Comments on: The less you know about finance the better http://blogs.reuters.com/barbarakiviat/2010/10/25/the-less-you-know-about-finance-the-better/ Mon, 13 Oct 2014 11:49:24 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: Jone Heins http://blogs.reuters.com/barbarakiviat/2010/10/25/the-less-you-know-about-finance-the-better/comment-page-1/#comment-165 Mon, 15 Nov 2010 09:00:45 +0000 http://blogs.reuters.com/barbarakiviat/?p=155#comment-165 There was no arms waiving. No sulking and skulking around. No driving us supporters mad. It proves that he CAN do it..even when it’s not all in his favour. It’s nothing to do with being languid. It’s called application to the cause.

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By: jpersonna http://blogs.reuters.com/barbarakiviat/2010/10/25/the-less-you-know-about-finance-the-better/comment-page-1/#comment-128 Thu, 28 Oct 2010 15:28:06 +0000 http://blogs.reuters.com/barbarakiviat/?p=155#comment-128 Rules of thumb are awesome, but the “sell-side” controls them a bit too much in the media and web age.

A realtor or car salesman loves to give you the happy news that you “can” spend so much more.

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By: Danny_Black http://blogs.reuters.com/barbarakiviat/2010/10/25/the-less-you-know-about-finance-the-better/comment-page-1/#comment-125 Thu, 28 Oct 2010 09:29:13 +0000 http://blogs.reuters.com/barbarakiviat/?p=155#comment-125 midnightcowboy9, I disagree. I think the issue with the rules of thumb is people don’t like what they say. They WANT to believe that they have found the place where they are taking no risk and getting a high yield. They typically will not hold onto investments long after they should have been sold. etc etc. People make financial decisions like they make other decisions with their emotions.

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By: drewbie http://blogs.reuters.com/barbarakiviat/2010/10/25/the-less-you-know-about-finance-the-better/comment-page-1/#comment-113 Wed, 27 Oct 2010 16:38:39 +0000 http://blogs.reuters.com/barbarakiviat/?p=155#comment-113 Can you give some examples of contradictions, Cowboy?

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By: midnightcowboy9 http://blogs.reuters.com/barbarakiviat/2010/10/25/the-less-you-know-about-finance-the-better/comment-page-1/#comment-89 Tue, 26 Oct 2010 13:03:46 +0000 http://blogs.reuters.com/barbarakiviat/?p=155#comment-89 The problem with personal finance rules of thumb is that they are in economist Larry Kotlikoff’s words, rules of dumb. In other words, they do additional financial harm at least as often as they help.

Also personal finance ‘rules of thumb’ do not hang together in any coherent fashion. It is common to find that when using two or more of these rules they contradict one another. If personal finance was so easy as to be solved by obeying a relatively small set of simplistic rules, the problems of personal finance would have gone away decades ago. People may be dumber than we like to believe, but people aren’t that dumb.

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By: macroresilience http://blogs.reuters.com/barbarakiviat/2010/10/25/the-less-you-know-about-finance-the-better/comment-page-1/#comment-88 Tue, 26 Oct 2010 08:45:33 +0000 http://blogs.reuters.com/barbarakiviat/?p=155#comment-88 @Barbara – my pleasure.

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By: TFF http://blogs.reuters.com/barbarakiviat/2010/10/25/the-less-you-know-about-finance-the-better/comment-page-1/#comment-86 Mon, 25 Oct 2010 20:42:58 +0000 http://blogs.reuters.com/barbarakiviat/?p=155#comment-86 A household with $50k earnings that saves $10k/yr for 40 years should end up with $600k (2% RR) to $950k (4% RR) when they retire. At a 4% annual draw rate, that provides between $24k and $39k a year of income.

If you can hit a 4% real return for a portfolio over 40 years, then you can replace 100% of your income (after deducting retirement savings) in retirement. However the lower 2% real return is probably still enough to live on, at least if you own your home by then.

A 20% savings rate suffices, you just need to start early.

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By: TFF http://blogs.reuters.com/barbarakiviat/2010/10/25/the-less-you-know-about-finance-the-better/comment-page-1/#comment-85 Mon, 25 Oct 2010 20:34:43 +0000 http://blogs.reuters.com/barbarakiviat/?p=155#comment-85 @MGK, we’re in the midst of a bond bubble. Current bond yields are not reflective of the broader investment climate. Moreover, suggesting that a 30-year TIPS is “risk free” ignores the very real possibility of sovereign default. Further argument that the bond market is not being even remotely rational in its pricing.

I can’t offer you a “risk free” investment, but I’ll stand by my suggestion that a 4% “low risk” portfolio is possible. (Though it may be down to 3% after the market run-up this past year? Pricing isn’t nearly as good today as it was then.)

And yes, I agree with your “SAVE A LOT MORE” advice. Guess it is easier to cite a simple 50% figure than to go through the more complicated analysis of dollar-cost averaging over 40 years of a working life.

The average person now nearing retirement has done extremely well — if they’ve bothered to do anything at all. The markets over the last 40 years have offered superb returns, with falling interest rates pushing *bond* returns to levels normally reached only by equity investments. Anybody who spent the last 40 years saving is now quite wealthy. Anybody who didn’t has no excuses.

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By: maynardGkeynes http://blogs.reuters.com/barbarakiviat/2010/10/25/the-less-you-know-about-finance-the-better/comment-page-1/#comment-84 Mon, 25 Oct 2010 18:46:38 +0000 http://blogs.reuters.com/barbarakiviat/?p=155#comment-84 @TFF: A more realistic real return assumption for the 99% – 100% of mankind who can’t beat the market is the real rate of interest on 30 years TIPS, currently at 1.34%. So yes, on that assumption of a risk free return, my 50% savings is a bit high. I don’t have my calculator handy but, if you assume 1.34% over 30 years you still need to save about 40%. (But even that assumes that real yields will not go lower than they are now, which is not a given, and moreover, you will want to shorten duration as you near retirement, which also means lower yields.). But remember, the question is for a rule of thumb for the average Joe. The answer is to save a LOT MORE than you do now. Why don’t we hear that from our leaders? Because the powers that be don’t want people to save for their retirement — that’s bad for business — so they promise the free lunch of equity returns, home appreciation, and various other magic. So I ask you, how well has that worked out for the average person now nearing retirement?

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By: Sechel http://blogs.reuters.com/barbarakiviat/2010/10/25/the-less-you-know-about-finance-the-better/comment-page-1/#comment-81 Mon, 25 Oct 2010 16:48:54 +0000 http://blogs.reuters.com/barbarakiviat/?p=155#comment-81 You can teach all the financial literacy and encourage Americans to be thrifty and invest prudently, but it’s all meangingless if the Fed destroys the income that should result from our savings via zero interest rate policy, and debases the dollar.

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