Buy, Hold, and Sell!

Chapter 23The Magic Number Strategy

Time to take action.

Before creating any action plan, you have to know two things:

1. Your current standing.
2. Your goal.

You wouldn't build a house without surveying the land. You wouldn't begin to build without knowing if you want a little cottage or a huge mansion. Creating a financial plan is no different. In this chapter, I'll show you how to figure out where you are financially, and what you'll need for the future.

How Strong Is Your House?

Imagine your portfolio as a house on the beach. If a hurricane approaches, you have to decide whether to leave or to stay. Your intuition can help you recognize the power of the storm, but you also need to consider the strength of your house. Fact: If you've got a little shack, you'd better not stick around. But if your house is strong enough to withstand the hurricane, you may be able to ride out the storm. How do you determine the strength of your financial house? You need to quantify how much damage you can withstand and still be okay. You need to know your “magic number.”

Your Magic Number

Your magic number is the amount of money that you need in order to retire or to remain retired while sustaining your standard of living. In our firm, we use this number to form one of our sell strategies. It tells us the amount of money a client needs to protect. Your personal magic number can help safeguard your retirement investments, too. If the market is going down and your investments dwindle to the point ...