The American Southerner is an enduring breed. Behind all of the stereotypes and our overall facetiousness, there often lurk great minds that are able to handle a number of complex issues with poise and ease. Think about it, whenever there is a satellite being launched into outer space, the voices you often hear talking about the complexities of the mission are Southerners. You never seem to see NASA launching from New York, Illinois, etc. So, there has to be something going on if the US government is willing to entrust multi-billion dollar systems, programs, and equipment to a bunch of “Bubbas.”
Financially speaking, history has not been kind to the South. It is still a place where workers often make a third of what their counterparts make to the North or even to the West. Even in parts of Florida, just outside of well known cities like Pensacola, there are areas where $19 thousand a year is the average household income with many families wishing they could only make that much. For that reason, the South is full of common folk who have to make complex investing decisions just to survive in such a hostile environment.
One of the age old lessons taught in the South is how to plan retirement. The problem that most Southerners, like most other Americans, have is in knowing how much risk to take on. High risk can mean high payoffs but it can also mean high levels of loss. In many Southerner’s minds, the difference between saved and invested money is when the work is being done – now or later. The right mix of saved versus invested money is thus needed in order to have money one day when you can’t work anymore. After all, as one old timer noted, “Just because you retire and quit working doesn’t mean that the bills will quit coming.”
This is where the “Rule of 100” comes in. The Rule of 100 is a very broad guide to allow a person to know just how much of their money to put in risky vs. secure investments. This is how the concept works:
A person willing to use the Rule of 100 takes their age and subtracts if from 100. Their age is converted into a percentage for “safe” or secure investments such as saving accounts, secured bonds, etc. The difference is also converted into a percentage to use for risky investments. In other words, Darryl is 30 and wishes to plan for his retirement. Darryl’s use of the Rule of 100 indicates that he can risk as much as 70% of his investment capital in moderate to high-risk ventures but he needs to put 30% of his monies in safer, more secure investments. By the same token, his father, Doug, who is 60, has to be more conservative and therefore he should only employ a maximum of 40% in moderate to high risk investments while 60% needs to be reserved in safer, more liquid assets as he draws nearer retirement age.
Naturally, this is just some old Southern logic devised by people trying to eke out an existence. And, of course, trained professionals should always be consulted when formulating an investment strategy. However, it is a bit ironic to know that many investing coaches now use the Rule of 100 as a gold standard towards advising people how to save up for retirement.