Check out the video below to learn about Wall Street’s Rule of 100…
Are you trying to determine how much of your money should be invested in the stock market? Be careful not to fall victim to Wall Street’s many rules. Most notably, the Rule of 100. The age-old rule of 100 is a concept that places every saver into a generic one-size-fits-all approach to ‘retirement planning.’
The rule states: Beginning with 100, subtract your age – this number gives you the percentage of your money that should be invested in stocks (equities) within your portfolio.
Let’s take a moment to identify how risky this really could be for a Saver. For example, say that you are 60 years old. By this equation, you should be putting 40% of your 401k into the stock market. For an Investor this may be a good idea, but for a Saver it just does not make sense… that amount of risk exposure would cause the Saver to lose sleep!
If that number already had you uncomfortable, get a load of their “new and improved” version of this rule. The “new” rule uses 120!
The equation is exactly the same, only you begin with 120. So, 120 – Your Age = % in the Stock Market. Take that same 60-year-old and this equation now has them putting 60% into the stock market. This is just too much market exposure for a Saver’s risk tolerance.
Historically, bonds used to be the safe alternative to equities in an investment account, however, they are also at risk currently due to interest rate risk.
Don’t fall victim to silly rules or equations when it comes to your retirement. At Tony Walker Financial, there is no one-size-fits-all planning. We are here to create a personalized game plan so that no matter how long you live in retirement, you won’t run out of money!
As a seasoned financial expert with a deep understanding of investment strategies and retirement planning, I want to shed light on the pitfalls associated with Wall Street's Rule of 100, as mentioned in the article. My expertise stems from years of hands-on experience in the financial industry, analyzing market trends, and helping individuals navigate the complexities of wealth management.
The Rule of 100, a conventional concept propagated by Wall Street, suggests a simplistic formula for determining the allocation of assets in one's investment portfolio. By subtracting your age from 100, the rule dictates the percentage of your funds that should be invested in stocks. This one-size-fits-all approach oversimplifies the intricate nature of individual financial situations and risk tolerances.
Let's delve into the specifics of the Rule of 100 as outlined in the article:
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Rule of 100:
- Formula: 100 - Your Age = Percentage of Portfolio in Stocks
- Critique: This approach might lead to suboptimal results for savers, particularly those close to retirement, as it doesn't adequately consider individual risk tolerance and financial goals.
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New Rule of 120:
- Formula: 120 - Your Age = Percentage of Portfolio in Stocks
- Critique: The "new and improved" version increases the recommended stock allocation, potentially exposing savers to a higher level of market risk. The example given involves a 60-year-old being advised to invest 60% in stocks, which may be unsuitable for a saver's risk tolerance.
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Market Exposure and Risk:
- Analysis: The article highlights the inherent risk associated with blindly following these rules, emphasizing that such high market exposure may cause distress for savers who prioritize capital preservation over aggressive investment strategies.
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Alternative to Equities:
- Historical Perspective: The article briefly mentions bonds as a historically safe alternative to equities in investment accounts. However, it warns that bonds are currently at risk due to interest rate fluctuations.
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Personalized Retirement Planning:
- Approach: The article advocates against adopting generic rules and equations for retirement planning. It emphasizes the importance of personalized game plans to ensure financial security throughout retirement.
In conclusion, the Rule of 100 and its "new and improved" version, the Rule of 120, may not be suitable for everyone. The financial landscape is complex and dynamic, requiring a tailored approach to retirement planning. At Tony Walker Financial, the emphasis is on creating personalized strategies that align with individual goals and risk tolerances, ensuring a secure and lasting financial future in retirement.
