Moving to action: Twelve numbers to change your life excerpted from "Financial Fitness Forever"

Here is the link.


It has taken a lot of work to get to that number. But now we can see that you have a shot at meeting your goal if you invest prudently and keep your expenses under control.

Nobody can tell you what investment returns will be over the next 10 years, so there is no guarantee of anything. You’ll find a table of long-term returns in Appendix B, part of an article that looks at levels of risk and return going back to 1970 for portfolios with various combinations of stocks and bonds. Though this table is only a very approximate guide to the future, I think it encouraging in your situation.

From 1970 through 2010, a relatively low-risk portfolio with 60 percent in properly diversified stock funds and 40 percent in bond funds achieved an annualized return of 10.6 percent – definitely higher than the 8.1 percent you need

Even if we assume that over the next 12 years such a portfolio would achieve two full percentage points less than that, or 8.6 percent, that would still be above what you need. Having 60 percent of your portfolio in stock funds unquestionably subjects you to some risk, and you should carefully consider this. In the 41 years we just examined, that 60 percent equity portfolio had a worst-12-months loss of 33.5 percent. That would be a significant setback for you, and if it occurred just before or just after you retired, you would have to modify your expectations.

Over the last four decades, if you had invested 40 percent of your money in a welldiversified group of stock funds and the other 60 percent in bond funds, your greatest 12-month loss would have been 23.1 percent. A 40 percent equity portfolio represents a much more conservative approach than you are now taking. And the good news is that, over that same period, your annualized return in such a portfolio would have been 9.4 percent – higher than you need.