Your Seven Numbers

Life is full of numbers, ratios, and percentages that have some particular meaning. The financial aspects of life are no exception of course, but some of these numbers bear more weight than others. Here’s a list of seven important numbers that have a material bearing on your financial wellness.

1. 54%- If you’re a regular reader of this blog you already know this one because I mention it frequently. The broad stock market (S&P 500) is positive just 54% of the trading DAYS based on over nine decades of market history. So the next time you are tempted to react to a down day in the market…don’t.

2. 75%- The corollary of #1 represents the percentage of positive YEARS in the stock market over the past 90 years. Really accepting this and letting go of our innate desire to totally avoid any down years will take you to the front of the class.

3. 15% While precise individual saving rates vary, saving at least 15% of income puts you in the game. Saving 3-4% to obtain your company 401(k) match won’t do. Even 10% of income, the amount used as a standard for years isn’t sufficient to provide an investment base that is sustainable for many years after retirement.

4. 30%- at age 55 as you approach the run up towards retirement, your total debt should be less than 30% of total assets. For example, if you have investment assets of $800,000 and real estate assets of $400,000, you have a total asset base of $1,200,000. Therefore, your total debt including mortgage and household debt should not exceed $360,000. As you begin to see retirement on the horizon, it is crucial to focus on reducing debt versus assets because debt decreases flexibility which is critical to a sustainable retirement.

5. 20%- at age 65, your total debt to assets ratio should be a maximum of 20%. Ideally, once you are fully retired, this debt ratio should be trending toward zero. While there are some tax advantages for mortgages, retired families should avoid mortgage amounts that are substantial.

6. 5%- No single investment holding should exceed 5% of your total investment portfolio. This is sometimes referred to as the position size rule. Since broad diversification is relatively easy to achieve, it isn’t rational to hold outsized investment positions. With few exceptions, these positions are held because of emotional ties that usually have little to do with your specific investing purpose.

7. 1- For most successful families, a single residence will help simplify and sustain your lifestyle. Sure, there are situations where having a second home can make sense but overall just one house is the rule. While we are at it, staying married (if you are married) helps a lot also. Divorce is an instant retirement killer.

Piecing together the financial foundation for the possibility of a several decade-long retirement is incredibly difficult but these seven numbers help put you in good position. Start there. Ready for a real conversation?


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