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4 Misleading Pieces of Personal Finance Advice

Source: usnews.com Author: DAVID NING READ FULL ARTICLE AT usnews.com

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1. Don't buy a latte every day. Coined by author David Bach, the "latte factor" quite simply points you to the fact that investing $5 a day for 40 years will earn you close to $1 million if you manage to get a return of 10 percent. Yet not drinking coffee doesn’t mean you will become a millionaire automatically. If you can't hang on through the ups and downs of the market (even for decades at a time), you will never get the average annual return of the market. If you don't buy a latte but instead buy other things, you won't even save that $5 a day. And if you stop contributing once you feel like you are quite rich even before you become a millionaire, it's much harder to get there.

2. Live below your means. One of the most important habits to develop in order to retire well is living below your means, but it's not enough to merely live below your means if you want to retire well. To come up with the monthly savings you need to deposit into that retirement stash, you need to go above and beyond. I mean, having $1 left over on every paycheck is living below your means, but you can clearly see that you won't ever get ahead.

3. Stick to your asset allocation and diversify. Asset allocation and diversification work their magic over time because you are forced to buy low and sell high. However, you need to be careful because you can be very diversified with the recommended asset allocation for your age and still miss the boat. For example, a person who is young can own a ton of individual stocks and still fit the asset allocation recommendation, but if all of the individual stocks are duds, he...

Full article: 4 Misleading Pieces of Personal Finance Advice

More About: Retirement

Nov 25 2011 submitted by Victor Bennett

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Topics: Retirement

Source: usnews.com Author: DAVID NING

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