The Motley Fool

Plan for
Financial
Freedom
 The Motley Fool
Plan for Financial Freedom

Welcome to the Fool’s Plan for Financial Freedom!

Investing is an important part of any financial plan, but it’s not the only part. If you don’t
know what your financial goals are and where you want to be months or years from now,
it will be that much harder to get there. And that’s where a financial plan comes in.
This report presents a simplified approach to assessing many of the different areas of
any investor’s financial life. Our hope is that our members can use it as a reset for their
financial situation and a jumping-off point for further development of their own personal
financial plans.
Below, we present a checklist that highlights the most important areas for you to
consider in this process. Let’s dive right in!

Financial Freedom Checklist

1 Make a strategy for saving or withdrawal

2 Pay off high-interest debt

3 Build your emergency fund or cash cushion

4 Commit to a long-term investing approach

5 (Re)commit to Foolish Investing Principles

6 Assess your risk tolerance to build a portfolio that aligns

with your financial goals

7 Consider using our Stock Advisor Best Buys Now model

portfolio as a starting point for your own diversified portfolio

8 Assess your retirement readiness, even if you are

already retired, and begin to develop a financial plan

The Motley Fool Plan for Financial Freedom 1

 The Motley Fool
Plan for Financial Freedom

#1 Make a strategy for saving or withdrawal

We generally recommend for those who are working to focus on saving 15% to 20% of their
income. But if you are retired, we’d generally recommend individuals ensure their withdrawal
strategy is sustainable.

One of the most impactful things anyone can do
to ensure their financial success is to save early and
save often. Living within your means is hard to do,
but it is vital to ensure a comfortable retirement.
ɒ For investors still in their working years, we
generally recommend aiming to sock away 15% to
20% of their income. It’s OK if you’re not at that
level yet, but you could make it a goal to increase
your savings rate every year.
year If your employer has
a 401(k), it’s best to make sure you are contribut-
ing enough to fully capture any employer match.
You may be eligible to contribute to an IRA,
IRA and
remember that after you make any tax-advantaged
retirement plan contributions, you can save in a
taxable account as well.
ɒ If you are retired, you’re likely managing
your portfolio with a different purpose in
mind—namely, funding living expenses over your
lifetime. That means targeting an appropriate
withdrawal rate from your portfolio to ensure that
you don’t outlive your money. While financial
professionals have traditionally used a 4% annual
withdrawal rate as a quick benchmark for retirees,
that number may be too aggressive (or even too
conservative), depending on your situation. You
can use that 4% figure as a broad starting point
but be sure to run more specific numbers yourself
to get a sense of your portfolio’s longevity.
Check when you’ve
completed Step 1

a little now, a lot later ⮧ Top Resources

example — Salary: $80,000 ɒ Learn how to increase wealth
Annual return: 7% now
if you save After 30 years,
this much you’ll have ɒ Assess your ideal withdrawal
of your income… accumulated strategy in retirement
10% $755,000

15% $1.13 million

20% $1.51 million

Source: The Motley Fool

2 The Motley Fool Plan for Financial Freedom

 The Motley Fool
Plan for Financial Freedom

#2 Pay off high-interest debt

Investing in stocks is a great way to build long-term

wealth, but there are times when socking away
money in stocks may not be the best option for your Is there an app for that?
money. It’s best to put money where it can earn The Motley Fool tested out the top
you the highest return. And while the stock market debt payoff apps to help you find one
has historically returned about 9% to 10% annually that matches your needs. See how we
over the past century, if you’ve got credit card debt considered:
that you are paying 15% interest on, your money is
Key features:
likely going to be better spent paying down that debt
rather than buying stocks. Getting rid of any high- W Payment planning
interest debt should be a priority for any investor. W Automated debt payoff
W Tracking and reducing spending
Check when you’ve
completed Step 2 Key questions to answer:
W Are you looking for the fastest or
cheapest way to pay off debt?
Top Resource
ɒ Make a plan for paying off W Do you have trouble paying more
your debt than the minimum each month?
W Do you want to take a hands-on
approach with your debt?
W Do you want an app to manage all
your accounts and cut your
spending?

