Today I release
A Competitive Tale .
My last release was A Martini Tale where I try to focus the reader into what I consider the most important aspect of investing; rate of return. It is clear to me that if an investor determines that equities belong in their portfolio then they have only 3 choices. They must become great investors, hire great investors or accept diversification as a default. This tale deals with one of the many pitfalls associated with hiring and finding great investors. The best minds on the planet haven’t come up with a methodology to rank investment expertise so don’t feel bad because you are not alone. However, don’t do what these people did because you could self-destruct. They got lucky but you might not.
Our article was published in The Journal of Financial Planning. Linked with permission by the Financial Planning Association, Journal of Financial Planning, February, 2010, by Michael M. Garrison, CFP®; Carlos M. Sera; and Jeffrey G. Cribbs, CFP®, A Simple Dynamic Strategy for Portfolios Taking Withdrawals: Using a 12-Month Simple Moving Average.
Carlos,
Thanks for the wonderful “Tales”, I’ve learned so much from them, for example, I heard 2 sides to this story, “Do Not pay off your mortgage, you need the write off…Rick Edelman”, and “PAY off your mortgage ASAP and invest the money monthly”…Susie Orman.
I like your reasoning…pay off and save on the interest. I will start adding 10% to 20% per month to my payments, not too crazy about the bank making so much money from me.
I work with one of your clients at Alion Science & Tech. and he has nothing but great things to say about you and your talent in the Financial World.
Thanks,
Ricky Lee
@Ricky Lee
You really need to take the interest rate you are paying your mortgage on into effect. If you are on a very low rate, it is probably worth taking your time to pay off, it will most likely be the best loan you will ever have in life. That’s why people buy real-estate, the leverage it provides. The opposite goes for the high rates, you want to pay off the principle as fast as possible so you end up paying less in interest.
Dear Frugal,
A Mortgage Tale is meant to teach us that even a little bit goes a long way. It’s a stealth compounding tale, it teaches us to buy a house that is within our budget and it discredits the wisdom of buying the most expensive house you can afford. It is not a best use of funds tale. I have other tales for that. I’m sure that people buy real estate for the leverage that it provides and obviously this is where they make the biggest bang for their buck when things go right. They don’t always go right however.
The essence of my tale deals with what I call “A Margin of Safety.” If an extra 10% per month is beyond your capabilities then you have no margin of safety. You want to avoid these types of mortgage situations. I tell my retirement planning clients the same thing. If you plan on retiring you need “A Margin of Safety.” If you retire and your investments have to work out perfectly in order to stay retired you are in trouble. Work a few more years, save a few more dollars, spend a little bit less.
Margin of Safety is a term used by many of the world’s best investors when it comes to analyzing individual stocks. The most famous of which is Warren Buffett. Before he and others that subscribe to this approach invest they want to make sure that even if their timing is off or the information they used in their analysis is less than truthful, or their thinking is flawed that they have a big enough cushion that they can reasonably wait out the surprise thus minimizing any negatives. Buying a house or retirement planning should be no different.
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I’m a subscriber to your rss feed. Thanks for the new post.
Sorry, forgot to add great post! Can’t wait to see your next post!
Very good advice for your portfolio.
Great advice – thanks
I’m stuck on making principal payments on my mortgage. I feel like once I pay it, that money is gone and not accessible. I need to change my thinking!
I love this line: 1) Get rich, 2) Once rich, stay rich and 3) If you stay rich you will get richer.
I think the “stay rich” is the hardest part of that equation. But it inspires me.
Good Job!
I love to see people like you promoting financial literacy!
Cheers!
Congratulations!
I just hope you have time to relax and enjoy the spring. It’s been so nice out.
Best of luck to you and keep up the great content!!
Matt
Great “tale” really enjoyed it. Like one other comment said… staying wealthy is the hard part. You’d think that if you have the discipline to get there the good ol fashion way you’d know how to stay there.
Very nice site!
Great site. A lot of useful information here. I’m sending it to some friends!