The Fisher Investments 500K Retirement Portfolio: What's Inside?

Fisher Investments offers a free guide for individuals with a $500,000 portfolio, titled The 15-Minute Retirement Plan, written by best-selling author and money manager Ken Fisher. The guide addresses key questions that many individuals face when planning for retirement, such as how long their portfolio will need to provide for them, how to establish a primary investment objective, and how cash distributions and inflation can impact their retirement savings. It also provides insights into calculating the amount of money needed for retirement, determining when to start planning, and understanding the key factors in building a portfolio to achieve retirement goals.

How to calculate the amount of money you'll need to retire

Retirement planning can be a complex and highly individual process, but there are some general guidelines and rules of thumb to help you calculate how much money you will need to retire.

A common rule is to budget for at least 70% of your pre-retirement income during retirement, with the assumption that some expenses will disappear, such as commuting costs, and that taxes will be lower. However, this can vary depending on your retirement plans. For example, if you plan to travel extensively, you will need a larger nest egg, whereas a low-key lifestyle will require less.

Another rule of thumb is to save 10-15% of your pre-tax income per year during your working life. For example, if you make $50,000 per year, you should save between $5,000 and $7,500 per year. Starting at age 25, this could lead to a $1 million nest egg by retirement.

You can also use what is known as the '4% rule' to calculate your required nest egg. First, estimate how much money you will need per year in retirement. Then, divide that number by 4% to get the total amount you need to save. For example, if you estimate you will need $100,000 per year, you will need a nest egg of $2.5 million.

Online retirement calculators can also help you estimate how much you will need to save for retirement. These calculators take into account factors such as your current income, expected retirement age, life expectancy, inflation, and investment returns.

It is important to remember that retirement planning is a highly individual process, and it is always a good idea to consult with a financial professional to create a plan that is tailored to your specific needs and goals.

Fisher Investments 500k Retirement Portfolio

Fisher Investments offers a free guide for individuals with a $500k portfolio called "The 15-Minute Retirement Plan." This guide addresses key questions related to retirement planning, such as how long your portfolio will need to provide for you, how to establish a primary investment objective, and how cash distributions and inflation can impact your savings.

When to start planning for retirement

Retirement planning can be overwhelming, with endless advice available on how to save for your retirement. However, the time to start planning for retirement is now, regardless of your age or career stage. The earlier you start saving, the more your money will work for you, and the more time you will allow for investment returns to compound and increase your retirement income potential.

For example, if you invest $5,000 every year for 10 years from the age of 30, and then stop contributing at age 40, you will have accrued over $1.1 million by the time you retire at 65, assuming an annual return of 10%. If you start saving at 40 and put away the same amount each year until 65, you will accrue over $600,000. This means that even though the person who started saving at 40 has contributed $80,000 more, they will have $500,000 less when they retire.

Additionally, starting early gives you a greater ability to withstand market volatility. While the average annual return of the stock market has been around 10%, individual years can be far above or below this. For example, the stock market saw a return of 32% in 2013 and a loss of -37% in 2008.

When planning for retirement, it is important to consider your long-term objectives, time horizon, and unique financial circumstances. Your asset allocation, or the mix of stocks, bonds, cash, and other securities in your portfolio, will drive a large portion of your potential returns. Stocks have historically shown to be one of the best and most consistent investments for generating higher long-term returns, but they can also be subject to high volatility in the short term. Bonds, on the other hand, have historically provided lower returns but can offer more reliable income with less short-term volatility.

Retirement savings accounts such as traditional 401(k) plans, Roth 401(k) plans, traditional IRAs, and Roth IRAs can also help you save for retirement by providing tax benefits and, in some cases, employer matches.

To help you visualize what your finances might look like in retirement and how much you should save now, Fisher Investments has created a retirement calculator tool that takes into account factors such as your current income, expected retirement income, and inflation.

How to establish a primary investment objective

When establishing a primary investment objective, it's important to consider your financial goals, risk tolerance, and time horizon. Here are some key steps and considerations to help you define your primary investment objective:

• Understand the basic investment objectives: The three fundamental characteristics of investment objectives are safety, income, and growth. Safety-focused investments prioritize capital preservation and often include government-issued securities, AAA-rated corporate bonds, and certain money market options. Income investments aim for steady cash flow and may include government or corporate bonds, preferred stock shares, or dividend-paying stocks. Growth investments, on the other hand, focus on capital appreciation, with stocks being a common choice for growth investors.
• Determine your risk tolerance: Your risk tolerance is a key factor in shaping your investment objective. It refers to the degree of risk you are willing to take on. If you have a high-risk tolerance, you may be comfortable with a more aggressive portfolio that includes volatile stocks and trading opportunities. On the other hand, if you have a low-risk tolerance, you may prefer more conservative investments like bonds, bank certificates of deposit, or money market funds.
• Consider your time horizon: Your time horizon refers to how long you plan to invest for. This can impact the types of investments you choose. For example, if you're investing for retirement, your time horizon might be several decades, allowing you to ride out market ups and downs. On the other hand, if you're saving for a short-term goal, you may opt for more conservative investments to avoid potential losses over a shorter period.
• Evaluate your financial situation: Your financial situation, including your income, expenses, and overall wealth, will influence your investment objective. Consider your current income, average annual expenses, and any expected sources of wealth, such as inheritance or pension. This information will help tailor your investment strategy and determine how much you can comfortably invest.
• Define your retirement goals: Think about what you want your retirement to look like. Do you want to maintain your current lifestyle? Are you aiming for a more modest or luxurious retirement? Fisher Investments' retirement calculator can help you visualize what your finances might look like in retirement and how much you should save to achieve your goals.
• Seek professional guidance: Consider consulting a financial advisor or using online resources. Fisher Investments offers a free guide called "The 15-Minute Retirement Plan," which can provide valuable insights into retirement planning, including establishing a primary investment objective. Additionally, you can find investor questionnaires on brokerage sites that can help you define your financial goals and objectives.

