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Originally Posted by bahbahmickey
There are so many reasons why general advice like they pitch is bad I don't even know where to start. Do you really think everyone should be paying off their sub 3% mortgage even if it $100k and they have $1M in a well balanced portfolio?
In the case you give, it simply doesn't matter much at all whether they pay it off or don't.
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These guys pound the table because they don't want listeners to pay .5-1% to a financial advisor then they are ok leaving 50+% in some peoples cases in cash in a emergency fund. That is beyond sub-optimal. In the case of some of their listeners they would be better off finding the most expensive advisor they can find and insisting paying him triple his advisory fee and still be better off over the next 10 years.
If they have 50% in cash, it would be because they don't have sufficient assets to cover normal common life events. Covering normal common life events is simply more important. You get to maximize variance once you have normal common life events covered. Doing it before then is incredibly unwise.
Not sure if you follow the news, but some people who thought they were healthy and had stable incomes were wrong.
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He said he is going to cash because he is going to buy a house with the proceeds of his mutual fund sale in 5 years and then defended the position when a reader questioned it.
If he is planning on spending the money in the relative short-term (5-ish years), minimizing variance is smart. If he was planning on buying a house in 20 years, maximizing ev would be smart.
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I have a huge chunk of my net worth tied up in an illiquid investment, but at the time I made the investment it was around 10% of my net worth and has since grown to be a large chunk. However, I agree with you that it wouldn't be a good idea for most to take the risk that I did in an investment that is so illiquid.
It doesn't matter that much other than how much you lose on entry and exit, along with the odds that you'd have to dump the investment at a bad time due to life/financial events.
10% isn't a big deal though (unless you were poor).
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I think this depends on what you consider volatile assets. As an example think of someone who thinks of themselves as an average risk taker with a million in liquid assets (cash, stocks, bonds, mutual funds, etc) who is retired and needs $2k/mo from their investments after their social security check and explain how you think they should be invested. You aren't saying they should have $120k in cash/money market right?
People who think they are risk tolerant (or risk averse) are wrong. Risk tolerance is much more of a mood than a trait.
Using your example, the person should have more than $120k in cash. At a spend rate of 2.4% of liquid assets they do not need to take much risk at all.