Monday, October 27, 2008

The chicken or the egg (or an almighty creator)?

I’ve been reading Live It Up Without Outliving Your Money! by Paul Merriman which was a great read! It nicely explains why asset allocation is so important and gives step-by-step explanations on how to increase your portfolio performance.

However, like in many books, I see supporting evidence such as this: a study in Fortune magazine found that “investors who made written plans by the time they were 40 years of age wound up with five times as much money by age 65 as those who didn’t have written plans.”

I know he’s trying to underscore the importance of having a written plan, but we seem to have a chicken and egg problem here. Does writing down a financial plan guarantee more returns? No, probably not. If a person does nothing with their finances beyond writing a financial plan they are not going to see an amazing gain in their portfolio.

Or is it that people who are likely to pay attention to their finances (and thus make a written plan) make more money than someone who doesn’t? Probably so.

1 comment:

Anonymous said...

I think people who are into their finances MAY make more, but more importantly, they probably place a priority on savings and think about the future. If you have a plan, and follow it, that is a great start.