What is a nest egg? And why does having one improve your finances?
Most of us have heard the term nest egg. But when you think about it, what the heck is a nest egg?
Since I was raised in the city, I honestly did not have a clue where this term originated. My best guess was that having a nest with an egg in it meant something good was about to happen. But then that would contradict the saying, don’t count your chickens before they hatch…wouldn’t it? Ha!
As it turns out, a nest egg was an actual thing farmers used. They found that chickens were encouraged to lay more eggs when they already had an egg in the nest. For that reason, they placed fake eggs in the nests to encourage chickens to lay more eggs. More eggs for farmers meant more money in their wallets!
So, knowing the history behind the term, how can having a nest egg improve the money in your wallet?
First, as you likely know, interest rates paid on deposits have increased dramatically over the past year. Whether you pursue a competitive money market account, certificate of deposit, or US treasury security, safe returns providing interest yields of more than 4% are widely available. By putting your funds into one of these options, you can rest on your laurels and know that your nest egg will produce a return. If your idle funds are languishing in a fund that is not paying you a return above 3.5%, it’s time to move your nest egg into something that will. There are plenty of opportunities to maintain full FDIC insurance and earn a decent rate.
Another common use of the term nest egg is the idea of putting funds away for retirement. Related to that, it is important to know emerging schools of thought value having both pre-tax accounts like a 401(k) or 403 (b) alongside Roth retirement accounts. So why two nest eggs for the same life event? Just like you want to diversify your investments among different funds, i.e., large cap, small cap, international, etc. you also want to diversify your investments between those that have tax consequences in retirement and those that do not. Many employers have added Roth options to your retirement investment choices at work.
If you want to pursue this type of diversification, but are not sure how to proceed, please contact me directly for assistance. Let’s make sure your nest egg is producing. Afterall, your funds matter!