Brinker's Rules on Investing
How to Become Your Own Personal Finance Manager
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BOB BRINKER’S BASIC RULES ON INVESTING AND BECOMING YOUR OWN PERSONAL FINANCIAL MANAGER:
Complied by David Korn and Kirk Lindstrom, co-editors of the "Retirement Advisor" newsletter.
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1. Pay yourself first. Bob suggests that during your working years, you allocate 10% of everything you make into your investment portfolio. This is a key factor in building up your nest egg over your lifetime.
2. Pay Off Your Mortgage. Try to get to the point where you own your home outright without a mortgage. It takes a long time, but the psychic rewards are immeasurable. One way to get to that point is to double up on your mortgage when you can. If you do it every month, you convert a 30-year mortgage into 15 years. Bob said he is totally against borrowing money against your home for investment purposes and thinks that is one of the worst pieces of advice that anyone can give. Do not leverage and borrow on your home to build an investment portfolio.
Kirk Comment: This is great advice ONLY if you are not good at saving. Bob calls it "psychic income" that you get from knowing you paid off your mortgage. With today's historical low interest rates, I elected to keep enough cash in savings accounts, i-Bonds and TIPs to pay off a new, 15-year fixed 3.75% mortgage for about 20% of the value of my $1M+ home. This makes a lot of sense if you want inflation protection or to have funds to remodel at a later time when home equity loans might be more expensive. Currently, my i-bond portfolio with the majority of base rates at 3.0% is almost paying the same rate I pay on my mortgage! (See New Earning Rates for Older I-Bonds) If the Fed is successful in causing inflation to inflate the US economy out of its debt mess, then the ibonds and TIPS could pay more than I pay for my mortgage!3. Diversification. This means having money invested in different places such as real estate, the bond market, the stock market and even commodities like gold or oil. When you diversify your investments between asset classes you spread your risk. Even if you have a bad year in the stock market like 2008, your fixed income investments can help carry you through that rough patch. Also, Bob recommends you never have more than 4% of your total portfolio in any one stock.
Kirk Comment: Brinker says on the show you can have up to 5% in gold via its echange traded fund GLD as a "hedge" but he does not recommend nor has he ever recommended having gold in any of his model portfolios. For more information on gold see:4. Asset allocation. You allocate your assets across a broad spectrum at a set percentage so that you don’t have all of your eggs in one basket. For example, when you are approaching retirement, you might have 50% of your portfolio in stocks and 50% in a fixed income portfolio made up of low risk investments. That fixed income portfolio should have all or some that won't go down, nomatter what, like FDIC CDs and savings accounts.
5. Quantum leap thinking. Always be thinking of the future. If you have a family, ask where will you be financially in 5, 10, 15 and 20 years. This includes future education expenses.
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|6. Inflation protection.
Bob said he recommends a portion of his fixed
income portfolios be invested in inflation protected securities.
are a relatively new investment vehicle in our nation’s history and are
auctioned regularly by the Treasury. They are also available via
Kirk Comment: These are TIPS and Series I-Bonds. I cover them in BOTH of my newsletters. You can read more about them at
7. Index funds. These funds give you low cost, diversity, market exposure and diversity. The S&P 500 and Total Stock Market for example gives you broad diversity, and these days includes exposure overseas because many of these companies are multi-national and derive substantial revenue from overseas operations. If you purchase them through no load funds, you can own them cheaply and they have a high level of tax efficiency. For example, you can own them via exchange traded funds known as ETFs.
Kirk Comment: This is one area I believe Bob Brinker breaks his own rules with his reliance on "market timing." I prefer asset allocation where you AUTOMATICALLY sell what is up to buy what is down, usually at regular time intervals to completely take the emotion out of the decision. Brinker was SO BULLISH in 2007 just before the last bear market that he told his followers to NOT rebalance his portfolio #3 when it was 2/3rds in stocks back to 50:50. I thought that was a mistake and wrote about it as well as started the Retirement Advisor with David Korn were we make a POINT of rebalancing our portfolios once a year like I do with the core portfolios in "Kirk Lindstrom's Investment Letter."9. Avoid shark attacks. There are people who are engaged in Ponzi schemes, and/or just want to get your money. They will often try to sell you annuity products with expensive fees and high surrender charges. Make suer you ask and KNOW THE ANSWER to "what is in it for you? How much will you make if I give you this money to invest?" BEFORE you make ANY investment. That is what it is all about.
Kirk Comment: Make sure you read my article: Beware of Annuities10. Educate yourself. There are wonderful books to teach yourself. Bob said his recommended reading list on his web site contains all of his favorites he has collected over the years, and you can check them out of your local library or purchase them and create your own investment library. The knowledge in these books will teach you to become your own personal investment advisor.
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