The stock market changes from year to year, and one would think that the way we should approach investing would shift as well. That doesn't seem to be the case, according to MarketWatch columnist Mark Jafee. In his latest piece he argues that much of the financial advice that we use today is outdated. He noted that the following rules of thumb are in most need of reevaluation:
A safe withdrawal rate for your retirement assets is 4 percent each year.
A good rate of withdrawal really depends on how much an investor has saved and how the market is doing in any particular year. A better idea would be to plan year by year.
Five to 10 percent of your portfolio should be held in gold.
A long-held notion – although shown on multiple occasions to be flawed – is that the price of gold will always stay steady during uncertain economic times. While gold is a valuable asset, individual investors must be willing to hold on to it, even during bad market periods.
Subtract your age from 100 to determine what percentage of your assets should be invested in stocks.
For example, a 40 year old's portfolio should have a 60:40 ratio of stocks to everything else, according to this rule. Jafee says that this advice, developed in the 1970s, doesn't make sense today because people are retiring later and living longer. Many financial advisers today recommend that the number that age is subtracted from be readjusted to 130 or 140.
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Categories: Risk Management, Trading & Portfolio Strategies