Russell Investments’ strategist team is expecting markets to be volatile
throughout the remainder of 2016. This can be unnerving for investors because it can make things feel like they are out of their control. By helping clients reframe this point of view and refocus their attention on the factors they can control can be both helpful and rewarding.
Help clients focus on what they can control
Help clients refocus their attention on the variables they can control
, such as their savings and spending behavior. After all, financial decisions your clients make today will impact their ability to successfully replace their income in the future. As we explore in the most recent edition of the Investor
newsletter, a little bit of additional savings can go a remarkably long way. And what better time to begin saving more than during times of market turbulence. In any other walk of life, a drop in prices is called a “sale” and attracts consumers. Why should it be any different in the realm of investing?
The power of one percent
Consider 3 hypothetical investors who have each been saving 10% annually since they were 25 years old, and plan to continue at that pace until they retire at age 67. What if they each saved just 1% more of their salary each year? How would this potentially impact their income in retirement
grows by 3% per year until age 40, then by 2% per year until age 50 and by 1% per year until retirement at age 67. The multi asset
portfolio is allocated 80% stocks and 20% bonds, earning on average 7% per year until age 40; 60% stocks and 40% bonds, earning on average 6% per year, until age 65; 40% stocks and 60% bonds portfolio, earning on average 5% per year, until retirement. Mortality tables
for U.S. female is applied for Alice and for U.S. male is applied for Peter and Robert. Inflation
is 1.5% throughout the entire period. The potential additional yearly income in retirement
is based on the size of the nest egg, inflation expectations, mortality table and a liability discount rate of 3.5%. All dollar amounts
are expressed in today’s dollars, are pretax and are rounded for simplicity. For illustration only.
By foregoing the equivalent of one dinner-and-a-movie per month to invest for retirement
, Alice, Peter and Robert may be able to give their retired selves more options. The additional income could allow them to contribute to grandchildren’s educational expenses, give back to their community or go on an extra vacation. Of course, there are no guarantees in investing. Depending on how the markets perform, the hypothetical investors’ respective additional yearly income in retirement may be higher or lower than the amounts listed in the graphic above.
The bottom line
Volatility or not, decisions we make today will impact our ability to successfully replace our income in the future. When we allow uncertainty to derail disciplined financial plans, we run the risk of cheating ourselves out of a more secure future. Consider sharing the latest edition of the Investor newsletter with your clients to help them make good decisions – and then help them stick with those decisions.