Remember, your investment objective may change over time as your financial circumstances, goals, and life situation evolve. Regularly reviewing and adjusting your investment strategy is essential to ensuring it remains aligned with your primary investment objective.

How to save: passive vs active investing

Fisher Investments offers a 15-minute retirement plan for individuals with $500k or more in their portfolio. The guide addresses key questions such as how long your portfolio will need to provide for you, how to establish a primary investment objective, and how cash distributions and inflation can impact your retirement savings.

Retirement planning is a complex topic, and there are many different investment strategies to consider. Two of the most common strategies are passive investing and active investing.

Passive Investing

Passive investing is a long-term strategy that aims to minimize buying and selling. It is a buy-and-hold strategy, meaning that investors purchase securities to own them for the long term. Passive investors do not try to profit from short-term price fluctuations. Instead, they aim to build wealth gradually and match market or sector performance.

Index investing is a common form of passive investing, where investors seek to replicate and hold a broad market index, such as the S&P 500. Passive investing is less expensive, less complex, and often produces superior after-tax results over medium to long time horizons compared to actively managed portfolios.

Some of the benefits of passive investing include:

• Ultra-low fees: There are no stock-picking fees because passive funds follow an index.
• Transparency: It is clear which assets are in an index fund.
• Tax efficiency: The buy-and-hold strategy does not typically result in high capital gains tax.
• Simplicity: Owning an index is easier to implement and understand than a dynamic strategy.

However, passive investing also has some drawbacks. It is subject to total market risk, meaning that when the overall stock market or bond prices fall, so do index funds. Passive investing also lacks flexibility, as investors are locked into specific holdings, regardless of market changes.

Active Investing

Active investing, on the other hand, takes a hands-on approach. Active investors buy and sell investments based on their short-term performance, attempting to beat average market returns. Active investing requires analyzing investments for price changes and returns, as well as expertise in fundamental analysis.

Some of the advantages of active investing include:

• Flexibility: Active investors can buy specific stocks that they believe will perform well.
• Hedging: Active investors can use strategies such as short sales or put options to manage risk.
• Tax management: Advisors can tailor tax strategies to individual investors, such as selling investments that are losing money to offset taxes on winning investments.

However, active investing also has some disadvantages. It is very expensive due to the high fees associated with active buying and selling, as well as the salaries of the analyst team. Active investing also carries active risk, as managers are free to buy any investment they believe will perform well, which can be detrimental if they are wrong.

Both passive and active investing have their strengths and weaknesses. Passive investing is generally more cost-effective and simpler, while active investing offers more flexibility and the potential for higher returns. Many investment advisors recommend blending the two strategies to take advantage of their respective strengths and further diversify a portfolio. When deciding between passive and active investing, it is important to consider your financial goals, risk tolerance, and the amount of time and effort you are willing to put into managing your investments.

How much you can safely withdraw from your portfolio yearly

Fisher Investments offers a retirement calculator to help you visualise what your finances might look like once you retire and how much you should save now to achieve your retirement goals. The calculator is for educational use only and is not a predictive tool. It assumes that accounts will be fully depleted at the end of the years entered and does not include the impact of inflation.

The calculator estimates that, on average, most people require about 80% of their pre-retirement income to maintain their current lifestyle during retirement. This is because costs such as gas, dry cleaning, tax bills, and supporting children financially are no longer applicable.

The calculator also assumes that you can afford to spend approximately 4% of your initial retirement savings each year with reasonable confidence that you won't outlive your savings. This 4% rule is a widely accepted guideline for how much you can safely withdraw from your portfolio yearly. It is based on historical data on stock and bond returns over a 50-year period and assumes that the amount adjusts annually for inflation.

However, it is important to note that this rule is just a guideline and should be adjusted based on factors that impact your personal situation. For example, if you plan to travel extensively in early retirement, you may need to withdraw more in the first few years and less in later years.

Other factors that can impact how much you can safely withdraw from your portfolio yearly include your retirement age, investment risk level, investment mix, and market performance. It is recommended to consult a financial advisor to determine the ideal withdrawal rate for your specific circumstances.

Frequently asked questions