What is The Ten Year Rule? (2024)

Henssler Financial’s overall investment philosophy is based on ﬁnancial planning. Generally, we believe clients should plan their investment strategy based on when they need the money.

Time-Tested Strategy

According to Ibbotson’s Yearbook, over a 10-year holding period, stocks have historically outperformed any other asset class 83% of the time. If you look at a 20-year holding period, stocks outperform 98.5% of the time. However, when you get down to a ﬁve-year holding period, stocks only outperform 77% of the time, and for a one-year period stocks outperform 63% of the time. We ﬁnd 10 years to be an acceptable balance that will still allow us to achieve the growth we seek. If you don’t need the money, we recommend taking a long-term view of your investments and committing at least 10 years in the stock market. Additionally, in that 10 years, if you continue to dollar cost average, you are more likely to add value to your equity portfolio by purchasing ﬁnancially strong companies during market lows.

In the 30 year period from 1981 to 2011, bonds had an annual return of 11% while stocks had a return of 10.8%. However if you look over the last 100 years, stocks return about double what bonds do. The period in question saw an unprecedented drop in interest rates. The fallacy is to think that this will continue. Equities are there to provide an investor ownership in an income-producing asset over the long run. They are designed to go up in value over time, because as earnings grow, your investment should grow.

The Ten Year Rule Henssler works with a simple, yet comprehensive financial planning strategy called the Ten Year Rule.

The basis for our Ten Year Rule is:

·Henssler believes it is imprudent for an investor to be forced to sell equity investments during a period of depressed stock prices in order to generate funds to cover spending needs.

·Henssler finds that many investors are either too conservative or too aggressive with their financial asset allocation.

The Henssler philosophy is that any money a client needs within 10 years should be invested in fixed income securities, and any money not needed within 10 years should be invested in high‐quality, individual common stocks or mutual funds that invest in common stocks. By holding fixed‐income investments to cover 10 years’ worth of liquidity needs, there should be no need to sell stocks during a period of lower priced stocks.Henssler implements this philosophy by running cash flow projections for clients in programs that offer financial planning, recommending the purchase of fixed income securities to cover liquidity needs within the next 10 years, and the purchase of equities with any remaining funds.

First, for clients using the Traditional Management programs, Henssler estimates a client’s liquidity needs by running cash flow projections. Liquidity needs refer to the difference between after‐tax income and desired after‐tax spending for any given year.The projections are based on information provided by the client, including asset values, expected sources of income and plans for retirement.These projections will help determine reasonable expectations involving a client’s savings goals, desired spending in future years, and expected retirement date.Henssler runs several projections for clients to help determine which course of action will most likely allow the client to meet their financial goals.Common goals include an early retirement date, a certain desired spending level in retirement, a dream home or some other large purchase.

Next, Henssler recommends purchasing fixed‐income securities to cover the client’s next 10 years of liquidity needs.A money market fund or other cash equivalent is appropriate for emergency reserves, or for funds needed over the next 12 months.Henssler recommends that additional liquidity needs should be covered with the purchase of fixed‐income securities with maturity dates and amounts that correspond to those needs.Henssler does not generally recommend the purchase of bond funds for Ten Year Rule funding, as the principal is not guaranteed as of any particular date.

Finally, Henssler recommends the client purchase high‐quality, individual common stocks or mutual funds that invest in common stocks with any funds not needed in the next 10 years. Henssler recommends only common stocks that meet the Henssler strict financial criteria, or mutual funds that meet certain guidelines. These guidelines are discussed in detail below.

By following this strategy, the client’s asset allocation will be specifically geared towards their unique needs. At Henssler this is believed to be a more effective method of determining a client’s appropriate asset allocation than simply plugging a client’s age into a formula. Each and every client has a unique situation, and unique needs. Henssler’s approach attempts to take all available information into account when determining the appropriate stock/bond mix.Due to the unique needs of each client, ultimately the client’s risk tolerance will drive the appropriate asset allocation and investment horizon.Therefore, some clients may have a longer or shorter version of the Ten Year Rule.

Ten Year Rule Recap:

·Any money you believe you will need within the next 10 years should be invested in fixed‐income investments.

·Money not needed within 10 years should be invested in growth investments.

·If you determine you will need funds within 10 years, begin to prepare a plan to exit stocks and buy bonds to cover these needs:

oBegin selling stocks when market conditions improve;

oFlexibility: 10 years before you need funds;

oSet a target for a stock market index you follow, and

oWhenever the market reaches that target, move forward with your plan to sell stocks.

Peace of Mind

Clients who are able to cover their liquidity needs with their ﬁxed-income investments understand that they are not pressured to sell investments at these low levels; rather they have time on their side and can wait for the market to recover. In other words, by following the principals of our Ten Year Rule, our clients know that they will have 10 years of uninterrupted income provided by the ﬁxed-income portion of their portfolio. Once the market recovers, we will then begin to replenish money withdrawn from the ﬁxed-income side. This plan, brilliant in its simplicity, goes to great lengths in reducing investor anxiety.

Henssler Financial entities (“HF”) shall mean and refer to any and all subsidiaries, parent or sister corporations, limited liability companies, partnerships or other entities or entity controlling, controlled by or under common control with said corporations or entities, including, but not limited to, G.W. Henssler & Associates, Ltd., a federally registered investment adviser, d/b/a Henssler Financial; Henssler CPAs & Advisers, LLC; Henssler Capital, LLC; Henssler Property Management, LLC; Henssler Mortgage, LLC, d/b/a Motto Mortgage Henssler; Henssler Insurance, LLC, and Henssler Norton Insurance, LLC. HF is not an investment adviser.

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