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The Coffeehouse Investor

How to Build Wealth, Ignore Wall Street & Get On With Your life by Bill Schultheis

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What is the rate of growth you are using for your portfolio when building your financial plan?

If I want to retire when I am 70 years old, and am using a 5% growth rate in my projections (and 4% after retirement), that means I will have to save a lot more each year than if I use an 8% growth rate.

That leaves me with two choices, or potential scenarios.

I can use the 8% return projection, which means I don’t have to save as much today, but it also means that if, as the years go by, I don’t capture the 8% return, I am going to have to save a lot more as I approach 70, or I am going to have to work many years past 70.

Or, I can project my portfolio returns out at 5%, which means I have to save more today.  As the years go by, if I do capture the 8% return, it means I can save less as I approach the age of 70, or retire earlier.

Which scenario would you prefer?

Why?

What number do you use for your projections?

If you are using projections used by many state pension funds, you are not dealing with reality.

More on that next time.


There are several components that go in to putting together an authentic financial plan.

The first step is to use realistic numbers.

What do I mean by that?

The numbers you include in your financial plan should broadly reflect the results you are likely to experience.

For instance, if you input a $16,000/year savings figure, but the reality is you are likely to save closer to $5,000, you will produce a financial plan on paper that won’t have any resemblance to how your financial plan unfolds in real life. 

Another component to your financial plan is the expected growth rate of your portfolio.   

Are you wildly optimistic, or unduly pessimistic with your projections, or somewhere in between.

Over the next couple of days, we are going to take a look at this topic, and provide some insight that will help you incorporate realistic projections into your portfolio.

We will also take a look at the dangers of using unrealistic numbers for portfolio projections, and reveal who is getting into hot water by using false assumptions. 

 


In my spare time, I enjoy working on The Coffeehouse Investor, early in the mornings and sometimes late at night.

But all my working hours are spent as a financial advisor with Soundmark Wealth Management

One of my biggest challenges as an advisor is discussing and dealing with the issue of medical costs throughout the later years of one’s life.

In my opinion, the single biggest financial issue our country has to deal with is out-of-control-spending costs for aging Americans. 

In today’s New York Times, Jane Gross writes a compelling piece the addresses the many questions we face in coming to grips with providing guidelines and parameters to address this daunting challenge.


 

I have to smile when reflecting on the ups and downs (and now ups), of the stock market this year.

It has been an especially interesting two weeks from my window on the world.

First, I get to see the changing of the season on the shores of Lake Washington, barely a long stone’s throw from the deck outside my window at work. 

One minute a mighty storm come through, winter has descended on us, and the sky is as dark as can be.

Ten minutes later, the skies have cleared, and we are back to a summer that still hangs on. 

I love it. 

One thing that will never change is the uncertainty surrounding our investments. 

The markets of the past three months have been wreaking havoc on the emotions of many investors.

Just 10 days ago, as major indices approached bear market territory, there was a noticeable fearfulness in the tone of investors who wrote in to The Coffeehouse Investor.   

Now, after a strong rally, these same indices are back to break even for the year, and everyone breaths a collective sigh of relief. 

I predict this market volatility isn’t going to go away anytime soon.  What are you doing to protect your EMOTIONS, as much as your portfolio, so that you can get on with your life, and reduce, if not completely eliminate the anxiety of up and down markets?


Central Park

Earlier this week I had a chance to share some thoughts on investing on National Public Radio’s local station 88.5 KPLU , with “All Things Considered” host, Dave Meyer. 

Hope you enjoy!