There’s an expression in journalism, ‘Overtaken by Events’. Basically, it means when the article you wrote or published is no longer relevant, because the events on the ground have changed. Reporting of the South’s eventual victory one the eve of the Battle of Gettysburg or Germany’s dominance of Europe right before D-Day are the sorts of things that just didn’t end up baring fruit.
So it is here on The Amateur Financier. I’ve written about many different things that, due to the passing time, the revelation of new information, or simply my own growth and development as a person, I’ve come to reconsider. This post is an attempt to cover some of those past posts, and set the records straight about what’s changed since then.
In Investing Like a Chimp, I showed you the rationale for my ideal portfolio, modeled off the example portfolio provided by MoneyChimp. I still like the basic ideas they provided, as well as most of modifications that I made myself. The only thing I’d do differently now is bump up the total foreign market and emerging market stock exposure a bit more, while cutting back on the total US market exposure. Besides more closely representing the actual global market, this should allow me to capitalize more on the growth in non-American markets. So, my new ideal allocation for the stock portion of my portfolio (which I intend to enact next year) will look like:
Admit It: You Want to Invest Like a Chimp, Too
30% Total US Stock Market
20% Extended Market
10% Small Cap Value
25% Total Foreign Market
15% Emerging Markets
When I provided Ten Steps to Control Your Finances, I struggled with where to put charitable giving in the list. On one hand, I do believe strongly in the importance of giving to others, even when we are struggling ourselves. On the other hand, getting your finances in order, so you don’t have to rely on charity yourself, should be an even higher priority. Ideally, you will give as much as you can, starting as early in your financial life as you can, but when trying to figure out where to add a step about charity, I opted to put charity at step nine, after things like setting up an emergency fund, investing for retirement, and even getting a house.
To correct what, in hindsight, is a mis-prioritization of your money related goals, I’ve added a Step Zero: Helping Those Who Are Less Fortunate, before you begin with any other financial goals. If you give whatever you can, and re-evaluate your situation regularly to see if you can give more, I’m sure your giving will go to help plenty of people, and you won’t have to derail your own goals to help others.
I covered some of the bad lessons people were touting during the worst of the downturn this past year, when it seemed like stocks were were doing to be down for years and lagging in their recovery. Of course, now things are starting to be all rosy and cheerful, as the stock market is up substantially from where we were this past year, and it looks like too many people are going from fearful back to greedy. As a result, now there’s a whole new crop of bad lessons that might come up. Let’s try to clear some of them up right now before any impressionable new investors get the wrong idea:
-Big stock losses one year are not always followed by big stock gains the next year. When you have a year as bad as 2008, it can take a while for the market recover. Just because 2009 has been a good year for stocks, does NOT mean that a recovery will immediately follow every horrible year.
-This rally is not typical. As mentioned, 2008 was a very atypical year, and 2009 isn’t that normal, either. Although it’s hard to find a ‘normal’ year in stocks, as things are generally a bit above or a bit below the mathematical average, around a 10% (or more conservatively, 8 or 9%) return from the broader stock market. Using a value like this for the purpose of planning and calculations is much more in line with historic returns.
-Investing is good, panicking is bad. It’s been easy to panic these past few years, first that your investments were plummeting and you were going to end up poor, then that the rally was going to pass you by. If you want to avoid these sorts of emotional roller coasters, simply choose a good asset allocation (if you are more than twenty years from retirement, you could do worse than the all stock portfolio I’ve outlined above), re-evaluate it regularly, and update it if necessary.
Finally, I wrote about Corporate-Owned Life Insurance (or COLI) plans a few months ago, as a result of some stories I read inspired by Micheal Moore’s newest movie. I received a rather long, well-detailed response from Lawrence Kramer, who claims to be a key principle in making these policies a common method of tax management for corporations. He expressed some qualms with my post, as well as the use of the term ‘Dead Peasant’ insurance (which, in my defense, was the term used in one of my major sources when writing the article).
I won’t go into everything that Mr. Kramer wrote and my equally long response (as you can easily click through that last link and read for yourself; don’t rush, I’ll wait). While I conceded that my initial understanding of the concept was incorrect, I still maintain that the practice is a bit on the ethically hazy side. Using life insurance policies on current and former low level employers, at least some of which seem to have been purchased without the consent of the insured, as method of managing taxes is not the sort of thing that will endear the companies who use such policies to the public. But, perhaps that’s just my interpretation.
So, there you have it; several articles that could use an update because of changing times, opinions, or responses, and my attempts to rectify the matter. Enjoy, as I know you will!
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