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The Most Important Investment Decision You Will Ever Make

 

The Value of Stocks

• Long-term dependability Since World War II, the best investment through time has been the stock market, delivering a 12% rate of compounded return for nearly 50 years. 

• Short-term flexibility Buying and selling stocks is fast and easy. It’s much faster, for example, than selling a piece of real estate.

Sir John Templeton’s Strategy: “Three Bucket” Asset Allocation

Decide what percentage of your income to invest, and allocate it into each of the following areas in a proportion that meets your needs and satisfies your risk tolerance. By determining your asset allocation in advance and sticking to your plan, you’ll avoid the temptation of spur-of-the-moment decisions.

1. Security Bucket 

This bucket is for low-risk investments such as fixed income (treasury bills, corporate bonds, money market accounts) and equity (insurance policies, your home). The growth rate on these investments seems slow at first but compounds over time. What goes into this bucket should stay here—allow the profits to be reinvested.

2. Growth Bucket 

This bucket is for higher-risk investments with more potential for growth, such as mutual funds, collectibles, real estate and stocks. Reinvest one-third of the profits in your security bucket, one-third in your growth bucket and one-third in your dream bucket.

3. Dream Bucket

This is the place to have some fun and save for the things you want in life. Whether it be a boat, a yacht, a vacation home or a sports team, this bucket lets you start building toward your dreams and making them come true.

Pay Yourself First!

Here’s the best-kept secret to painless investing: Never see the money! Decide how much you want to invest, and have it deducted directly from your paycheck. 




 

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