Skip to main content

Don't Risk Hundreds of Thousands of Dollars

One of my favorite msn articles talks about the importance of saving early for retirement. The article focuses on starting early so that you can get to 1 million dollars. However, one of the major points of this is that you should be tackling asset allocation with the same aggression that you tackle saving early. The article underscores this point.

The article explains that large cap us stocks grew at about 10.7%. However, it contrasts this growth with a later statement: "If you invested in small company stocks, whose long-term annual return clocks in at 12.5 percent annually, you could have much more money." It puts this figure at about 2.4 million. The importance of asset allocation cannot be denied, especially when compounding is considered.

Sure, small caps (those stocks which have less value in the stock market) are risky and volitile. The volitility comes from lots of different factors Mutual funds of large caps seem safer and therefore more desirable. However, when push comes to shove, can you really afford to waste 1/2 of your retirement earnings just because you were scared of a little risk? Ignoring asset allocation by choosing all large stocks, not being diversified, and ultimately sticking with investments that sap away several percent of your investments year after year is a sure-fire way of losing hundreds of thousands of dollars

It makes me want to rebalance myself right out of those target funds that I am in and take on some of this asset allocation business myself. Not that I think target funds are bad, per se. But if you could figure out a way to do it yourself, wouldn't it be worth the extra several hundred thousand dollars? That's the kind of money that I think I can make, not by doing anything fancy--just by staying a little more involved than the next guy.

Labels

Labels:

Comments

Anonymous said…
"And you will have started and finished all of your saving before turning age 21."

I think it's funny, because it's not true at all. He seems to ignore inflation. In 50 years one million dollars would have the buying power of less than $180K.

So put me in the "yes" crew, because many people owning a home outright will be a millionaire in 50 years.
3:41 PM
Post a Comment

Popular posts from this blog

On Buying a Lifestyle...with a Fixed-Rate Mortgage

Despite all of the back and forth about sub-prime mortgages and the housing bubble, I am feeling just fine. The reason is that when purchasing, I followed some old advice: Don't expect to flip. In general, I've been told by many people that you shouldn't buy a home unless you plan to hold on to it for 7 years or longer. If the market does well and you decide to sell, fine. But if you want to be sure not to lose money, don't buy something that you only want for a year or two. I've been in my current location for more than 3 years. I like it. And I have no intention of leaving in the short or medium term. It seems to me, that real estate, like any asset class, has its ups and downs. But as a practical point, I don't look at my home as an asset per se. Rather, I consider it to be a fixed expense that I need to survive, much like food and water. Therefore, as long as the payment is reasonable and it functions to keep me warm and sheltered and comfortable, that is a...
Post a Comment
Read more

Do Better With Your Time

Recently, I've been extremely busy with some work commitments. The interesting thing for me is that this increased work activity has really helped crystallize some of my feelings with regard to time. And these ideas are a critical part about my view on personal finance. I'm curious to know if others feel similarly. Time is money. That is, Time, in some way, contains energy. Money, is also energy. In the act of working, I am able to compound and increase the amount of money that I have. I am exchanging my time and effort and thought which are components of my work, for the productivity that I produce. And this production gets me money from my employer. However, the first dollars that I make each day, week, or month are the most valuable. Then the ones that I make at the end are the most valuable. (Forget about taxes for a minute.) The reason is, the first ones help me have a place to live and food to eat. And the last ones are the ones that I can use to really improve my life lo...
3 comments
Read more

Quantitative Easing Round Three

It appears that we have another round of Quantitative Easing in the works. If you've been listening to any of the money shows over the past several months, you'll note that most of the major players were not anticipating that! However, a recent update from the Bernanke indicates that the possibility of Quantitative Easing Round Three (QE3) is a very real one....but not in the near term. This article from International Business Times does a good job of explaining the thought process around a possible QE3 and why the timing is not likely to be now. All that being said, the CPI is up and the price of energy is skyrocketing. It is not an easy thing for people to get to work in cars that are not efficient. However, that is not stopping people from certain segments of the political/media spectrum from announcing dirty secrets about Clean Energy . I find that Google News has a great mix of stories from all over and this story -- the increased energy costs is certainly one to watc...
Post a Comment
Read more