Roughly Speaking

Jonathan Clements

PORTFOLIO MANAGERS and financial advisors are apt to depict money management as rigorously analytical, and sometimes even as a science. Maybe that’s inevitable in an endeavor where almost every decision ends up with a number, whether it’s the amount of life insurance to buy, the percentage allocation to emerging markets or the age at which you should claim Social Security.

But just because the answer has precision doesn’t mean this is a precise business. Should you put 65% or 70% of your portfolio in stocks? Should you get a health care policy with a $500 or $1,000 deductible? Should you keep four or six months of living expenses in your emergency fund? You’ll know the right answer in retrospect but, when making the decision, you’re pretty much guessing.

Make no mistake: Managing money is a rough-and-ready business, and what matters is getting the decisions broadly correct. It’s hard to say precisely how much life insurance you should buy, but it’s important to have some coverage if your savings are on the skimpy side and you have a family that’s financially dependent on you. It’s difficult to figure out exactly how much you should have in stocks, but it’s important to have some allocation in your long-term investment portfolio, so you have a decent shot at outpacing inflation and taxes.

The bottom line: You should fret less about getting any particular decision precisely right, and instead worry about whether you’re tackling the right range of issues. Got the perfect rewards credit card? It won’t mean squat if you die without a will or you don’t start saving for retirement until age 50.

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