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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76421  
Subject: Re: Strategy comparison S&P500 vs. IUL Date: 4/2/2013 7:28 PM
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$25k-$50k reserves in order to put $10,000 at risk? $35k-$60k liquid net worth in order to safely put $10,000 into the S&P?

Isn't that a wee bit overly conservative? That would dramatically dilute the real yield of the $10,000 in play. (Not saying that's particularly bad... financial survival has its costs... it just seems a bit steep at its face, to me.)


Oh. I thought you were asking the question in general. Evidently you were asking in relation to an investment portfolio.

For the general case, I was thinking along the lines of an "emergency fund". I was thinking that you need $25-50K to tide you over (paying for mortgage & groceries, etc.) for 6-12 months if you lost your job.
Although, I must say that the guy who writes http://www.controlyourcash.com makes a good case for *not* having a dedicated e-fund. "5) An emergency fund. Just kidding. No one who actually understands money has one."


But in relation to an investment portfolio .... that's a matter of asset allocation. That's probably the #3 or #4 most discussed topic at financial sites, so it's been rather throughly covered.

Frankly, I think that thinking in terms of "non-risked reserves in order to safely put $10,000 into the S&P" is embracing defeat from the get-go. If you can't afford to put $10K into the market, don't do it. I think that some Financial Advisors emphasize people's fears in order to push them into inappropriate investment vehicles.

Not quite sure what the thrust of your question was -- perhaps I've over-reacting.

dramatically dilute the real yield of the $10,000 in play.
Um .... if you only want to put $5K at risk, only invest $5K. Don't play foolish games by investing 10K and then directing 5K of it into some purportedly "non-risked reserve", and thinking that you have thereby invested 10K.

You shouldn't mentally segregate your net-worth into distinct buckets, but should think of it as all one big lump. You (you, Dave Leverage Planner) have said this yourself, when you say that you need to have the picture of a client's entire financial situation in order to advise them properly.

Really, somebody's "non-risked reserve" is their job and other solid income-stream(s). It's silly to isolate one chunk of their net worth (like in an IUL) and saying that part of it should be at risk and another part of it should be non-risk.

Market risk? Whatever. Keep it all in perspective. There's the risk that you'll be squashed by a runaway gravel truck on the drive to work. (Not being facetious. I saw this happen twice in the 18 years we lived in Algonquin.)
You are not going to lose all your money that's invested in the S&P500. If a crash happens and you lose half of it -- bummer. Hang on and it'll recover in a few years.
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