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These Rules Don’t Work

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I like this article from MarketWatch that presents five investing rules that don’t work. You may have heard these investing clichés before, but clichés come a dime a dozen:

Subtract your age from 100 to determine the percentage of your investment that should be in stocks. This would present an overly conservative portfolio for most people. Perhaps if the factor were higher, like 140 as the article suggests. Unfortunately, that would equire my portfolio to be 111 percent in equities. If I could do that, I could easily say I were the Best. Investor. Ever.

Set aside 10 percent of your gross income for savings. Again, this is too conservative. I started with 10 percent when I began working at my current company a few years ago, but I found it was quite simple to expand this amount. Since then, my rent has gone from nothing to $400 to $1,000 (but is now back at $900 or so). It’s hard to pick one percentage and make it work for everyone.

Divide your total earnings into thirds where one third covers living expenses, one covers taxes, and the last covers savings. This seems a little more reasonable but once again, the rule won’t work for everyone, especially extremely high or extremely low earners.

Put 5 percent of your money in gold. This is the first time I’ve heard this one. The article says that this is one rule you don’t hear very often during bull markets. The article warns that the current market situation makes this a bad rule to start following now.

Updated February 6, 2012 and originally published July 13, 2005. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 1 comment }

avatar Jose

Rules of thumb are not for everyone.

Everyone has different tastes and investment styles.

The most important suggestion/rule I give is: Invest in Revenue Generating Assetts (or Growing Assetts) that will give you finantial independence. Invest as much as you confortably can (and yes, it is easy to modify what “confortably” mean).

Regarding the third and regarding the 10%… Those are just suggestions.

I do believe you should MAXIMIZE your retirement account options, AND invest a MINIMUM of 10% of your income.