How To Boost You Portfolio's Performance - Page 4 of 5
Magazine

How To Boost You Portfolio’s Performance

plug in the appropriate numbers. For example, the new car you want retails for \$25,000, or you have \$10,000 in credit card debt you would like to get rid of — and sooner rather than later. But what about those far-away goals, like your retirement in 20 years?

There are scores of retirement calculators on the Internet that will quickly tell you, based on a series of assumptions, one of two things: the amount of money you will have accumulated at retirement if you make X amount of annual contributions or the amount of money you need to save annually in order to accumulate X amount of funds at retirement. To illustrate how these calculators work, let’s assume you are 40 years old, you wish to retire at age 65, and you have already stashed away \$50,000 in an individual retirement account or 401(k) plan.

In the first example: If you put away \$500 a month for retirement, how much money will you have accumulated at retirement in 25 years? The answer depends on how much you plug in as an expected rate of return. Use a figure between 7% and 10%, depending on how much risk you think you would be willing to assume. Don’t make the mistake of having an impractical (and/or improbable) outlook about your expected investment returns. (In other words, don’t assume you will rack up 25% annual returns. That’s an unrealistic projection).

Based on our hypothetical savings of \$50,000, and annual contributions of \$6,000 (\$500 a month times 12 months in a year), you will save \$781,059 by retirement. That assumes you will generate 8% returns annually.

In the second example: What if you already know how much you want or need during your golden years? Let’s say it’s \$1 million. The next step then is to figure out how much annual savings is necessary to help you reach your \$1 million goal. Again, based on the same set of assumptions, you have 25 years to retirement and \$50,000 in current savings and expect your investments will return 8% each year.

In this scenario, to wind up with \$1 million upon retirement, you must contribute \$8,995 annually (or \$750 a month) to your nest egg.

How A Financial Planner Can Help
This is where having a good financial planner can be of value. He or she won’t just calculate the specific dollar amounts it will take to fund each of your goals. Based on a careful, tailored assessment of your personal situation — your individual risk tolerance, your health, the amount of money you have already saved, the funds you can continue to save regularly, and any other relevant information — that advisor can offer feedback on everything from how feasible your goals are to how you can best prioritize them.
Furthermore, after reviewing your entire portfolio and evaluating the securities in which you will be investing, an advisor can use historical investment averages as a benchmark for setting your targeted investing returns. If you get good service and an advisor who will act as

×