Nest Egg Too Big? How You Should Break Up Your Savings, According To Money Experts
Written by
Cynthia Measom
Edited by
Gary Dudak
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If you’ve built up your savings balances and amassed a large nest egg, you may be wondering if you’ve made the wrong choice and should do something different with your money.
Steven Kibbel, CFP, entrepreneur and financial advisor at Prop Firm App, said that having a large nest egg is not a bad thing because it can provide a significant level of financial security and peace of mind, especially during retirement years when income sources may be limited.
“However, like most things in life, moderation is key,” he said. “An excessively large nest egg can present its own set of challenges that need to be addressed proactively.”
Here are some things to consider and potential ways to wisely break up your savings if you have a robust nest egg.
Potential Concerns of Having a Large Nest Egg
Kibbel said that one of the top concerns regarding having too much saved is the potential impact of inflation and low interest rates.
“While a substantial nest egg may seem like a comfortable cushion, its purchasing power can erode over time if it’s not invested properly or if it’s sitting idle in low-yielding accounts,” he explained. “This scenario can be particularly problematic in a low-interest-rate environment, where the returns on savings may not keep up with the rising cost of living.”
Kibbel said you should also consider the opportunity cost of holding excessive cash.
“While liquidity and accessibility are essential, having too much tied up in cash-equivalent investments could mean missing out on potential growth opportunities offered by other asset classes, such as stocks, bonds or real estate.”
How To Break Up Your Savings
According to Kibbel, it’s important to strike the right balance between maintaining a comfortable cash reserve and investing a portion of the nest egg in growth-oriented investments that align with your risk tolerance and time horizon. Here are some helpful tips.
Diversify Your Investments
“One strategy could be to diversify your investments by spreading your excess funds across different asset classes, sectors and geographic regions,” Kibbel suggested.
“This approach can help mitigate risk and potentially increase returns. For instance, you could consider allocating a portion of your nest egg to stocks, bonds, real estate investment trusts (REITs) or even alternative investments, such as private equity or hedge funds, depending on your risk profile and investment objectives.”
Invest in Tax-Advantaged Accounts
Kibbel said it’s also important to explore tax-advantaged accounts, such as 401(k) plans, individual retirement accounts (IRAs) or Roth IRAs, to optimize your tax situation and potentially minimize your tax liabilities.
“These accounts not only offer tax benefits but also provide an opportunity to grow your nest egg on a tax-deferred or tax-free basis, depending on the account type,” he explained.
Consider Charitable Giving or Setting Up a Trust or Foundation
Kibbel said other options are charitable giving or establishing a trust or foundation.
“By donating a portion of your excess savings to charitable causes or setting up a trust, you can not only support causes you care about but also potentially enjoy tax benefits and leave a lasting legacy,” he said.
Regularly Review Your Portfolio
“Lastly, it’s essential to regularly review and adjust your investment portfolio to ensure it remains aligned with your evolving financial goals, risk tolerance and life circumstances,” advised Kibbel.
“Periodic rebalancing and reassessment can help maintain the desired asset allocation and prevent excessive concentration in any single asset class or investment.”
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