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Principles vs Details

Published by: Lytle Rather, CFP® Date: May 26, 2017

Politically, economically, and socially we are living in a turbulent and uncertain world. Every generation seems to believe that their challenges in these areas are different and unique. In some ways they are different, and in other ways they are alike. In any case, for the last three decades, I have heard specific theories on how to navigate the investment markets and how to beat the system. Today I am hearing that investing in the US is much better than investing overseas, that investing in dividend stocks is somehow less risky than investing in other stocks, that rising interest rates are going to destroy bond values, or that President Trump is going to help the investment markets (or hurt them depending on your political leanings). You could argue that each of these investor ideas could have been relevant at a certain point in time with perfect hindsight, but they are not ideas that hold true for all times and markets.

So how do you successfully navigate the markets and build a lasting plan regardless of the specific details of the current noise? I would argue it is to create a plan than holds true to time-tested principles- those ideas that do not change with each gyration of why “this time it’s different”. In contrasting the difference between details and principles, English author James Allen said “details are infinite and are ceaselessly changing while principles are few and are eternal and unchangeable”. So what are the few, eternal and unchangeable principles that can help us build a successful retirement income plan?

Principle one is to determine what matters most. For many, it is the ability to stop working and replace our income. Namely, how much do we need every month to live on, do we want to have an additional amount for travel, how much do we want to allocate for car replacements and we might want to plan for additional amounts to cover healthcare, weddings, and charitable donations.

Principle two is to determine the appropriate amount of risk that will allow you to meet your spending goals and give us a high probability of not outliving our assets. The most important decision, as it relates to our investments, is how much will be invested in stocks and how much will be allocated to bonds.

Principle three is to have an intentional non-emotional process of rebalancing your investments back to the appropriate amount of stocks and bonds determined above.

So, in the midst of the political, economic and social uncertainty going on around us what is the best solution for building and sticking to an investment plan? It is to ignore the infinite and ceaselessly changing advice de jour and to build your plan around the core principles that are eternal and unchangeable.

Lytle Rather, CFP® is co-founder of Rather & Kittrell.  He is available at lrather@rkcapital.com