The Best Portfolios Are Mixtures of Many Different Asset Classes
The only guarantee in finance is something will go wrong.” This is the Wealth Code Golden Rule and a statement I like to make to every client who joins my firm or comes in for financial education. I tend to repeat it time and time again to reinforce the concept that everything has risk and at some point something will not go as planned.
Take a certificate of deposit at your local bank. FDIC insured, correct? It’s comforting to know you have that guarantee as long as you stay below the protection limits. The sad part, when looking at the assets of the FDIC, or really the lack thereof, is that the FDIC really boils down to being a front for the Federal Reserve which will essentially cover any losses that are FDIC protected in case your bank goes belly up.
In 2005 you probably felt pretty good about the 5 percent the banks were paying on the typical one-year certificate of deposit (CD). You might have looked at your income needs and calculated that at 5 percent you would be doing okay. The problem of course is when that one year term ended and the new rate dropped to 2 percent; now you were in a pickle and the income you counted on took a hit. The previous rate was not guaranteed forever. The drop in the CD rate from 5 percent to 2 percent in 2006 and even lower to 1 percent in 2009 and possibly even lower in the foreseeable future really put a damper on your income and financial well-being.
The other likely ...