What Is a Nest Egg?
A nest egg is a substantial sum of money or other assets that have been saved or invested for a specific purpose. Such assets are generally earmarked for longer-term objectives, the most common being retirement, buying a home, and education.
The term can also refer to money kept aside as a reserve to deal with unexpected emergencies such as a medical problem or urgent housing repairs. “Nest egg” has been used to refer to savings since the late 17th century. The term is believed to have been derived from poultry farmers’ tactic of placing eggs—both real and fake—in hens’ nests to induce them to lay more eggs, which meant more income for these farmers.
Nest Eggs Explained
The foremost investment objective of a nest egg is generally preserving capital, since it represents funds that have been accumulated over a considerable time. However, the portfolio should also have a growth component to offset the effects of inflation over time. A nest egg should typically be invested in relatively conservative instruments such as certificates of deposit, bonds, and dividend-paying blue chips. The exact allocation of these securities within a nest egg should be based on asset allocation principles as well as the investor’s risk tolerance, time horizon, and investment objectives.
Key Takeaways
- A nest egg is a substantial sum of money or other assets that have been saved or invested for a specific purpose.
- Such assets are generally earmarked for longer-term objectives, the most common being retirement, buying a home, and education.
- A nest egg should typically be invested in relatively conservative instruments such as certificates of deposit, bonds, and dividend-paying blue chips.
It would be folly to invest nest egg proceeds in certain volatile investments in hopes of achieving a high rate of return. These investments include commodities, small-cap stocks, and currencies since their inherent volatility makes them less suited for conservative investing.
The Importance of a Nest Egg
For many years, a common objective for individuals was to save a nest egg of at least $1 million in order to live comfortably in retirement. Reaching that sum would, in theory, allow the individual to sustain themselves on their retirement investment income generated annually. Based on annual inflation, however, the ideal size of a nest egg continues to increase as the purchasing power of the dollar diminishes.
A nest egg should typically be invested in relatively conservative instruments such as certificates of deposit, bonds, and dividend-paying blue chips.
In addition to cash and securities, other assets that are expected to grow in value and generate a positive return on investment over time might make up part of a nest egg. Prized artwork and other rare collectibles may be held as assets to appreciate and later possibly sold to provide the hard currency for retirement.
Real estate in a prime location that is likewise held in ownership with the expectation of the property value increasing could also be part of a nest egg. Even if they do not develop the property themselves, a landowner might hold on to real estate anticipating its value will increase and that a buyer will offer them the return they seek. The proceeds from the sale could then go towards their retirement.
FAQs
What Is a Nest Egg? A nest egg is a substantial sum of money or other assets that have been saved or invested for a specific purpose. Such assets are generally earmarked for longer-term objectives, the most common being retirement, buying a home, and education.
What is the importance of a nest egg? ›
Importance of a Nest Egg
As mentioned earlier, it is important to start saving early and often. Life is unpredictable, and having a strong nest egg can increase the security and reduce the stress of a person and their family. A nest egg can be stored in various asset classes – cash, bonds, stocks, real estate, etc.
How much money is considered a nest egg? ›
A good rule of thumb is to grow your nest egg to a level where you can live off a 4% annual withdrawal rate. For example, if your nest egg is $1 million, you should be able to spend $40,000 each year and never run out of money. You'd build a bigger nest egg if you needed more money to live comfortably in retirement.
What is the greatest risk for an investors nest egg? ›
Risk #1: Poor Planning
Poor planning is one of the biggest risks to your retirement nest egg. It is also the easiest risk to prevent. As a basic rule of thumb, the earlier that you begin planning, the better.
How to invest in a nest egg? ›
A nest egg should typically be invested in relatively conservative instruments such as certificates of deposit, bonds, and dividend-paying blue chips.
What does that money is my nest egg mean? ›
Money that you save for the future is a nest egg. Your parents might be saving their nest egg so they can move to Mexico when they retire. A nest egg is usually a retirement account, a fund you add to regularly so your savings grows every year.
What is the 4% rule Nest egg? ›
According to this rule, by withdrawing roughly 4% per year from your tax-deferred accounts, you can achieve the golden mean of retirement: living well, yet preserving your nest egg for the duration of your lifespan.
What is the average retirement Nest egg at 65? ›
Investors aged 55 to 64 have an average of $537,560 saved for retirement. Investors aged 65 to 74 have an average of $609,230 saved for retirement.
What is the TIAA 4% rule? ›
One common rule of thumb is that a retiree with a 30-year time horizon can plan to withdraw a fixed amount somewhere around 4% from a portfolio each year and minimize the chances of running out of money.
What is the minimum nest egg to retire? ›
Key takeaways. Fidelity's guideline: Aim to save at least 1x your salary by 30, 3x by 40, 6x by 50, 8x by 60, and 10x by 67. Factors that will impact your personal savings goal include the age you plan to retire and the lifestyle you hope to have in retirement.
A general rule of thumb as you consider your allocation is to use your age for the percent to put in bonds and the remaining in stock funds. For example, if you are 40, you'd put 40% in bonds and diversify the rest in stocks—a 40/60 split.
Is nest egg the same as savings? ›
A “nest egg” refers to savings and investments you're setting aside for a big financial goal—most commonly, retirement. Saving early and often using a tax-advantaged retirement account can go a long way in building your nest egg, and you may also want to consider other options.
What is a good nest egg for retirement? ›
There's no single correct amount to save for retirement. For example, a $500,000 nest egg may be a good amount for some retirees, while others may need more, depending on where they live and how many dependents they have. If you want to figure out what size your nest egg should be, a retirement calculator can help.
What are 3 high risk investments? ›
While the product names and descriptions can often change, examples of high-risk investments include: Cryptoassets (also known as cryptos) Mini-bonds (sometimes called high interest return bonds) Land banking.
What are nest eggs used for? ›
When to use nest eggs? To persuade hens to lay eggs in a nesting box (and not elsewhere). To discourage egg-eating by hens, a bad habit that can spread rapidly and is hard to stop.
What to do with a nest egg? ›
Usually, a nest egg focuses on longer-term goals such as saving for retirement, paying for a child's college education, or buying a home. A nest egg could also help you handle emergency costs — such as medical bills, pricey home fixes, or car repairs.
Why is it important to have a baby nest? ›
One of the main reasons many parents, and their baby's, love baby nests is that the cocoon-like pod mimics the feeling of the mothers womb. This snugness promotes a better sense of security and tranquility to a newborn. Becoming a familiar environment they relate to the feeling of comfort.
What is the significance of nest? ›
Purposes of nesting
Nest building (nidification) is often driven by a biological urge in pregnant animals to protect one's offspring known as the nesting instinct. Animals build nests to protect their eggs, their offspring, or themselves from danger.
