Windsor Wealth Management LLC

Investment service in Topsfield, Massachusetts

Windsor Money Minute

Maintaining Retirement Lifestyles: Compound Interest’s Role

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Compound interest is vital both during your working years and in retirement.

Many people concentrate on saving during their working years, however, it’s as important for your money to continue growing during retirement.

This growth helps ensure you maintain your lifestyle for the next 30+ years, including keeping up with inflation and taxes.

The below chart reflects the power of compound interest. Specifically, growth of $100K over 30 years using different interest rates.

In general, holding too many cash-equivalent investments or trying to time the market by moving all your money into cash can cause you to miss out on the compound interest your portfolio needs to outpace inflation.

Compound Interest Chart
This hypothetical example assumes an initial $100,000 contribution, with no additional deposits, and compound interest from 1% to 10%. It does not suggest nor recommend that an individual allocate 100% to equities. The ending values do not reflect taxes, fees, inflation or withdrawals. View the full 30-year compounding chart.

What happens if you try to time the market?

Studies show that missing the stock market’s 10 best days over a 30-year period can lower an investor’s average annual total return by 2.72%.

Missing the best 30 days lowers an investor’s return by 6.14%!

(Source: Bloomberg and Wells Fargo Investment Institute. Daily S&P 500® returns from 9/1/92–8/31/22.)

Realistic Approach That Supports Your Retirement Lifestyle

Instead of market timing, the 60/40 portfolio remains a reliable basis for asset allocation.

In fact, it’s achieved a compounded annual growth rate of 7.3% over the 200 years’ worth of analyzed data (from 1820 to September 30, 2023), according to Morgan Stanley research.

Certainly, the past doesn’t predict the future.

60/40 Example

In a recent client communication, we provided an approximate 60/40 portfolio example using a conservative 6% annual return to show how a couple with $2 million in retirement savings could grow their wealth to $2.6 million while adhering to the 4% annual withdrawal rule. See the realistic example here: 3 Steps To Help Your Money Outlive—You.

Stay the Course

Trying to time the market, i.e., moving all your money into cash, can be detrimental to your long-term investing success, including missing out on compound interest.

Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it. – Attributed to Albert Einstein

Before You Go

Get help optimizing your retirement income. Download our FREE “Prolonging Retirement Income” checklist.

Also, receive help retiring to the life you want, schedule a complimentary financial planning consultation.

Prices Are Falling Some; Retailers Are Feeling the Squeeze

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Here’s some good news:

Several large companies are lowering prices on popular items, including food and everyday essentials.

Certainly, we welcome these savings, but what’s really going on?

Essentially, consumers have slowed their spending, and retailers are feeling the squeeze.

In response, Walgreens, Amazon Fresh, Target and Walmart have cut prices on 1,300, 4,000, 5,000 and 7,000 products, respectively.

Best Buy, Ford, Ikea and fast-food chains are also lowering prices, according to the Washington Post.

Reasons Why Prices Are Falling:

Economic Jitters: Retailers are feeling nervous after raising prices due to inflation. With households cutting back on spending, stores are yielding in the game of chicken between stores and shoppers, according to a WCVB article.

High Interest Rates: Financing big-ticket items like cars and appliances is more expensive, resulting in consumers forgoing these purchases.

Dwindling Covid-Relief Funds: Most Covid-relief funds are spent, reducing the extra cash households had for discretionary spending.

Competitive Strategies: By lowering prices, businesses aim to attract their competitors’ customers.

These price cuts are a small win, but we’ll take it! Finally, the economic pressure consumers may be feeling has shifted some onto businesses. Still, the tug-of-war between retailers and shoppers is likely just beginning.

Before You Go

Get help optimizing your retirement income. Download our FREE “Prolonging Retirement Income” checklist.

Also, receive help retiring to the life you want, schedule a complimentary financial planning consultation.

Windsor Money Minute: Cash & Your Portfolio

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Image created using Microsoft’s Image Creator

How does a stash of cash waiting on the sidelines affect you?

Let’s find out…

Investors’ cash held on the sidelines is at an all-time high of $23.6 trillion. To put this in perspective, the stock market is valued at about $50 trillion.

This cash is in money market accounts, CDs and other short-term savings vehicles.

Investors stash cash out of caution. Plus, you can earn roughly 5% on cash today, compared to just 0.01% in 2010.

Why share this fact?

Because when sidelined cash comes back into the markets, something wonderful will likely happen.

Specifically, when cash flows back into the markets, stock prices typically rise, which benefits us since we’re invested in stocks and bonds.

Consequently, many of the stocks you own will likely increase in value. While we do keep some cash reserves, they’re only to ensure we meet your financial goals.

When will cash start pouring back into the markets?

No one knows for sure.

However, two key triggers are likely:

#1—Falling interest rates: When rates go down, investors will no longer be able to earn 5% on their cash and, therefore, they’ll be looking to reinvest in equities or similar.

#2—Increased confidence post-elections: Once we know who the next president is, we’ll likely get back to business-as-usual.

Keep in mind, the Fed is unlikely to cut rates because it knows that the impact of raising and lowering interest rates can benefit a political candidate, and it doesn’t want to appear biased politically. Therefore, the Fed may wait for the election to be settled before acting again.

Overall, we’re optimistic about our investments.

Cash flowing back into the markets will likely boost your portfolio’s performance.

Sincerely,

Dave

Before You Go

Get help optimizing your retirement income. Download our FREE “Prolonging Retirement Income” checklist.

Also, receive help retiring to the life you want, schedule a complimentary financial planning consultation.