UlTImATE SUccESS GUIdEdoesn’t take the time to help you determine your goals is nothing more
than a salesperson and not a planner. Run the other way quickly.
Let’s take a look at some of the areas that WALL STREET would rather
you not know.
the 4% RUleThe Wall Street 4% rule basically states that if you have a balanced
portfolio of say 50% stock and 50% bonds you should be able to live
out your life and never run out of money. Well let me tell you, it works
sometimes and sometimes it doesn’t. It would work well if we were al-
ways in a rising market, but we all know that the market doesn’t always
go up. If history repeats itself, we will have a recession on the average
of every five years. Most people in retirement will experience about six
more recessions during their lifetime. So let’s take an example of some-
one who has a $500,000 balanced portfolio of 50% stocks and 50%
bonds. Their income would be $20,000 a year.
As long as the market stays stable that is fine, but what would happen
if they experienced a market like we had in the last months of 2008
and the first few months of 2009. The S&P 500 was down approxi-
mately 40%. Their portfolio would have been reduced to approximately
$300,000, which would reduce that income to $12,000 a year. How are
you going to explain to your wife that you can’t go see the grandkids
this year because your income was just cut by 40%? How long do you
think your nest egg would last you if you continued to take the $20,000
a year? That is now 6.7%. Worse than that, what if you were relying on
that to pay your bills. Another problem with that is that it might not be
just this year, it might be for the rest of your life. After the last recession
of 08/09 the S&P 500 is still not back to its July 2007 high. Wall Street’s
answer is to cut back when markets aren’t performing. I don’t think that
is the way most of us want to enjoy our GOLDEN YEARS.
BAlAnCeD PoRtFolIo theoRYWe already mentioned this balanced portfolio theory in the 4% rule. A
balanced portfolio worked well in the bull markets of the 80’s and 90’s
but that was an unusual time in the history of the market. We could
hope for that again, but that is not the way to design a portfolio. First
of all, logical thinking tells me that if I have a portfolio of 50% stock &