| Sargent & Lundy Savings Investment Plan |
| DECISIONS, DECISIONS |
| The following excerpts are from an article in the Tuesday,
December 23, 1997 "Wall Street Journal". The opinions expressed
by the author, Jonathan Clements, may or may not reflect those of the SIP
Committee.
Every investor makes mistakes. That goes with the territory. The key is to make sure you don't mess up the really critical decisions . Here are 10 of the most important money decisions you will ever make: 1. How much you save each month. This is the biggest driver of your portfolio's growth. After all, if you don't save, you can't invest. Aim to sock away every year an amount equal to 10% of your pretax salary - and preferably more. 2. How much you put into stocks. The more you invest in stocks, the higher your likely long-run return, but the greater the chance of hefty short-term losses. "How much you save, how much you spend and the after-tax return you earn on your investments are the key variables in achieving financial independence," says John Cammack, a vice president with Baltimore's T. Rowe Price Associates. "From age 20 to 45, saving and spending are the most important. From age 45 on, investment returns become more dominant." 3. How much you withdraw each year in retirement. Withdraw too much, and you run out of money. Withdraw too little, and you leave heaps of money to your undeserving heirs. As a rule of thumb, look to spend no more than 6% of your portfolio's value in the first year of retirement, including all interest and dividends you receive. After that, step up your annual withdrawals along with inflation. 4. Whether to be an investor or a speculator. It's not a clean choice. Often, we behave like long-term investors with part of our portfolio, while trading frantically with the rest. The trick is to keep the speculative portion as small as possible. 5. How big of a house you buy. Think carefully before picking the castle instead of the cottage. If you buy the largest house you can afford, it's going to be much tougher to retire early and pay for your children's college. 6. How many kids you have. "A kid probably costs more than a house," figures Mr. Cammack. "A top-flight college might cost $125,000 to $130,000 for four years, which is about the median price for a home." And college costs, of course, come after 18 years of food, clothes, summer camp and medical bills. 7. Whether to pay off your credit cards every month. The 18% annual interest charge is bad enough. But it's also a symbolic issue. If you don't regularly pay off your credit cards, it's like hoisting the white flag and surrendering all pretense of financial self-control. 8. What you do to prepare for financial emergencies. Your emergency kit should include disability insurance, a durable power of attorney, umbrella liability insurance, easy access to borrowed money, insurance coverage for major medical expenses and an emergency fund that includes three months of more of living expenses. 9. What you do to prepare for your own death. Start by writing a letter of instructions detailing what you own, where it can be found and what sort of funeral you want. You should also get a will and other estate-planning documents drawn up. Meanwhile, make sure your financial affairs are well organized and, if you have dependents, buy sufficient life insurance. 10. Who you take advice from. Newspapers, personal-finance magazines and business television shows are loaded with investment insights, some useful, some not. If you are committed to learning about investing and disciplined enough to do it yourself, it's never been easier. The do-it-yourself route, however, may not be right for you, especially if you don't have the necessary time or discipline. If that's the case, consider finding yourself a good investment adviser. Most folks, however, don't get their financial information from the media or from an adviser. Instead, surveys suggest that people typically turn to friends and family members. If you are Warren Buffett's cousin, that's good news. What about the rest of us? It's a little scary. |
This page updated on 1/9/98