Just Because An Idea Is Old Doesn’t Mean It Is Outdated

Just Because An Idea Is Old Doesn’t Mean It Is Outdated

Last week I wrote about moving forward since The Future is Not the Past. Today I want to say that there are many old ideas that are still good and should not be discarded just because they are old. Here are some financial and investment examples:

• Bond ladders are a method of buying individual bonds for short to long term periods with staggered due dates. It provides regular maturities where the funds can be used, reinvested or invested elsewhere. This is not a new idea but still is effective. Because of low rates, active management of bond portfolios is presented as the better way to invest, which I don’t agree with for most investors
• Diversification within a stock portfolio is a method of spreading risk among categories and types of stocks. In the “old” days there were limited ways to do this. Today there are hundreds of choices. I suggest sticking to a limited number of choices especially with wide spread availability of index funds
• Cash flow from investments has always been the goal of asset accumulation; and it still should be. Today many investment managers stress asset growth and lessen the importance of cash flow. One reason is because with the low interest environment most investment manager’s fees wipe out the yield. I contend that it should always be about the cash flow – that is what you will spend or reinvest
• Bank certificate of deposits are still the best way to invest funds up to five year periods. Rates stink, but CDs offer the best way to do it. I do not think intermediate term bonds are a better alternative, although that is what the “smart” guys are recommending
• Annuities are great or not good depending upon who you listen to. Annuities are an old product that keeps getting “new” enhancements; but one thing to consider is to look at fixed annuities as an alternative to bank CDs or bonds for periods up to ten years as part of your ladder
• Tax planning is still valid, just that it has become more sophisticated. The old ways of saving taxes by coming up with myriad “unreimbursed” expenses or using “manufactured” tax shelters doesn’t work, but sound planning still provides benefits. There is also great value to integrating tax and investment planning
• An old idea is that large home mortgages are not good while current thinking is that large mortgages are good tax shelters. You cannot get richer paying interest unless you can invest the excess funds for a higher return. Any guaranteed higher returns are marginal at best while nonguaranteed returns can be pretty risky. Why assume a risk that you do not need to? If you want to get wealthier, pay down your debt including your mortgage and then invest the liberated cash flow in accordance with your investment plan
• Investment policy statements are an old idea that takes effort to define clearly what your goals are and how to attain them. There are no short cuts to goal setting and the IPS creates the right protocol to get it done

In the right situation, old things still work. Don’t jump to something new because it is not old. Consider what you do with an open mind and with the understanding of what it takes to profit or lose with that decision. Just because a technique is old doesn’t mean it is outdated.