ALLOCATION RULE
100 Rule – is in essence an asset allocation model in relation to equities that works by taking 100 and from that subtracting the age of the individual to provide the percentage of a portfolio that should be invested in stocks at that point in life.
PROPERTY RULE
1% Rule – is a basic measure of the rental return that a property should be earning by multiplying the purchase price plus maintenance costs of the property by 1%.
RETIREMENT RULE
3%, 4%, 5%, 8% Rule – The following percentages are very basic guidelines and are qualified by the following: living expenses, retirement age, life expectancy, rate of inflation, including portfolio composition and valuation. These percentages represent an Initial Withdrawal Rate (IWR) from a portfolio once in retirement. A 3% IWR off a portfolio would be considered rather conservative by some. Whereas a 4% to 5% IWR is more likely with the 8% IWR being more comfortable. It is assumed that the IWR is covered by distribution from the portfolio in terms of dividends and interest. Once a percentage has been selected it is easy enough to calculate what each percentage represents in terms of total portfolio value i.e. by dividing the initial annual expense (including a percentage emergency buffer in the initial annual amount) by the percentage drawdown of either 3%,4%,5% or 8% will give an initial portfolio valuation for the 1st year. Future adjustments to the drawdown can be made based on the valuation of the portfolio and cost of living index at that time.
20x, 25x, 33x, Rule – provides an indication of what a retiree may need, based on the first year’s IWR, in terms of portfolio value. This is calculated by taking the first-year IWR of 4% and multiplying it by 25 or for those looking at early retirement 33. If there are better than expected returns on a portfolio a 5% IWR can be multiplied by 20. This multiple can be adjusted to reflect the IWR percentage that is applied by dividing 100 by the IWR rate i.e. take the first year, in retirement, annual income, and multiple by the outcome of the calculation of 100 divided by the IWR. It should be noted that these calculations are based on a 30-year retirement timeframe but need to be adjusted based on changing living expenses, retirement age, life expectancy, and rate of inflation, including portfolio composition and valuation.
STOCK MARKET TRADING RULE
3-Day Rule – This is a straightforward rule of when to buy a stock or market after there has been a major correction which usually is represented by a high single-digit movement down. In other words, wait 3 days before proceeding to buy a stock or market that has declined in value as this may represent a significant change in the operations of a company and in the case of a market important economic and/or political news.
The most important thing to remember is that all investments and situations are dynamic and changeable and that the previous rules outlined provide at best a simple indication of potential.
It should be noted that this article and all articles published by Creative Coach Online are for information purposes only and should not be taken as advice. It is essential to discuss the appropriateness of any Strategy with a licensed/registered professional. For more details, please visit https://www.creativecoachonline.com/disclaimer
Do more, be more, accomplish more. If you would like help on your journey then I'm here to help you get started.
Don't wait another moment. The time is now. The person is you.
Take the leap and get in touch or follow me https://www.creativecoachonline.com/ or email edward@creativecoachonline.com
Copyright © Edward Ketterer 2022
Edward Ketterer has asserted his rights to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988.
All rights reserved.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the copyright owner.
