Give me the simple life

Posted by on November 26, 2012 @ 4:00 pm in Personal finance

A colleague sent me a link to “The Juggle,” a Wall Street Journal blog that explores “the choices and trade-offs people make as they juggle work and family.”

The topic was financial planning for “people too busy to plan,” and author Angela Moore wrote that “between two kids, a demanding job, the 401(k) and IRAs, and my kids’ college funds, I’m so time crunched and intimidated that there’s a mountain of statements unopened on my desk.”

I can appreciate the dilemma. I, too, am busy at work. I have a family. Time races by in a blur of activity. To juggle professional, personal, and financial priorities, I’ve found that I have to keep my investing decisions simple.

How much to save, where to put it

Like those of Ms. Moore and many commenters on “The Juggle,” my goals are straightforward: save for retirement and pay for my children’s education. Some goals such as generating income in retirement are more complex. “Accumulation” goals such as mine don’t have to be.

How much do I need to save? For retirement, I start with Vanguard’s rough rule of thumb: 12%–15% of income, including any match from an employer-sponsored retirement plan. That figure isn’t right for me, and it probably isn’t right for you, but it’s a place to start. I use an online calculator to get a better sense of how different levels of savings today can translate into different levels of resources for the future.

College is simpler because you can calculate the costs with terrifying precision. Don’t despair. Between financial aid and the variety of educational options, the costs are more manageable than the calculator’s brutal math would suggest.

Where do I put my savings? For retirement, I used an investor questionnaire to select a mix of stocks and bonds consistent with my time frame and my ability to withstand the occasional—and inevitable—setbacks in the financial markets. To implement this mix, I rely on a few broad-based stock and bond index funds, along with a dash of active management. (My goals, time frame, and risk preferences are no doubt different from yours. Understand your own before making any investment decisions.)

For college, I use a stock/bond portfolio, both index funds. I’ll shift more to bonds and cash as the tuition bills get closer.

Willful cluelessness

The word discipline can evoke bad memories from grade school, but the quality is critical to keeping things simple even as the financial markets’ drama and the authoritative punditry braying from the TV suggest that simple won’t work.

I’m fascinated by the markets and the economy. I probably haven’t missed an issue of the Wall Street Journal in a decade. But I treat this material as interesting information, not something to act on. Call it discipline or, better yet, willful cluelessness. How will debt negotiations in the Eurozone affect my international stock allocation? When will interest rates rise? I don’t know, so I don’t make investment decisions that depend on the answers.

Stocks, bonds, and life

My portfolio will never do much better than its proportional exposure to the broad stock and bond markets. On the other hand, it will never do much worse. This low-maintenance approach is consistent with the guidance you’ll find in books by renowned investment thinkers and writers such as Vanguard founder Jack Bogle and Princeton University economist Burton Malkiel. Their validation is reassuring, but it’s not why I stick with this approach.

A simple plan leaves me time to live my life.

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