Broker Check

Rules and Exceptions

January 28, 2019


"Every rule has an exception."

In the investing world, very few rules are absolute and without exception. Here are a few general investing rules and exceptions that Jim Sr. and I have seen when working with clients:

  • Rule: Investors with a long time horizon should be invested in an all stock portfolio
    • Exception: If you can't handle the volatility that comes with stocks, consider allocating to more conservative assets, like bonds. The best asset allocation is the one you can stick with.
  • Rule: Skill and intelligence correlate with better investment returns
    • Exception: While smarts matter, investing is more about emotional intelligence and controlling your behavior than anything. Doing so can help you avoid buying high and selling low.
  • Rule: Avoid making investment decisions based on emotion
    • Exception: It's difficult to make rational investment decisions when others are acting fearful or greedy. If reducing equity exposure within a small (i.e. 10%) sleeve of your overall portfolio fulfills your need to do something during a market downturn, it could keep you from making a disastrous mistake with the larger portion of your portfolio.
  • Rule: Max out your 401k contributions
    • Exception: Your 401k account is long-term money that typically can't be touched without penalty for years. While Jim and I are advocates of having a high savings rate and using compound interest to your advantage, make sure you have liquid funds available to cover short and intermediate-term needs to avoid falling into debt.
  • Rule: Buy real estate instead of renting
    • Exception: There are plenty of reasons to own your home, but not necessarily for investment purposes. Consider the underlying costs (property tax, insurance, HOAs, maintenance, transaction costs) that factor into overall return on investment and the percentage of your monthly payment that goes towards interest instead of principal. 

They say the young man knows the rules but the old man knows the exceptions. Safe to say the two of us have that covered! 




The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

Investing involves risk including loss of principal. No strategy assures success or protects against loss.