Clark’s 5 numbers you need to know about your investment portfolio

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investment goals
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Are there any “magic numbers” when it comes to investing? Not really. You certainly can’t time the market by knowing when it’s at its peak, nor can you predict when it will hit record lows.

But there are a few numbers about your investment portfolio that, while they’re not exactly magic, can go a long way to helping you demystify the whole mindset around investing for your future.

RELATED: Clark Howard’s Investment Guide

Know your numbers: An investment primer

Investing doesn’t have to seem daunting if you pay attention to a few key numbers…

1. Know your target retirement date

No one has a crystal ball. You may hope to work to age 70 to maximize your retirement strategy, but there are several reasons why you may be forced to retire earlier than you expect.

That said, picking a target retirement date — whether is 70 or 31 (like money expert Clark Howard was when he first retired) — is helpful for two reasons.

First, having a “magic number” in mind helps focus your savings effort.

When you tell yourself, “I’m saving so I can retire in 20 years…” or whatever your number happens to be, the idea of retirement moves from the realm of the abstract to being something that’s concrete and within reach.

Second, once you’ve established the future date when you’ll want to retire, you can work backwards and pick some investments to see you all the way through to the date.

Target-date retirement funds work great for this purpose. Clark loves them because they offer a cheap way to invest your money and don’t involve a lot of heavy-duty thinking about the stock market.

With a target-retirement fund, you select the year that’s closest to your expected date of retirement and just pop your money in. Then the fund’s manager allocates it for you. That’s it!

When you’re young, they have you heavily invested in stocks. Then, as you age, you get fewer and fewer stocks in your portfolio and more bonds. It’s a classic investment model, but one that lets you take a “set it and forget it” approach to investing.

All the big low-cost investment houses offer target-date retirement funds. Charles Schwab, for example, has a range of target funds with expenses that are so low, you practically need a microscope to see them!

We’ll address the role that expenses play in your investing later in this article.

2. Know your company match

According to Vanguard’s How America Saves 2018 study, around 33% of retirement savers don’t save enough to get 100% of their employer’s match.

Not every employer offers a match on retirement savings. But if your employer does, do you know what the match is? While there are a lot of variations in company matches, a common one might be offering to kick in a dollar or 50 cents for every dollar you save in your 401(k) up to 6%.

If you don’t hit that target by contributing enough money, you’re leaving free money on the table.

In fact, Financial Engines estimates that American leave $1,336 of potential money per employee on the table each year on average by either not knowing or not caring about the company match.

3. Know the fees you’re paying to invest

The fees you pay to invest may seem small, but they have everything to do with how big your nest egg grows over time.

According to one estimate, a difference of 1% in annual fees can mean an $80,000 difference in retirement. Sound impossible? Consider this…

If you invest $100,000 today with a 5% annual return and you pay 1% in annual fees, you’d have $324,339.75 in 30 years. Now let’s say you invest $100,000 today with a 5% annual return and you pay 2% in annual fees. In 30 years, you would have $242,726.25.

So paying what seems to be a measly 1% more in fees — 2% instead of 1% — over the course of three decades will eat an $80,000 hole in your retirement plan!

The antidote to this problem is to know what you’re paying in fees by looking at your plan disclosure. Never looked at your plan disclosure to find the list of fees and expenses? It looks something like this:

vanguard star expense ratio

This happens to be the expense ratio for Vanguard’s STAR Fund, which is an investment that money expert Clark Howard often recommends to parents or grandparents who have a minimum of $1,000 they want to invest for a child or grandchild.

Vanguard is known for having some of the lowest fees in the industry across a wide range of investment products. But there’s actually a new king of low-cost investments, and it’s Fidelity.

In an unprecedented move, Fidelity just introduced the Fidelity Zero Total Market Index Fund (FZROX) and the Fidelity Zero International Index Fund (FZILX).

Both have zero in fees, which means every dollar you put in goes to work 100% for your financial future. And with no required minimums, you don’t have to a be a Daddy Warbucks to get started investing!

4. Know how much money you should have saved at your age

If you want to enjoy the standard of living in your retirement that you enjoyed during your working years, you’re going to have to save a big chunk of money.

Here are some rule of thumb benchmarks courtesy of Fidelity:

Age Amount of gross annual salary you should aim to have saved
35 2x
40 3x
45 4x
50 6x
55 7x
60 8x
67 10x

5. Know the age when you can contribute more to play catch-up

Not on track with your savings based on those numbers? No worries!

Once you turn 50, you get a chance to turbo-charge your savings through additional age-dependent contributions.

Here’s how it works: Normal 401(k) contributions limits are $18,500 in 2018 for most of us. But if you’re 50 or older, IRS regulations allow you to sock away an additional $6,000 for a grand total of $24,500.

Likewise, IRA contribution limits are normally $5,500 for 2018. But you can make an additional $1,000 contribution for a grand total of $6,500 when you’re 50 or older.

Just remember that turning the Big 5-0 is the magic number here that lets you make these additional contributions to help you meet your retirement goals!

More money & retirement stories on Clark.com

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Theo Thimou About the author:
Theo has co-written several books with Clark Howard, including the New York Times #1 bestseller Living Large in Lean Times. As a single widowed parent of two young children, he strives to bring unique savings tips to men and women like him who must face life without their spouses. He can be reached at [email protected]
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