Check out our guide and FAQ

on debt payoff apps

The Motley Fool Plan for Financial Freedom 3

 The Motley Fool
Plan for Financial Freedom
#3 Build your emergency fund or cash cushion
Cash certainly isn’t an exciting investment, but it should be a vital part of every investor’s
financial plan.
ɒ For investors who are still working, we
generally recommend having cash set aside in
an emergency fund to cover any unexpected
expenses such as medical bills or car repairs, or
to cover living expenses in the event of a job loss.
Having a secure stash of cash can help ensure you
don’t have to sell your stocks at an inopportune
time (like when the market is already down). The
ideal size of an emergency fund will vary from
person to person, but we recommend aiming to
have three to six months of living expenses set
aside if you are still in the working world.
4 The Motley Fool Plan for Financial Freedom
ɒ For investors who are already retired, we
generally recommend not investing any money
needed in the next three to five years in the stock
market. Any living expenses or money that needs
to be accessible in the near future should be kept
safe and liquid in cash or cash equivalents. No,
money that sits on the sidelines won’t earn much
of anything, but it can help avoid having to sell
off stocks to cover emergency expenses during a
market downtown. If you’re a retiree or soon to
be retired, here’s how you may want to consider
structuring your cash cushion:
If you need cash consider
in the next… investing in
1 to 2 years High-yield
money-market account
2 to 4 years Laddered CDs
4 to 5 years Short-term bond fund
e.g., Vanguard Short-Term
Bond Index ETF (BSV)
Check when you’ve
completed Step 3
Top Resource
ɒ Calculate how much of an
emergency fund you may need
 The Motley Fool
Plan for Financial Freedom

#4 Commit to a long-term investing approach

If there is one thing we want you to remember about our Foolish approach to investing, it is
this: Investing is a long-term sport.
sport We measure results over long periods of time (five years
or more), and that’s how we choose stocks.

Focusing on the long run means that we won’t be
rattled by short-term volatility,
volatility which will occur from
time to time. When you keep in mind that cashing out
and missing even just a few good days in the market
could significantly impair long-term returns,
returns it’s clear
why long-term investing is the key to success.
And while staying invested during down markets
is extraordinarily difficult, there is a method to this
madness, especially for Foolish investors. While our
stock recommendations may, on average, experience
higher volatility than the broader stock market, they
also tend to do extremely well following bear markets,
beating the market by a wide margin. That’s why we
so strongly encourage our members to stay invested—
and even buy more, if possible—in times of market
turmoil. History has shown that folks who stick it
out when times are tough reap the rewards when the
market turns the corner.

After a dip, foolish stocks fare best ⮧

AVERAGE
RETURN
OVER NEXT 100%
5 YEARS RB
SA

S&P 50%
500
WHEN
SA & RB AFTER Data from TMF
STOCKS SA & RB 0%
and S&P Global
FALL… STOCKS FALL… 20% 30% 40% 50% 60% Market Intelligence

Check when you’ve

completed Step 4

Top Resource
ɒ See how much more money could
be earned by continuing to invest
regularly versus trying to time
the market

The Motley Fool Plan for Financial Freedom 5

 The Motley Fool
Plan for Financial Freedom

#5 (Re)commit to Foolish investing principles

Over the Fool’s long history, our approach to investing has been proven to be successful—but
only if one commits to following our Foolish Investing Principles.
Principles And that means following
those rules in both good times and bad.

Owning at least 25 individual stocks can help

ensure against overexposure to the short-term How to Invest
ups and downs of any one or two or three stocks. The Motley Fool Way
Since not every stock will make money, we
1 Buy 󲐲󲐵 or more companies recommended
recommend owning enough names so that the by The Motley Fool over time
winners can far outweigh the losers.
Holding stocks for five years or more forces 2 Hold those recommended stocks
investors to maintain a long-term outlook and for five years or more
not sell when the going gets rough. And if you 3 Invest new money regularly
accept that the market —and your stocks—will
4 Hold through market volatility
occasionally fall by 30%, 40%, or even 50% or
more, you can be prepared for when it does 5 Let your portfolio’s winners keep winning
happen and be ready to hold tight to capture 6 Target long-term returns
those potential long-term gains.
Our goal is to make you smarter, happier,
Check when you’ve and richer—forever.
completed Step 5

Top Resource
ɒ Use our Simulator tool to see
how long-term returns can be
improved by holding for longer
periods of time and owning
more stocks.*

6 The Motley Fool Plan for Financial Freedom

 The Motley Fool
Plan for Financial Freedom

#6
Assess your risk tolerance to build a portfolio that
aligns with your financial goals

Picking great stocks is an essential part of building a portfolio that can help you meet your
long-term goals, but it’s not the only part. It’s also best to pay attention to how stocks
interact with each other and what a portfolio looks like as a whole. And that means
understanding your risk tolerance and how to structure your portfolio to fit that risk profile.

