6. Estimate the Future Value of Your Current Assets, Using a Rate of Return That Is Realistic Based on Your Investment Portfolio and Asset Allocation

If your asset allocation is 50% bonds and 50% stocks,¹ a reasonable expectation for the rate of return may be about 7%.²

¹ The 50/50 split of stocks and bonds is an arbitrary choice here, intended to reflect a typical mid-life investor. That ratio may shift with age, allowing young investors to take greater risks in pursuit of long-term gains and older investors to take lesser risks in pursuit of short-term liquidity and security.

² Because peaks and valleys are to be expected in the market, the estimate of a 7% return will be more reliable over long periods of time when those peaks and valleys tend to cancel each other out and less reliable over short periods of time that might be dominated by either a peak or a valley.