Happy Saturday readers! The following is a guest post written by my good friend TIE promoting his new blog. Normally, I don’t like to post these types of promotions however I’ve waited a while now for TIE to start a blog. Before you ignore this post, I want you to know that (unlike me) TIE is an ACTUAL ECONOMIST. As in he has a PhD and crunches numbers for a living. Check out what he’s got to say and be sure to subscribe to his blog. He’s brilliant.
~ The Weakonomist
The Incidental Economist (TIE) is a health economist who blogs at TheIncidentalEconomist.com on topics in personal finance, economics, and health care. By day he is an academic researcher with appointments at a major research university and a federal agency. His research focus is on policy-relevant economic analysis of insurance choice and insurer behavior, principally for the Medicare population. Below he provides a preview of his 2009 summer project, an eight post series on investment planning which begins on his blog on July 14. I was one of the first 5 people to subscribe to his blog and I want you to subscribe too. Subscribe now to the RSS feed or to an e-mail subscription so you don’t miss this series and his other posts.
Investment planning is the killer app of personal finance. It is improbable anyone will achieve a financially secure retirement without advanced planning. Of course there are numerous books, websites, and a huge industry devoted to this topic. Everyone comes at it with his or her own perspective and emphasizes different elements. I have my own view of the investment planning process, based entirely on logic and simple math. And I can describe it in eight short blog posts. (Actually, it is only six, plus introductory and concluding posts.) This is my summer project, to begin on July 14 on TheIncidentalEconomist.com.
The three principles of investing—willingness, ability, and need for risk/return—drive the planning process. What do these terms mean exactly? Willingness is the qualitative sense of one’s comfort with risk. Ability and need can be quantified and are based on one’s current and expected retirement household budget, respectively. Therefore, budgeting is at the core of investment planning.
Are you thinking, “Ugh, budgeting, what a chore”? Not my way. I’ll illustrate a very simple way to create a budget that has just the level of detail needed for investment planning. It isn’t the sort of budget one would need to get out of debt. But if one is living within one’s means one can draw up a descriptive budget in minutes. It is easier than you might think. Along the way I’ll describe some Quicken tricks I’ve developed for budget tracking and projection.
One’s current budget defines one’s ability to invest by showing how much money one has each month after expenses. A projection of one’s retirement budget based on one’s current budget illustrates one’s retirement income needs. This, in turn, defines one’s need for investment growth, the rate of return needed to meet the investment goal. After this, there is only one step left: selecting an asset allocation (or a schedule of asset allocations that adjusts over time) that meets the required rate of return. This is the only step that cannot be done without a degree of subjectivity. But with a few resources I’ll suggest, it isn’t so hard.
Since many readers will have their own ideas about investment planning, I invite you to share your comments, tools, tricks, and tips with me as comments to the series’ posts or in private messages to me. I’ll include them in the final post and credit you (that’s free advertisement for your blog, if you have one). I look forward to hearing your thoughts.
Photo: bredger
 By The Weakonomist |
The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics. Also keep in mind that nothing I say can be construed as financial advice. |
Pingback: Circularity via Guest Post | The Incidental Economist