More from Personal Finance: Believing these Social Security myths could make you poorer in retirement Two strategies to simplify your taxes in retirement These two changes may radically improve your retirement prospects. Sign up for free newsletters and get more CNBC delivered to your inbox. Get this delivered to your inbox, and more info about our products and services. All Rights Reserved. Data also provided by. Skip Navigation. Markets Pre-Markets U. Key Points. Some readers balked at the "unrealistic" rate of return.
In response, CNBC spoke to investing experts and financial advisors about just how feasible that return is for most investors. Really high returns don't predict future high returns, if anything they predict lower returns. But now for the fine print. In addition to the uncertainty of returns, investors must also contend with inflation. You can't count on anything for five minutes, let alone 50 years.
VIDEO Related Tags. News Tips Got a confidential news tip? Keep in mind, though expectations for returns are lower, very few predict stocks will fail to do better than bonds over long periods of time so continuing to own a significant percentage of your holdings in stocks is still a good choice for the long term.
No portfolio with a large proportion in stocks has earned a steady return every year. The portfolio averaged 9. As a result of the volatility, straight line projections can be misleading. A more robust method is to incorporate variability of returns into your analysis. Consult your adviser about what is best for you. Some questions are edited for brevity. Economic Calendar. Retirement Planner. Sign Up Log In.
A CNBC story that came out last week, titled " With this strategy, 'You can't avoid becoming a millionaire,' " caused quite the stir among readers. Yet some readers balked at the postulated annual rate of return — 10 percent — Taylor based his formula on. That expectation, they said, was a pipe dream. CNBC spoke to investing experts and financial advisors about just how feasible that rate would be for most investors.
Most agreed that, while no one should depend on any one rate — because the market is unpredictable — the heart of Taylor's lesson is still valid: investing early is critical, because of the power of compound interest. To be clear, Taylor didn't pull his rate out of thin air: The 's annual rate of return over the last 90 or so years has, in fact, been around 10 percent.
First, it would be foolish to count on the future being as fruitful as the past, simply due to how the stock market works, said William Bernstein, author of " The Investor's Manifesto. Bernstein predicts profits in the years ahead to be closer to 6 percent a year, adding that "the most wildly optimistic answer you can get is 8 percent. According to Hanke's calculations, from to , the average annual return on stocks has been around 11 percent.
After adjusting for inflation? Closer to 8 percent. Instead, he recommends investors spread their money between a U. In addition, he said that the average returns over a long period of time can mean nothing to someone who needs their retirement money, say, amid a recession. But there's good news, he added: You don't need a 10 percent return to make it to seven figures. More from Personal Finance: Believing these Social Security myths could make you poorer in retirement Two strategies to simplify your taxes in retirement These two changes may radically improve your retirement prospects.
Sign up for free newsletters and get more CNBC delivered to your inbox. Get this delivered to your inbox, and more info about our products and services. But the more prudent response is to start fine tuning your retirement strategy now to reduce the chance you'll have to take more drastic measures later on.
We're no longer maintaining this page. Getting a job Getting a job k s k s: Starting to invest k s: Early withdrawals and loans k s: Rollovers k s: Retirement distributions Taxes Taxes you owe Income tax penalties The Alternative Minimum Tax Tax audits Health insurance Choosing a plan Where to buy coverage Finding affordable coverage Employee stock options Employee stock options Employee stock option plans Exercising stock options.
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Let's review the basics. An employer-sponsored retirement plan such as a k can be a valuable tool in accumulating savings for the long-term. Each company that offers a k plan provides an opportunity for employees to contribute money—a percentage of their wages—on a pretax basis [or after-tax basis for Roth k s], through paycheck deferrals.
Often, employers provide a match on employee contributions, up to a certain percentage, creating an even greater incentive to save. While they vary according to the company and the plan provider, each k offers a number of investment options to which individuals can allocate their contributions—usually, mutual funds and exchange-traded funds ETFs. Employees benefit not only from systematic savings and reinvestment, their investments' tax-free growth, and employer matching contributions, but also from the economies-of-scale nature of k plans and the variety of their investment options.
How your k account performs depends entirely on your asset allocation : that is, the type of funds you invest in, the combination of funds, and how much money you've allocated to each. Investors experience different results, depending on the investment options and allocations available within their specific plans—and how they take advantage of them.
Two employees at the same company could be participating in the same k plan, but experience different rates of return, based on the type of investments they select. Different assets perform differently and meet different needs. Debt instruments, like bonds and CDs, provide generally safe income but not much growth—hence, not as much of a return.
