The most common advise may not be the right action that you should take.
In everything we do, we always want to do the right thing. And often, we feel that the right thing is to do what the general crowd is doing. This is to be safer in numbers.
Charley Ellis is 79 years old. He is a well respected in the money management world. He takes the indexing approaching to investing. For an older person like him, a suitable portfolio allocation would be one where the bond allocation matches closer to his age.
This conventional allocation is important because stocks provide greater returns in the long run, but they can be rather volatile. If you are withdrawing money from the portfolio while the portfolio is being hammered, it may be challenging for your portfolio to retain adequate value to last a 20 to 30 years duration.
Bonds, while lower return than stocks are much lower in volatility and hence for an older person, conventional advice is to allocate more to bonds as you are in your retirement.
I was surprise to find out that Charley Ellis have 100% of his allocation in stocks. While high return, it certainly doesn’t fit the profile of an older gentleman.
His reasoning is good:
- he is still working on his own terms and his compensation from his work pays for his daily living
- due to the first factor, he sees his money more as a legacy for his descendants. If living a legacy is important, then the time horizon for that objective is much longer than retirement currently, and a high allocation to stocks would make sense.
A Clear Purpose What you Want Guides How you should Implement your Wealth Plan
We often are reluctant to pay good money to get a fee based planned to implement a wealth plan for us. This is because there are not many of them and it’s harder to find reliable planners.
Due to that, we tried to follow the rule of thumb common with the crowd.
Your situation may be different from others and due to that, your plan may need to be different like Charley.
It often starts by spelling out what is that money for.
Your plan may be to leave a bequest for the next generation and for retirement will mean you need more money.
The conventional crowd may not have the luxury of an additional pension for life. In the past, civil servants in Singapore do get a pension and they have this very dependable income to act as the base in their retirement plan. This is a thing of the past.
For some of you, you might have children doing well in life providing generous amount of money.
If you are ignited by my sharing of putting more money per month into building wealth, much more than the conventional savings rate, be willing to learn to build wealth better and implement it, you might reach a semi retirement phase of life, or carry out mini-retirements along the way. Your wealth accumulation path, as well as your wealth distribution path would be very different. Conventional advice will not be adequate for you.
Your retirement possibility will be different from the crowd.
Find out the Solutions to your Purpose
Once you articulate the purpose, and realize it is different from the conventional purpose, then you can find the solutions to implement it.
If we are talking about accumulating wealth, redesigning your life, you might want to talk to a good financial planner to see if they have the solutions for you, within the financial planning framework.
If your plan are so unconventional, then you would have to do some research who are the thought leaders and consume the resources to implement the plan.
Charley Ellis have been in this field for a long time, and have reflect upon what he learn throughout his career to his own situation. This is what we would like to achieve in our situation as well.
In most cases, the conventional advice will not be harmful, however if you want to do well, most of the time you have got to reflect and seek advice that teaches you the nuances of a particular subject.