Ask Kim: Defining Your Nest Egg

Dear Kim,

It’s been a rough year for me with my investments.  I’ve used some of my savings for expensive home repairs and helped my son financially during a recent child custody challenge.  I’ve seen a 25% drop in my nest egg.  I’m a bit discouraged – but I know things can be better. What encouragement can you offer for steps to get back in the right direction?


Saving Woes Samantha

Dear Samantha,

When you say nest egg, are you referring to your retirement account or your short-term savings? Your savings account should be a vehicle you add money to regularly and it’s available when you have an unbudgeted expense come up. All those things like car and home repairs and helping your kids, for example. You have that money in a cash account, so you don’t have to pull from investments that are variable in nature. This would not be a good time to pull money from your stock investments, so hopefully, you have your short-term needs covered by an account that doesn’t fluctuate. You will continue to add to it and it will build back up.

Some people use buckets to describe how to divide up your savings. The first bucket is for short-term (1-3 years) needs. The second bucket is for intermediate-term (3-7 years) needs and the last is for long-term needs, like retirement. The money should be invested in such a way that you can weather the volatility of each. Your checking and money market accounts don’t pay much interest, but the trade-off is that they don’t fluctuate in value. Your intermediate money is sometimes invested in bonds that can fluctuate some, but over a 3-7 year time horizon should be stable in nature. Your long-term money will fluctuate the most, like what we are seeing right now. The good news is that if you’re contributing to your retirement accounts, you are able to purchase more shares for the same dollars than you were able to do last year. It’s actually a positive for retirement accounts in the accumulation phase.



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