Money Magazine published an article with the “7 new rules of financial security,” claiming that the recent economic collapse has changed the fundamentals that investors have relied upon for decades.
The drop in the stock market, housing market and credit markets has resulted in a shift in the way investors must adjust their assumptions and better understand risks in order to succeed. Money Magazine has listed the following seven “new rules”:
1. Risk isn’t about how much decline in value you can stomach, it’s about not missing important targets.
2. Cash is for more than just typical emergency funds, you should have enough to cover “asset emergencies.”
3. In addition to using your time horizon to determine the percentage of stocks in your portfolio, consider your earnings potential.
4. Borrow cautiously rather than using debt (leverage) to seek higher returns.
5. Your home won’t make you rich.
6. You need more diversification than you think in order to lower your risk.
7. Don’t focus on retiring early.
Read Money Magazine’s article “7 new rules of financial security” in CNNMoney.com.