For a client with long-term exposure to the stock markets, and the temperament to remain invested through the inevitable difficult periods, we believe 4% is generally the right answer.  For $1 million saved, it may be expected to provide approximately $40,000 per year in retirement, while also growing over time to keep up with inflation.  The older people are, the more comfortable we are with this scenario (this is not something that someone retiring at age 50 should count on).  Of course, there is no guarantee of these objectives being met, and individual circumstances will vary.

Attitudes toward savings and investing are heavily influenced by the economic era investors grew up in.  Family attitudes toward money also play a role; perspectives often vary between those who have children and those who don’t, as well as those with inherited wealth versus self-made money.  It’s important to consider your own framework.

Short-term market volatility is the price we pay for potential equity outperformance – there is no avoiding that.  Professional investors who say they can time the markets are fools, or worse.  Own quality, be diversified, and stay the course.

Think of your money in buckets with different time frames:

Money that you will need to spend in the next two years should not be in the stock market.

Money that you do not plan to use for 10 or more years should generally be invested in the stock market.

Funds for two to 10 years should be invested based on personal feelings about volatility and income needs – not based on short-term headlines.  Determine an appropriate asset allocation, and stick with it.

One key reason investors underperform the market is that they change their investment mix based on short-term optimism or pessimism.  They get out when the headlines are bad (and the market is already down), or they pay a high price when the coast is clear and the consensus is cheerful.

I encourage clients to prepare a formal financial plan:

Everyone already has a will.  It’s either the one you carefully prepared or the one that your state has in store for you.  We are not attorneys, and we do not provide legal or tax advice, but having a will, Durable Power of Attorney, and health care proxy is widely recommended.

Review your plan every few years, and update it as circumstances evolve.  We do not prepare these documents, but we are happy to help you think it through before engaging a trust and estate attorney.

Investing involves risk, including the possible loss of principal. Diversification and asset allocation do not ensure a profit or protect against loss.  Stifel does not provide legal or tax advice.  You should consult with your legal and tax advisors regarding your particular situation.