12 hours Ago By Special to Financial Post
Based in British Columbia, Evangeline, 39, and Noah, 41, (not their real names) have two little boys, ages 4 and 8, and say that money is a frequent topic of conversation as they navigate the life they want for their family. “I’d say we talk about it more like every other day at least,” says Evangeline, who acknowledges that their spending is based on their core values. , for them, means being able to travel.
“We want to show our kids as much of the world as possible, create memories together, see family abroad and across the country,” she explains, adding that investments and assets they have accumulated have given them the quality time they want as a family. The pair have a good head start on their journey: They own a business in the mental health and wellness industry which provides a solid income, they live rent-free through a long-standing personal arrangement and have made some investments in real estate that provide them with rental income. “We are entrepreneurs so we do get bonuses when things are good of about $10,000-50,000 extra a year,” Noah says.
“Based on my current business growth, we will be making say 10-15 per cent more every year and cap at a combined income of $250,000 in the next decade.” They have also invested in equities and other instruments, annually max out their tax-free savings accounts, have emergency funds to which they contribute $2,200 monthly, and budget for instalments on next year’s taxes to help them reach their target and weather any bumps along the way. $5 million by the time Noah reaches age 72.
Noah and Evangeline have investable assets of $461,000 and monthly savings of $4,700. We ran the numbers on what would happen if they invested those assets, and continued to contribute the same amount monthly, reinvesting their gains. We used three simple return assumptions to illustrate broadly how saving and investing can lead to long-term growth through the .
Assuming a three per cent annualized rate of return, in line with some high-interest savings accounts or long-term government bonds, Noah and Evangeline would have $1.67 million when Noah reaches age 55 and $4.01 million at age 72.
If they kept saving until age 90, they would have $8.17 million. Assuming a 6.
5 per cent annualized rate of return, consistent with a portfolio containing both low-risk fixed income and equities, Noah and Evangeline would have $2.38 million when Noah reaches age 55 and $8.65 million at age 72.
If they kept saving until age 90, they would have $28.74 million. Assuming a 10 per cent annualized rate of return, based on the longer-term , Noah and Evangeline would have $3.
40 million when Noah reaches age 55 and $19.57 million at age 72. If they kept saving until age 90, they would have $111.
51 million. It’s important to note that these scenarios did not take inflation into account and that higher rates of return are associated with higher rates of risk. There is also no guarantee that interest rates and stock market returns will reflect their historic averages over the long term.
We asked Janet Gray, an advice-only certified financial planner with Money Coaches Canada, to take a look at the results. Gray was impressed that this couple has so many strategies in place already for emergencies and shorter-term spending needs, as well equity investments for longer-term needs. “While short term needs and goals often require short-term investments, like high-interest cash accounts, and fixed-income products for medium-term goals, longer-term goals are usually better served by longer-term investments like equity products.
” With their $426,000 held mostly in stocks and other instruments considered long-term investments, a 10 per cent average annualized rate of return is possible, and Gray calculates they could have about $9.76 million at Noah’s age 65. If they let this grow until Noah is 90, this could swell to $111,508,744.
54 when compounded yearly. “The 6.5 per cent rate of return is a more reasonable long-term rate to use to manage the ups and downs of the markets, and the changes in their situation and goals,” she adds.
Calculating that rate of return, they would have $5.25 million at Noah’s age 65 (in today’s dollars when compounded yearly). After that age, their income and spending needs might change, but they also have the potential capital gains in their rental property and the income from it, Gray notes.
After reviewing the numbers and insight from Gray, Noah and Evangeline say they loved having an outside perspective on their financial plans. “It’s hard for me to zoom out when I’m so in it thinking I’ll never make it,” Noah laughs. “Hearing those numbers can be achieved .
.. is surprising and relieving.
I almost don’t believe it,” he says..
