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Colleen's Corner

Asset Allocation

Often financial "experts" make asset allocation difficult to understand. My goal in this series of articles is for you to understand asset allocation thoroughly, in an easy to understand format.
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Retirement Investments Demystified

Colleen Mulder-Seward, MBA
Retirement Calculator, Inc.
Retirement Investments Demystified

Regrettably, most Americans are not saving enough money toward their retirement.  In addition, those who have saved diligently, often neglect to put their investments in the correct asset categories to ensure proper growth of their retirement portfolio. You do not have to make these same mistakes. 

First, start your retirement savings plan now.  Every penny counts.  Even saving $100 a month can make a tremendous difference in how comfortable your retirement will be. Assuming an 8% return on your investments of $100 a month and that your current age is 50, would give you $34,747 at age 65.  The table below gives more examples based on the rate of return and the amount saved per month.

Your Retirement Investments Can Really Add Up

Interest Rate

Amount Saved per Month

 

8%

9%

10%

$50

$ 17,363

$ 18,920

$ 20,648

$100

$ 34,727

$ 37,841

$ 41,295

$150

$ 52,090

$ 56,761

$ 61,943

$200

$ 69,453

$ 75,681

$ 82,590

$250

$ 86,817

$ 94,601

$103,238

$300

$104,108

$113,522

$123,885

$400

$138,907

$151,362

$165,180

$500

$173,634

$189,203

$206,476

$600

$208,360

$227,043

$247,771

$700

$243,087

$264,884

$289,066

$800

$277,814

$302,725

$330,361

$900

$312,540

$340,565

$371,656

$1000

$347,267

$378,406

$412,951

Projection amounts do not take into account the affects of taxes or management fees.

The second step is to determine your ideal asset allocation mix.  Asset allocation is how your investment portfolio is divided across different asset classes or investment types.  Think of your portfolio as a pie.  Your portfolio pie should have several slices - each representing a different asset class.  These slices should consist of a combination of stocks, bonds and cash.  Determination of the correct amount for you to have in each of these slices - to form your portfolio pie - takes some work. In order to find your ideal mix, you should complete one of the short questionnaires by either Fidelity or MFS.com.

Once you have your ideal mix identified, you can plug these percentages into the retirement calculator found at retirementcalc.com.  This will help to identify if there is any shortfall with your current plan. If there is a shortfall, you can plan to work more/longer, take a smaller annual withdrawal amount, and/or increase your savings rate.  Again, you can plug these "what if" scenarios into the retirement calculator until you no longer have an investment shortfall.

Finally, educate yourself about investing. This does not mean you have to depend solely on your own financial talents.  Even the most seasoned investors need some professional retirement planning help.  To start building a financial plan, try a FREE subscription to Retirement Intelligence Information Services. At no cost, you will receive the www.retirementcalc.com Retirement Calculator 2.0 (a $24.95 value) along with the bi-monthly newsletter full of financial information to inform and empower you to take over control of your own investments. Make your retirement investing plan virtually mistake-proof.

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