Skip to main content
Message Font: Serif | Sans-Serif
No. of Recommendations: 0
The Mathematics

This presents the big picture. A spreadsheet is better for working out details.

Your initial high yielding investments are likely to keep up with inflation (about 3% per year) or, at least, come close. With a 50% allocation and a 6% to 8% initial income stream (yield), this is 3% to 4% of your initial balance each year.

Your growth investments initially yield 3% to 4%. With a 50% allocation, this is 1.5% to 2.0% of your initial balance each year.

The combined annual income will be between 4.5% and 6.0% of your original balance. With care, you should be able to withdraw 5.0% per year initially and have enough growth to keep up with, or exceed, inflation.

At Year 10, your high yielding investments will still provide 6% to 8% per year after adjusting for inflation. Assuming an inflation rate of 3% (historically typical), your fast growing investment yields are likely to double in terms of the original amount invested (after adjusting for inflation). That is, they will now yield 6% to 8% of the original investment (plus inflation), twice as much as their original return on initial investment.

At Year 10, your high yielding investments will have held their own. Your fast growing investments will have caught up and started to deliver even more income.

Have fun.

John Walter Russell
Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.