en Passant

I just got off the phone with my financial advisor. He reminded me of something that I learned quite awhile ago. See, in uncertain economic times, like we are currently experiencing, people tend to get rid of what they are worried will lose value. Stocks, bonds, mutual funds all tend to drop in price as people sell them off. If you are a short-sighted investor, you tend to follow suit and sell also, hopping to the next safe thing.

I like to think of this as a financial fire sale. If I am comfortable with my investments (and Edwards Jones hasn't steered me wrong, so far), I leave my investments where they are. In fact, I add $ (through my automatic retirement withdraws) and continue to purchase more of the same. Only difference, instead of my 3% 401k investment buying 1 share of XYZ, it now buys 1.2 (or maybe 2!).

How much do I buy?
Years ago, the CFO at the company I worked at gave me this simple formula, that I've stuck to fairly closely.

• 100 - (my current age) = % to high-risk funds.
• Remaining %, gets split between moderate risk and balanced or "safe" funds.
• Re-evaluate every 5 years up to retirement.

This creates a scenario where at my younger age, when I can afford to take some risk, I do and as I get older and closer to retirement, more of my funds are in safer, low-risk accounts. So right now, 65% of my funds are earning 5-12%, and the rest festers at 2-6%.

Of what?
What funds to invest in depends on your current situation, who is your company use for their retirement account. Get a financial advisor to help make that decision. They should know the trends and history of each option.

If you haven't started, what's holding you back? Haven't you read "Rich Dad, Poor Dad"? Invest early, get your money working for you. From my experience, 3% of your pre-tax dollars, will equate to about 2% net decrease from your check after taxes. For example, a $500 gross paycheck = $15 contribution to your 401k and ~$10 missing from your final check (after taxes).

Harvest the day!