Simple investment allocation principle to reduce Anxiety

This post is meant for people with anxiety, and these are the only people whom I would recommend this strategy for. As with any financial opinion you see on this blog, it is simply my opinion. Before making any financial decisions you should seek out as much information as possible to make an informed decision. All that said, as individuals with anxiety, even discussing money can be agonizing. What do you do then if you are functioning with anxiety, working and investing?

You need some way to help navigate investment allocations. What are those exactly? An allocation is exactly as it reads, how much you are allocating to a specific asset class, like cash, stocks, bonds. Rather than go in blind or with no knowledge at all you want to have at least some strategy. Again, you should be doing some research on your own to help educate you on finance but often we don’t have the energy to do this.

There is a simple method to determine allocations, and mitigate risk. Again, this is meant for people with Anxiety not seasoned comfortable investors. It is the rule of 100. The assumption in the rule is that the maximum age you are likely to live to is 100. You take your current age (let’s say you are 45) and subtract that from 100, that number 55 (or 55%) is what you should be invested into equities (which are stocks and include mutual funds that invest in company stocks). This would leave 45% of your assets into more conservative investments (bonds, CDs, Treasury’s, Cash). The older you get the less investment into higher risk investments and more into lower risk.

Enough
The Finance Industry bombards you with fear

This particular strategy is very simple and is actually pretty effective. One of the myths of the finance industry is that you have to have targeted funds managed by professionals to “guide” you through your life. Of course that’s the sales pitch, it’s an industry, be a little cynical here, they are selling you something…. With this technique you manage your risk based on anticipated age of death. Morbid? Yes, but we have to use something and once you’re dead, it doesn’t really matter.

100 is kind of a max, if you live to triple digits’ bravo and it’s reasonable to assume as technology improves life spans will as well. The “100” number can be substituted with any number you want, 80 is a good number. Now this strategy is considered conservative, fiscally I always advise people to be conservative first until knowledge is obtained, experience is obtained and more granular decisions made from the accumulation of both. That said, this blog hopes to serve those with anxiety. Money and investing is a huge source of anxiety but both are required for our long term prosperity.

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Time, Money & Anxiety

I am going to cut right to the chase with this post. Over time if you invest money wisely, you will have less anxiety.

How you do it:

  1. Set up an automatic investment from your paycheck. This can be through your employer or a company like fidelity, every paycheck money comes out and goes into your investments.
  2. Select “large cap” mutual funds. You don’t have to be an investment analyst here. Select mutual funds that invest in successful companies. If their portfolio includes companies like: Apple, Microsoft, Proctor and Gamble, Coke these are all established companies that make money.
  3. Do this for years. Yes, 10-20-30 years. That’s YEARS.
  4. At the end of the period you should have plenty of money and your anxiety will be reduced.

Sounds simple doesn’t it? It actually is, the trick is not panicking with every stock market move and staying consistent. The stock market goes up and down, some years the return is 20%+ some its -20% but on average you can expect from 7-10% return over 30 years. The trick is reinvesting your returns and compounding interest.

So, the simple example is you invest 100 dollars at 10% return you make 10 dollars. Year two you invest 110 at 10% return you make 11 dollars. So, if we look at the example below. If we start with 100 investment and invest 100 a week for 30 years at 8% in the end, we would have 600K

Here is a link to the calculator I used, put in your own numbers see where you end up. Anxiety sucks, saving for your future might be the best thing you can do NOW that will help you relieve stress then. Imagine if you were a young child and you could do something then that would have helped you now, would you have done it?