Specifically he writes;
The most often-repeated financial advice she gave me was also the simplest: Save your money. Long before Suze Orman and Dave Ramsey made fortunes selling books about living beneath your means, this old lady, like many children of immigrants who survived the Depression, understood the importance of frugality and delayed gratification. As a child, she’d reward me for good behavior with a few coins while asking how much of it I intended to put away. “If you get a dollar, save a quarter,” she’d implore. That discipline stuck with me at an early age.
Market participants seem to be questioning the viability of markets and investing more than any time I can remember. It should be obvious that a big part of the solution can come from our own behaviors, independent of market volatility, of spending and saving. Reducing the monthly nut means the portfolio has to do less work and a larger savings pile means a greater margin for error along the way.
As a very obvious example a $15,000 monthly income funding a $10,000 lifestyle where $4000 goes to taxes and $1000 into savings leaves very little room for the unexpected. These people would not make it one month in the face of job loss. The same income funding a $3000-$4000 lifestyle will have a much easier time enduring the unexpected.
I realize some folks do their best under financial pressure, but if that is not you (it certainly is not me) I would look to behaviors of spending and saving instead of hoping the market bails you out by going up a lot. Too many people rely on this form of denial.
7 comments:
Grandma was more reasonable than you :)
25% of 15,000 is only $3,750 in savings. You are asking for $7,000 to $8,000 in savings (~50%).
I get your point, but you are going to lose a lot of people. We have saved 25 to 30% over the years, invested well, and have a reasonable nest egg.
I think grandma was right 25% is a very reasonable goal
that i am unreasonable on this point is a good observation. somewhere along the way i read the idea of not spending pay raises, that raises should just be banked. while we have not done that entirely it might be a decent way to sum up our spending
Good post and great article. Most pro traders are savers. It's either in a margin account or in tbills.
Roger, my personal philosophy of pay raises was spend half and save half (both after taxes). It served me well.
Saving is the sine qua non of investing.
And, while recovering from food coma, I came across the following y'all may find interesting as well:
An indexing approach reported in WSJ @ http://tinyurl.com/2djpfvq that looks quite promising for ETPs:
"New 'investable' indexes, forthcoming early next year from the Center for Research in Security Prices at the University of Chicago, or CRSP, could reduce compulsory trading for any index funds that adopt them as a benchmark. Funds that trade less should have lower brokerage costs, lower tax bills and higher net returns. Better yet, it should be harder for outsiders to 'front run' these improved indexes."
ISTR even more 'actively' managed ETP's had problems with hedgie and commercial front running if they pursued a public strategy; e.g., The deutsche bank products (DBC, etc) were suffering on roll dates until they instituted a variable yield roll strategy.
NB: Story at http://tinyurl.com/29s9pvr about a slim little book you may want to give your clients for XMas
PS: Can you believe Cam Newton?
i was hoping that Auburn would lose for the BCS chaos that might ensue and to see Boise State in the title game but that comeback was championship worthy
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