Financial advisers debate rules of thumb designed to help investors make sound money moves.
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.
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. “The reason it works is that it’s a risk-balanced portfolio that allows many investors to start the investing habit without excess volatility,” Ebersole said. “Over the long term, its returns will outpace inflation and grow your portfolio.”
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 . And over decades, the bond portion can limit growth compared to a more heavily weighted equity portfolio.
“People think they should get rid of their mortgage debt before or during the early years of retirement,” said Brian Schmehil, a Chicago-based certified financial planner. “For older clients whose parents were in the Great Depression, they were always told to fear debt.”
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