"The Rule of 100" and Preserving and Growing Your Assets

Some of you  know about "The Rule of 100" but everyone should know it and understand how it works. Simply put this rule help you determine a smart allocation  strategy that helps protect your assets from excessive market risk. Protection from market risk is critical  as we age in order to  preserve our assets  for the second stage of our lives.  The  first stage of Financial Life is Asset Growth and Accumulation . This is followed  by the Asset Distribution Stage or Retirement Stage of Financial  Life. As we get older and unfortunately we all do, we need to transition from maximizing accumulation to the preservation  and distribution of our assets. Different types of professional specialize in helping plan and implement these different strategies.  Some people even think of this  as a three stage process. They group them into, Accumulation, Transition and Distribution or Retirement.

 The Risk we can safely tolerate needs to  drop  if we hope to properly preserve our assets for the retirement years.  A five year recession is not an absolute disaster when we are 35 and  have 30 or more years to make up for the downturns that WILL Happen. Notice I  said WILL and not May happen. On average we have 2-3 bad years every decade. We have 3-5 average years and 2-3 really good years. This trend is clearly shown in economic theory and actual history going back 100 years.

Not considering this in your financial plan is one of the major reasons people run out of assets in retirement.  The second  major reason people run out of money is simply not saving enough in the  earning years.  The best solution is to  learn and  benefit from THE RULE OF 100. The  rule states that  you subtract your current age from 100 and the answer represents the maximum percentage of your assets that should  be exposed to  market risk. As an  example a 55 year old should have no more than 45% of their assets exposed to market  risk. Some people have less market risk tolerance  and should have less exposure. As we age the formula means that we need to  further adjust our risk % allocation over  time. Using SAFE Money strategies gives us the opportunity to include Safe Money Products and still have up side potential growth that can  beat inflation  and allow us to keep up with the rising  Consumer Price Index (CPI).  Unfortunately a Bank doesn't allow  one to keep up with the rate of inflation. It has been 20 years or more  since banks have paid a decent rate of return to their depositors.  This means that you  have less buying power at the end of December than  you  had on January 1st. There are other forms of Safe Money Assets that  can  protect and grow your assets and still produce a reasonable Rate of Return.