7 Golden Rules for Investing and Advanced Estate Planning

You've worked hard to build your nest egg. To protect it, for yourselves and for your heirs, follow this set of golden rules.

(Image credit: ©Chris Clor/Blend Images LLC)

We’ve seen this movie before — sky-high stock prices, sky-high real estate prices and the Fed raising interest rates. We also saw how those times ended in 2001 and 2008.

At this point, my clients are looking to preserve and protect their wealth, so here are my five golden rules of investing and two golden rules of advanced estate planning that I share with them, which I’ve learned over the past 25 years. I focus on working with retirees with over $1 million in net worth; however, these rules apply to everyone.

Five Golden Rules of Investing

Rule No. 1:

Diversification can be an important part of a retirement plan, and the central measure of diversification is to not have more than 5% of your portfolio in any one position.

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This is crucial because you never know if one piece of bad news, or some new technology, could come along that could potentially disrupt one company’s performance and stock price. Last year, for example, famous financial giant Equifax had a data breach and its shares dropped 35% in just a few days.

Rule No. 2:

There are 11 sectors in the S&P 500, so you should never have more than 20% of your portfolio in any one sector.

This was a big problem in the late ’90s, when tech stocks did amazing and if you hadn’t rediversified your portfolio before the tech bubble burst in the early 2000s, anyone with too much exposure to tech really took a beating.

We’re seeing that again now because the FAANG stocks — Facebook, Amazon, Apple, Netflix and Google (Alphabet) — have been the best performing and most widely held stocks around. In total for 2018, those six stocks plus Microsoft have made up 98% of S&P 500 returns and 105% of Nasdaq 100 returns.

The alarming part of this is that Amazon, Netflix and Microsoft together this year alone are responsible for 71% of S&P 500 returns and for 78% of Nasdaq 100 returns.

If you own any highly valued stocks at this point and don’t want to have as much risk, remember to keep diversifying. Remember, never have more than 20% exposure to any one sector of the S&P 500.

The 11 sectors of the S&P 500 are:

  • Energy
  • Materials
  • Industrials
  • Consumer Discretionary
  • Consumer Staples
  • Health Care
  • Financials
  • Information Technology
  • Communications
  • Utilities
  • Real Estate

Rule No. 3:

Positions that pay a dividend are generally preferable to those that don’t. This means your money is working for you and paying you money along the way. On the other hand, what’s important to a retiree is to make sure they’re not taking too much risk, and stocks add risk to your principal. For example, keep in mind that while AT&T pays a 6.1% non-guaranteed dividend currently, during the 2008 and 2009 financial crisis, AT&T lost 46% of its principal.

That’s why I prefer using ETFs and Institutional Mutual Funds to help achieve greater diversification with low fees.

Rule No. 4:

Own at least 40% fixed income at all times, including real estate investments. Most retirees don’t want to have as much volatility in their retirement plan, and this helps them achieve that goal. Also keep in mind that we are nine years into this bull market in real estate, so be careful of the current risk present in the real estate market. While younger people should be fine investing in rental real estate or REITs, a retiree whose goal is to preserve and protect their wealth may prefer to take those high real estate prices into consideration and ramp back their position in that sector in favor of more bonds or preferred stocks instead. As you’re well aware, markets don’t go up forever.

Rule No. 5:

Keep 5% of your assets in cash, because challenges happen in life. Most of my clients always have $50,000 to $75,000 of cash in the bank. It makes sense to have at least six months of expenses in your savings account.

2 Golden Rules of Legacy Planning

In addition to wanting to help preserve and protect their wealth, my clients want to leave a legacy to their children and grandchildren after they’re gone. Here are two estate planning golden rules to create a legacy for your family.

Estate Planning Golden Rule No. 1:

Use a dynasty trust to help protect the assets you leave to your family. The estate planning attorneys we work with set up revocable living trusts with dynasty provisions. This means that after you and your spouse are gone, a bulletproof trust is set up for each of your children that’s designed to be 100% divorce protected, 100% creditor protected and 100% lawsuit protected. These trusts are intended to protect the assets you leave to your children.

What’s also crucial to my clients is that these trusts keep their assets in their family bloodline. After your child passes away, the funds in the trust don’t go to that child’s spouse, those trust assets only go down to your grandchildren in the same bulletproof trusts. This gives your grandchildren divorce, creditor and lawsuit protection as well. Also, it doesn’t give your grandchildren control of the money at their age 18 or 21 but waits until they are at least age 30, so they don’t make dumb mistakes early in life.

Estate Planning Golden Rule No. 2:

You must fund your dynasty revocable trust. After you set your trust up, you must fund it by either retitling your non-IRA assets into those trusts or changing the beneficiary of your assets so that your spouse is the primary beneficiary (if applicable) and then your trust is named as the contingent beneficiary.

If instead you make the mistake of naming your children contingent beneficiaries, your assets will not go into those protected trusts, they will go directly in your child’s name with no asset protection or bloodline protection.

What’s worse, let’s say you named your ex-wife as beneficiary and never changed that. When you die, she’ll receive those funds even if your trust dictates otherwise. Beneficiary designations overrule trust directions.

It’s imperative to find an attorney who specializes in advanced estate planning. They might be expensive, but as my dad always says, with an estate plan you can buy expensive and cry once or buy cheap and cry forever. Isn’t that often true with many things in life?

Keep these five golden rules of investing and two golden rules of estate planning in mind, and you can feel more confident that your nest egg can weather any future challenges.

Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Stuart Estate Planning Wealth Advisors are not affiliated companies. Stuart Estate Planning Wealth Advisors is an independent financial services firm that creates retirement strategies using a variety of investment and insurance products. Neither the firm nor its representatives may give tax or legal advice. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Any references to protection benefits or lifetime income generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. 595030


The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Craig Kirsner, Investment Adviser Representative
President, Stuart Estate Planning Wealth Advisors

Craig Kirsner, MBA, is a nationally recognized author, speaker and retirement planner, whom you may have seen on Kiplinger, Fidelity.com, Nasdaq.com, AT&T, Yahoo Finance, MSN Money, CBS, ABC, NBC, FOX, and many other places. He is an Investment Adviser Representative who has passed the Series 63 and 65 securities exams and has been a licensed insurance agent for 25 years.