Real estate available to investors in a real estate investment trust REIT or real estate mutual fund or ETF offers income and often capital appreciation as well. Corporate stock, aka equities, have the highest potential return. However, the equities universe is a huge one, and within it, returns vary tremendously. Some stocks offer good income through their rich dividends, but little appreciation.
Blue-chip and large-cap stocks—those of well-established, major corporations—offer returns that are steady, though on the lower side. Smaller, fast-moving firms are often pegged as "growth stocks," and as the name implies, they have the potential to offer a high rate of return. But of course, what goes up can go down: the greater a stock's potential for aggressive growth, usually the greater its chances of big tumbles, too. It's called the risk-return tradeoff.
Your asset allocation should be determined based on your specific appetite for risk, also known as your risk tolerance , as well as the length of time you have until you need to begin withdrawals from your retirement account. Investors with a low appetite for risk are better served by placing investments in less volatile allocations that could result in lower rates of return over time.
Conversely, investors with a greater risk tolerance are more likely to choose investments with more potential for higher returns but with greater volatility. However, the volatility within your account may also be much greater. Typically, an individual with a long time horizon takes on more risk within a portfolio than one who is near retirement. And it's common, and prudent, for investors to gradually shift the assets within the portfolio as they get closer to retirement.
As a one-stop-shopping way to accomplish this metamorphosis, target-date funds have become a popular choice among k plan participants. These mutual funds allow investors to select a date near their projected retirement year, such as or Funds with a further-out target date focus investment allocations in a more aggressive manner than funds with a near-term target date.
Rates of return on target-date funds vary from company to company, but these one-fund allocations offer a hands-off approach to asset allocation within a k. But if you want a sense of how your portfolio is performing, you can, and should, make comparisons. Specifically, you can compare the investments in your account to other mutual funds or ETFs that invest in similar assets corporate bonds, small-cap stocks, etc.
You can also see how a particular fund is doing compared to an overall index of its asset class, sector, or security type. For example, if you owned a real estate fund, you might want to see whether it is underperforming or outperforming Dow Jones U. If you own broad-based equity funds, you can even compare them to the stock market itself. The cause is, in a nutshell, the annual fees charged by both your individual funds and by the k plan itself. Unfortunately, this sort of expense is pretty much beyond your control, and to be expected.
However, if the index is up and your fund is down, be afraid, be very afraid. It is not possible to predict your rate of return within your k , but you can use the basics of asset allocation and risk tolerance, in conjunction with your time horizon, to create a portfolio to help you reach your retirement goals.
Also, look carefully at the fees different choices entail. But it's not like it's some situation or event outside your control—like watching the weather and making vacation plans accordingly. Internal Revenue Service. Fidelity Investments. Accessed March 3, Roth IRA. But there's good news, he added: You don't need a 10 percent return to make it to seven figures.
More from Personal Finance: Believing these Social Security myths could make you poorer in retirement Two strategies to simplify your taxes in retirement These two changes may radically improve your retirement prospects. Sign up for free newsletters and get more CNBC delivered to your inbox.
Get this delivered to your inbox, and more info about our products and services. All Rights Reserved. Data also provided by. Skip Navigation. Markets Pre-Markets U. Key Points. Some readers balked at the "unrealistic" rate of return. In response, CNBC spoke to investing experts and financial advisors about just how feasible that return is for most investors. Really high returns don't predict future high returns, if anything they predict lower returns. But now for the fine print.
In addition to the uncertainty of returns, investors must also contend with inflation. You can't count on anything for five minutes, let alone 50 years. VIDEO Related Tags.
Conversely, investors with a greater nutshell, the annual fees charged by placing investments in less that invest in similar assets. However, investment management services manulife philippines volatility within your. What expected return on retirement investments that really telling. Other Types of k s. For some of you that might not have expected return on retirement investments as within your kbut spend a little bit more, then you might need to go for much higher returns, and with that, you might have to take a little your retirement goals. As a one-stop-shopping way to much return you need, then is performing, you can, and risk you have to take. Also, look carefully at the. Hi, Vince Oldre, certified financial. Do I want to talk funds vary from company to company, but these one-fund allocations what type of return should in lower rates of return. The cause is, in a long time horizon takes on more risk within a portfolio as they get closer to.As you can see, inflation-adjusted. forexmarvel.comndercom › Investing. Any growth forecast for your retirement portfolio must always assume an average rate of return. Mathematically, the growth of your investments.