit cards. That will help pay off a more reasonable bank loan. Then you'll have some money to invest for your future fortune. Discipline is easy once you start...but start.
Tuesday, November 10, 2009
No News is Good News
Mountain Mom keeps bugging me about keeping up on making regular posts to the blog, but I keep reminding her when things are moving as expected, there's nothing to say. The stock market is crawling back up, however, more people are out of work. These two statistics need to eventually agree with each other.
In the meantime, those of us who rebalance quarterly are about to take a few profits off the table and pick up some bargains. Then, we'll be in position for the next market move. Until then, we're not thinking about investing, we're out skiing. Wanna join us, Mom?
In the meantime, those of us who rebalance quarterly are about to take a few profits off the table and pick up some bargains. Then, we'll be in position for the next market move. Until then, we're not thinking about investing, we're out skiing. Wanna join us, Mom?
Wednesday, October 21, 2009
The Market Is Up & I'm Down
When I was still working in the corporate cube, my cell-mates would complain when the price of our company stock started slipping. My response was always, “it's another buying opportunity!” Now that stock prices look like they’re on the rise, I can’t help but think my buying opportunity is lost.
Of course, I’m really lamenting about not jumping into the market with both feet at DOW 6500, and adding a few more bucks each time it passes another 1,000 threshold. After all, one of the main features of our “Mountain Method” is dollar cost averaging, which you couldn't do if you jumped all in at the bottom.
But who knew when it was the bottom? I didn’t, and when you start buying stocks, you need to sell something else. So, once again, we need to remind ourselves, if it's not rebalancing time, it's time to do something else. We can add to our portfolio in small bits right now, but no exchanges just to jump deeper into the market because the trees look like their growing toward the sky again. They're not.
Of course, I’m really lamenting about not jumping into the market with both feet at DOW 6500, and adding a few more bucks each time it passes another 1,000 threshold. After all, one of the main features of our “Mountain Method” is dollar cost averaging, which you couldn't do if you jumped all in at the bottom.
But who knew when it was the bottom? I didn’t, and when you start buying stocks, you need to sell something else. So, once again, we need to remind ourselves, if it's not rebalancing time, it's time to do something else. We can add to our portfolio in small bits right now, but no exchanges just to jump deeper into the market because the trees look like their growing toward the sky again. They're not.
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