Your Monet Tip Of The Day

I heard on Sirius the Sharon Epperson Tip of the day. It was some basic financial planning advice for people in their 50's. The last thing she mentioned was taking a more moderate position with your investments.

Watch out for that last one. If you are in your 50's and everyone in your family has made it past 90, how long do you think you should be planning for? Regardless of your age, a 40 year time horizon needs a healthy portion in equities, in general terms. People are concerned with having enough money when they get older, this makes sense. Being too conservative can have the same consequence as being too aggressive. If you are 85 and have run out of money, the reason why doesn't really matter.

I think I wrote about this once before. Exactly 30 years ago the S+P 500 was at 91.15 and yielding about 3%. A ten year bond was yielding about 8%. An investor retiring then at age 50 who put his $150,000 life savings into the bond had an income back then of $12,000. The investor that put the money in stocks had an income of $4500. You can see where a lot of people would have taken the bonds. Now 30 years later the bond portfolios still worth $150,000 and the income is $6000. If this same investor had instead put it in the S+P 500 he would have $1.9 million with an income of $31,463 (assumes a 1.6% yield on the SPX).

The example is woefully simplified but the numbers illustrate the point. Plenty of big firms use generic you're 55 so 55% should be in bonds type of allocation models. Watch out for this!