The Financial Planning Rule of Thumb

We’ve all been suckered into participating in a magic trick before.

My favorite starts like this: “Pick a number… any number.”

It continues: “Now double that number… then divide it by 7… then add 3…”

You get the point… after a long string of commands and calculations, your original number is guessed.

Oddly, an exercise in portfolio asset allocation sounds quite similar. The financial planning rule of thumb is to start at 100 (or 120… but that’s debatable). Then you subtract your age. The number you arrive at is the percentage of your portfolio that you should invest in stocks. With the rest of your portfolio, you should invest in bonds.

For example, say you’re 40 years old. How much of your portfolio should you invest in stocks and how much in bonds? To find out, the equation looks like this:

120 (starting number) – 40 (your age) = 80 (% of portfolio invested in stocks)

So, in this example, you should invest 80% of your portfolio in stocks and 20% in bonds.

However, for our purposes, the math is irrelevant… other than for amusement. The point is, as you age, you should gradually shift your investment dollars out of stocks and into bonds.

As Rodney pointed out, Baby Boomers are preparing for retirement. Naturally, they’re readjusting their portfolios – both in reaction to the new economic environment and in preparation for their new goals and needs.

A recent report from Deutsche Bank confirms the flow of funds into stocks since 2009, when Baby Boomers’ spending peaked, is seriously lagging behind the trend…

Meanwhile, money is flowing into bonds like never before…

 

Of course there are many factors at play here. Bonds have also benefited from “safe haven” inflows and a near permanent bid from the Fed. But those influences are temporary.

The demographic trend of Baby Boomers shifting portfolio allocations will persist for many years.

The World’s “Safest” Investment is About to CRASH

The one investment you may hold dear to your heart… the one investment that helps you sleep better at night, that you rely on for safety, security, and maybe even profits in a world gone mad… is about to get slaughtered.

When it happens, trillions in wealth will be wiped out virtually overnight!

To find out exactly what this investment is, click here.

Click to Learn More
Categories: Economy

About Author

Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.