25 Rules to Grow Rich By

[Martha]

While googling around, avoiding politics, I found this article. As they say in Minnesota, it's not half bad:

http://money.cnn.com/2006/10/16/pf/easyway_25rules.moneymag/index.htm?postversion=2006101916

A few of the rules:

6. All else being equal, the best place to invest is a 401(k). Once you've earned the full company match, max out a Roth IRA. Still have money to invest? Put more in your 401(k) or a traditional IRA.

7. To figure out what percentage of your money should be in stocks, subtract your age from 120.

8. Invest no more than 10% of your portfolio in your company stock - or any single company's stock, for that matter.

9. The most you should pay in annual fees for a mutual fund is 1% for a large-company stock fund, 1.3% for any other type of stock fund and 0.6% for a U.S. bond fund.

10. Aim to build a retirement nest egg that is 25 times the annual investment income you need. So if you want $40,000 a year to supplement Social Security and a pension, you must save $1 million.

11. If you don't understand how an investment works, don't buy it.

 

[My Dream]

Thanks for sharing Martha , I haven't opened the link yet, but based on #11 alone, I shouldn't be investing period.

 

[Spanky]

6. All else being equal, the best place to invest is a 401(k). Once you've earned the full company match, max out a Roth IRA. Still have money to invest? Put more in your 401(k) or a traditional IRA.

When Roth IRA is maxed out, no more money can be invested into a traditional IRA, I think.

 

[Nords]

When Roth IRA is maxed out, no more money can be invested into a traditional IRA, I think.

Roth IRAs used to be locked out above a certain AGI ($160K? I don't remember) and that law may still be on the books.

But although you might not be able to deduct a contribution to a conventional IRA, you'll always be allowed to max the contributions.

 

[shiny]

I read those 25 too, you are right Martha, not half bad. I have a question about #7 though.

Do many of you here feel that once you've reached your financial goals (and have a suitable % of stocks) that any $ you accrue above that is ok in cash or bonds that kick out income, but don't necessarily "keep up."

Maybe this is going back to buckets, I don't know.

 

[shorttimer]

I liked this one
5. Never hire a roofer, driveway paver or chimney sweep who is going door to door.

I actually had a neighbor who did this twice, once to side the house (disaster) once to cut down a tree they said was in danger of falling on the house any second. Never got another estimate, went with the door to door person.

I think another great rule is don't buy anything from a commmercial on TV, especially the shopping networks. In fact, don't watch them at all. They are not your friends, they are professionals who could sell a bag of ice to someone living in Antartica in the dead of winter.

and Shiny, I feel the way you do. You need to be comfortable in your investment decisions not follow a formula. Maybe that formula is for people who plan on retiring at age 65 or 66, full social security age.

 

[Spanky]

Roth IRAs used to be locked out above a certain AGI ($160K? I don't remember) and that law may still be on the books.

But although you might not be able to deduct a contribution to a conventional IRA, you'll always be allowed to max the contributions.

You can contribute the maximum amount to RIRA if The AGI is below $150K for a joint return. If AGI is between $150K and $160K, you can contribute a partial amount. In this case, you should be able to contribute more to a IRA account.

 

[TromboneAl]

24. Don't redeem frequent-flier miles unless you can get more than a dollar's worth of air fare or other stuff for every 100 miles you spend.

Related to this: last year I took the MBNA deal of $400 of air fare for the 25,000 credit card points. An alternative was a check for $250.

But what I found out was that you had to go through their travel agency, and it turned out that the $400 of air fare that I got would have cost less than $250 on priceline.com.

So, from now on I go with the cash.

 

[sailor]

Related to this: last year I took the MBNA deal of $400 of air fare for the 25,000 credit card points. An alternative was a check for $250.
But what I found out was that you had to go through their travel agency, and it turned out that the $400 of air fare that I got would have cost less than $250 on priceline.com.
So, from now on I go with the cash.

MBNA was/is a bad deal.
If you have preferred airline and travel enough it pays much better to have a loyalty card.
I use Delta skymiles and sometimes I can beat the mentioned ratio 10 times (i.e. getting a $5k ticket for 50000 miles).
It's typically "a waste of miles" to fly domestic, unless you go to either Alaska/Hawaii from mainland or both your origin and destination are "obscure cities".

 

[nun]

6. All else being equal, the best place to invest is a 401(k). Once you've earned the full company match, max out a Roth IRA. Still have money to invest? Put more in your 401(k) or a traditional IRA.

While I agree that the 401k is the first place to put money I still think its important to invest money after tax too. You need to build up a "rainy day" fund and if you are going to ER having a stash that is free of all the withdrawal restrictions is very useful. Here's what I'd do as your salary/savings ability increases

1) Pay off any credit card debt.
2) Put enough into 401k to get the company match, then
3) Save after tax until you have 6 month's expenses
4) Next max out your 401k (you're still saving after tax too)
5) Look at other tax deferred options in this order

ROTH (if you qualify)
457 (if you have access to one because of the befopre 59 1/2 withdrawal ability)
IRA
403b

 

[Lusitan]

Thanks for the link, Martha!

 

[Gone4Good]

I read those 25 too, you are right Martha, not half bad. I have a question about #7 though.

Do many of you here feel that once you've reached your financial goals (and have a suitable % of stocks) that any $ you accrue above that is ok in cash or bonds that kick out income, but don't necessarily "keep up."

Maybe this is going back to buckets, I don't know.

Yup. I think a similar line of thinking that drives one to retire early or LBYM applies here. Once you have enough, you have enough, and don't need to sacrifice or take risks to get more. If I you're comfortable that your existing portfolio will fund your future needs (accounting for inflation, of course) I see no reason that future additions can't be used to further reduce the portfolio's volatility.

Just keep in mind that as your asset allocation turns more heavily fixed income focused, your "safe" withdrawal rate goes down - so those extra dollars can't be withdrawn at the same ~4% rate you might have targeted for your original 60/40 stock/bond portfolio.

 

[dmpi]

Yup. I think a similar line of thinking that drives one to retire early or LBYM applies here. Once you have enough, you have enough, and don't need to sacrifice or take risks to get more. If I you're comfortable that your existing portfolio will fund your future needs (accounting for inflation, of course) I see no reason that future additions can't be used to further reduce the portfolio's volatility.

Another perspective is: If you have enough money to live on then you can accept more risk for a better return.

For me... I just got 4 rules on how to get rich.
1. LBYM. Simplify your life.
2. Strive for a large income.
3. Accept the fact that life is full of risks. Choose your battles carefully. Only take big risks if there is a big reward.
4. Enjoy the journey. There is no big payoff at the end.

 

[excellent]

dmpi's "4. Enjoy the journey. There is no big payoff at the end. "
Too very true.
The article's "22. Resist the urge to buy the latest computer or other gadget as soon as it comes out. Wait three months and the price will be lower."
Haha, the price of the monitor I was going to buy actually went UP after I looked at it. It still hasn't come back down, but I went with a cheaper and I think better Samsung instead. I didn't really need those 4 extra inches anyways.
Nice article.

 

[HFWR]

That's what she said...

 

[excellent]

LOL I was actually thinking that after I re-read what I wrote, but refrained from commenting on it.