While spending 5-6% of the prior year's net liquid assets can probably be done safely, that is, without much permanent loss of principal, significantly more than that could, in some scenarios, jeopardize the remaining holdings to an almost irreparable degree.
The preceding, in my view, does not argue for selling all of one's real estate, money market funds, or bond assets and putting everything into stocks, while cutting the family budget in half.
Instead, it supports a balanced approach to investing, without crediting unrealistic projections of how much money one will have in "x" number of years.
Keep real estate spending to about 1/4 to 1/3 (or less) of one's total income. If, in the liquid portfolio, one is most comfortable with 5-10% in reserves, 10-20% in bond assets, and 70-85% in stocks and stock mutual funds (or whatever is your preferred allocation), then simply assure the chosen ratios are maintained, with at least annual rebalancing, through up and down markets, and live within a conservatively calculated budget, one that takes into account scenarios such as in our example (for which we thank "Investment Advisor," October, 2002, "The Truth About Monte Carlo," by David B. Loeper, pp. 70-72).
The main point is that equities should be a definite majority of one's liquid asset holdings. If uncomfortable jumping in with both feet at this point, consider a dollar-cost-average approach, for instance increasing one's exposure to stocks by 5% a month until the equity-intensive preferred level is achieved.
"Forbes," in their October 28, 2002, issue, suggests several companies whose shares now appear to be at bargain levels, including:
(Recent price: $7.45)|
(Recent price: $50.75)
(Recent price: $43.74)
(Recent price: $32.75)
(Recent price: $40.30)
Finally, keep good control of debt. Whether for credit cards, vehicles, stocks, options, a small business, gambling, real estate mortgages, medical costs, etc., debt can become an insidious expense, contributing little or nothing to the bottom line, often taking away funds that could be much better employed, and requiring many years to at last reduce and eliminate.
Avoiding inaccurate investment assumptions is really just common sense. Stick with what works. Don't try to get something for nothing. Only buy good value. Live within your means. And, in money matters, never believe you can predict the future.