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The Magic Number?

Writer's picture: Shadowbrook Office USShadowbrook Office US

Most everyone is familiar with the rule of 72. While it might not be perfect, it gives the curious a “good enough” idea of when an investment will double.


There is another little trick that, again, while not perfect, can help steer you in the direction of the size of the nest egg you would need to generate the monthly cash flow you’d like to enjoy.


Consider how much money you would need per month. For simplicity, let’s say it’s $5,000 (modest, but go along with it). Your yearly cash flow need is $60,000 ($5,000 x 12 months).


Now consider the type of return you believe you could generate with your portfolio. Let’s pretend that stocks will generate 11% per year (average) and bonds 4% per year. In our case, we believe we will make 6% per year.


Now take 100 and divide it by 6% = 16.667. Congratulations, you’ve got your multiplier.


Take your annual income need ($60,000) and multiply it by 16.667. Your nest egg should be about $1,000,000 if you assume you need $60,000 per year in cash flow.


Remember, this doesn’t include fees, taxes, and other expenses, but it’s a good starting point to help you with your mental math.


If you believe that your return will be more modest, at 4%, you would nee at least $1.5 million. If you assume you’ll make 12% per year (probably not feasible), you would need around $500,000.


This napkin math can help give you an intuition about your current financial state. While it absolutely does not replace a financial plan, it’s a good place to begin the discussion.


Disclosures


We, Tim Marian and Wayne Stoneback, declare that any and all views and opinions which are expressed in this report are our personal views, which are not influenced by any consideration received from any party or client relationship. Shadowbrook Private Wealth LLC (“Shadowbrook”) is a registered investment advisor. This commentary is provided for informational and educational purposes only and is not intended to be investment advice or a recommendation to purchase or sell any security. Shadowbrook provides investment advice to clients only after gaining a thorough understanding of the client’s financial situation, existing portfolio holdings and related information. This commentary includes information derived from third-party sources, which are believed to be reliable but are not audited by Shadowbrook. Information is at a point in time and subject to change without notice. Please contact Shadowbrook with any questions you may have on this content or your accounts. Our research is intended solely for clients and/or individuals and/or corporations that have directly expressed an interest in working with Shadowbrook Private Wealth LLC or in our opinions on financial markets and securities. Please note that all research, opinions, and analysis are based on what we believe to be current public information. Any information, data, numbers, projections, forecasts, or estimates are based on the date hereof and are subject to change without any prior notice or notification. We retain the right to update our research on an irregular basis and declare that most reports are disseminated at irregular intervals.


Please note: We directly invest in many of the securities which we research and publish opinions on. While we do not trade our assets the same day as any client accounts to avoid any possibility of front running, manipulation, or other inappropriate behavior, we are also direct investors in many of the holdings we cover. This report is not an offer to buy or sell any security in any jurisdiction and does not constitute any kind of personal recommendation. Any analysis is meant to be educational and taken in the context of a larger investment theme that covers your personalized written financial plan.


DO NOT MISCONSTRUE THIS FOR TRADING RECOMMENDATIONS. PLEASE SPEAK TO YOUR FINANCIAL ADVISOR BEFORE TRANSACTING IN ANY SECURITIES. THIS IS NOT A SOLICITATION TO BUY OR SELL ANY SECURITY!


Please ensure that you speak to your tax professional to discuss any potential tax implications of transacting in various securities. The price and value of any investment vehicles mentioned in this report can and do fluctuate, please seek professional advice. Any past performance does not guarantee future results. Certain types of transactions involving derivative products also bear substantial risk and should only be used by experienced investors in the proper context. The appropriateness of any particular security or investment strategy will depend on the circumstances, education, experience, expertise, and financial plan of the individual. Investors should attentively read the prospectus and fund documents of any investment vehicle to understand the risk profile, objective, costs, and time horizon to gauge if they are appropriate for their individual circumstances. Diversification, Asset Allocation strategies, and Rebalancing strategies do not ensure profits or guarantee protection from loss of principal. Shadowbrook Private Wealth LLC and its representatives do not under any circumstances offer Tax, Legal, and/or Accounting advice or guidance of any kind.

INVESTMENTS:

- are not insured by the FDIC;

- are not deposits or other obligations of the institution and are not guaranteed by the institution; and,

- are subject to investment risks, including possible loss of the principal invested.


Shadowbrook Private Wealth


phone number: 646-884-4874

email: office@shadowbrookwealth.com

website: shadowbrookwealth.com


For US Investors only, Educational Material, Please read all disclosures, January/2023

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