{"id":14123,"date":"2023-05-26T08:51:56","date_gmt":"2023-05-26T12:51:56","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/pay-down-your-mortgage-keep-a-60-40-stock-bond-portfolio-some-money-rules-are-meant-to-be-broken\/"},"modified":"2023-05-26T08:51:57","modified_gmt":"2023-05-26T12:51:57","slug":"pay-down-your-mortgage-keep-a-60-40-stock-bond-portfolio-some-money-rules-are-meant-to-be-broken","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=14123","title":{"rendered":"Pay down your mortgage. Keep a 60\/40 stock-bond portfolio. Some money rules are meant to be broken."},"content":{"rendered":"
\n

The world is more complex, and so is money management. More information and more choices can lead to more complications. For financial advisers, the trick is reducing complexity into simple, easy-to-understand steps for clients to follow. Advisers use rules of thumb as starting points to help investors make sound money moves.<\/p>\n

But these rules don\u2019t always apply. They can become obsolete or misunderstood as the investment landscape changes. \u201cMost rules of thumb work for a generalized case of the world,\u201d said Jamie Ebersole, a certified financial planner in Wellesley Hills, Mass. \u201cIn all cases, their applicability depends upon the specific situation of the individual.\u201d<\/p>\n

\n

For Ebersole, one of the most reliably helpful rules is to adopt a disciplined savings regimen. Specifically, he urges clients to save 20% of their earnings to build a nest egg.<\/p>\n

\u201cI throw out the 20% number, but you have to tailor it to each client,\u201d he said. \u201cA 23-year-old may not be able to save at the 20% level. It\u2019s more about building that habit on a monthly basis. If you can implement a \u2018set it and forget it\u2019 saving program at any level, you\u2019ll train yourself to live below your means.\u201d<\/p>\n

Ebersole favors another rule of thumb that\u2019s a bit more controversial: establishing a 60\/40 allocation of stocks and bonds in an investment portfolio. There\u2019s debate among advisers about whether this longstanding rule still applies.<\/p>\n

\u201cThe reason it works is that it\u2019s a risk-balanced portfolio that allows many investors to start the investing habit without excess volatility,\u201d Ebersole said. \u201cOver the long term, its returns will outpace inflation and grow your portfolio.\u201d<\/p>\n

60\/40 fight<\/h2>\n

Ebersole acknowledges the downside of the 60\/40 rule. The portfolio can underperform during prolonged bond slumps. And when equities soar, investors can miss out.<\/p>\n

\u201cThis portfolio will never generate returns in line with the S&P 500
\n SPX,
\n +0.88%<\/bg-quote>
\n since this is not what it is designed to do,\u201d he said. \u201cBut a more consistent return profile will make it easier for new savers and those close to retirement to stay invested in times of volatility, reducing the impact of emotion.\u201d<\/p>\n

Other advisers raise additional concerns about the traditional 60\/40 split of stocks and bonds. It excludes other asset classes that can stabilize a portfolio in turbulent times, such as commodities and Treasury Inflation-Protected Securities (TIPs). And over decades, the bond portion can limit growth compared to a more heavily weighted equity portfolio.<\/p>\n

\u201cTypically, investors have a much longer time frame than a 60\/40 suggests,\u201d said Zach Abrams, a\u00a0certified financial planner in Shaker Heights, Ohio. \u201cWe\u2019re big proponents of duration matching: the asset allocation should match the duration of when you need those assets.\u201d<\/p>\n

Some rules flow from widespread assumptions about prudent money management. Take the popular idea that it\u2019s always a worthy goal to pay off a residential mortgage.<\/p>\n

\u201cPeople think they should get rid of their mortgage debt before or during the early years of retirement,\u201d said Brian Schmehil, a Chicago-based certified financial planner. \u201cFor older clients whose parents were in the Great Depression, they were always told to fear debt.\u201d<\/p>\n

It\u2019s wiser to weigh the opportunity cost of that money,\u00a0Schmehil says. If the interest rate on your mortgage is very low, consider your options. \u201cIf you\u2019re paying under 2% interest on your mortgage but earning 4% on your cash, you might not want to pay that mortgage down,\u201d Schmehil said. <\/p>\n

It also can make sense to spread your cash around and invest in low-risk products such as money-market funds and certificates of deposit, rather than plow your principal into just one asset: your home.<\/p>\n

<\/p>\n
\n

\n \u201c<\/span> \u2018Boring is a better driver of successful investing.\u2019 \u201d<\/span>\n <\/p>\n<\/p><\/div>\n<\/p><\/div>\n

Simple rules can also pose a danger. Too much simplicity can lead investors astray.<\/p>\n

Case in point: It\u2019s often said that the percentage of bonds in your portfolio should equal your age. For example, a 40-year-old would have 40% in bonds while a 70-year-old would have 70% in bonds. \u201cSomething that simple can\u2019t work,\u201d Ebersole said. \u201cIt\u2019s probably too cautious all along the way.\u201d<\/p>\n

Rules of thumb hold appeal because of their simplicity. Sticking to what advisers deem tried-and-true strategies tends to comfort anxious investors. For instance, wealthy investors may expect their adviser to produce market-beating returns via alternative investments. But that assumption can prove faulty.<\/p>\n

\u201cThere\u2019s this idea that to get better investment returns, you have to seek out complex things,\u201d said Kevin J. Brady, a New York City-based certified financial planner. \u201cBoring is a better driver of successful investing.\u201d<\/p>\n

Also read:<\/strong> These 3 popular investments help you manage risk when the stock market gets rough<\/p>\n

Plus:<\/strong> If you own these stock index funds, you\u2019re already invested in AI. But there may be better strategies.<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The world is more complex, and so is money management. More information and more choices can lead to more complications. For financial advisers, the trick is reducing complexity into simple, easy-to-understand steps for clients to follow. Advisers use rules of thumb as starting points to help investors make sound money moves. But these rules don\u2019t […]<\/p>\n","protected":false},"author":1,"featured_media":14124,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[236],"tags":[83],"class_list":["post-14123","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-news","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nPay down your mortgage. Keep a 60\/40 stock-bond portfolio. Some money rules are meant to be broken. | iFintechWorld<\/title>\n<meta name=\"description\" content=\"The world is more complex, and so is money management. 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