One of the most important portfolio construction
decisions investors can make is to decide how much
of their portfolio they want to devote to risky assets,
or stocks.
stocks Younger and more risk-tolerant investors
will likely have a higher allocation to stocks since they
can stand higher volatility. Older or less risk-tolerant
investors will still have meaningful stock exposure
but will likely want to have a higher allocation to
safety assets, such as bonds and cash.
And once you know your portfolio is properly
allocated between stocks and bonds or cash, you can
really dig into the work of optimizing your holdings
by including asset class diversification.
diversification That includes
getting appropriate exposure to large-cap, mid-cap,
and small-cap stocks, as well as international names.
Diversifying by sector and industry is important
here, too. Be sure you check out the Allocator tool*
tool
to explore our asset allocation models and improve
your own portfolio diversification.

Check when you’ve

completed Step 6

Top Resources
ɒ Visit our Allocator tool to assess
risk profiles and explore stocks to
diversify a portfolio*
portfolio and use our
Stock Screener to identify other
stocks for a portfolio*.

The Motley Fool Plan for Financial Freedom 7

 The Motley Fool
Plan for Financial Freedom
v

#7 Consider using our Stock Advisor Best Buys Now

model portfolio as a starting point for your own
diversified portfolio

If you are still building your portfolio or are
looking for an outline of how to structure a diversified
portfolio, take a look at the following model portfolio,
which combines our top Stock Advisor Best Buys
Foundational and Timely Stock recommendations,
recommendations as
well as our core ETF recommendations.
This is just one way investors can create a diver-
sified portfolio using the recommendations available
to you in your Foolish services. You can use these
stocks and ETFs as the core of a portfolio, and add
on additional names to round out your holdings.
As you evaluate cash within your portfolio, con-
sider the following guidance based on your situation:
ɒ If you have extra cash to allocate now, con-
sider dollar-cost averaging into the market now
and in the following months. This can help ensure
you buy at various price points, regardless of what
the market is doing at the moment. Review the
Stock Advisor Model portfolio ⮧
Stock Advisor Top Investments to Hold for 5 Years
to identify timely stocks recommended by our
team in the current environment.
ɒ If you are underweight in cash given your risk
tolerance and near-term needs, consider holding
off reinvesting any dividends or other proceeds
and letting cash build up in the months ahead. If
you decide to sell any holdings to raise cash, make
sure you consider tax implications (if trading in
a taxable account) and allocation concerns when
identifying which specific names to sell.
Check when you’ve
completed Step 7
Top Resources
ɒ Use the Screener tool to identify stocks
to complement existing holdings,
holdings
and check out top Rule Breakers and
Everlasting Stocks Best Buys Now.*

30󶬥 55󶬥 15󶬥

Vanguard ETFs Foundational & Timely Stocks
O Total Stock Market ETF VTI 8󶬥 O Atlassian TEAM 4󶬥
O Value ETF VTV 7󶬥 O Adobe ADBE 3󶬥
O Total Int’l Stock ETF VXUS 6󶬥 O Adyen ADYE.Y 3󶬥
O Small Cap ETF VB 5󶬥 O Airbnb ABNB 3󶬥
O Real Estate ETF VNQ 4󶬥 O Amazon AMZN 3󶬥
O Apple AAPL 3󶬥
O Arista Networks ANET 3󶬥
O DexCom DXCM 3󶬥
O Idexx Laboratories IDXX 3󶬥
other TMF recs
O Mastercard MA 3󶬥
O Nvidia NVDA 3󶬥
O Roku ROKU 3󶬥
O Shopify SHOP 3󶬥
O SolarEdge Tech. SEDG 3󶬥
O Snowflake SNOW 3󶬥
O Tesla TSLA 3󶬥
O Walt Disney DIS 3󶬥
O Zoom Video Comm. ZM 3󶬥

8 The Motley Fool Plan for Financial Freedom

 The Motley Fool
Plan for Financial Freedom

#8 Assess your retirement readiness, even if you are

already retired, and begin to develop a financial plan

Almost all of us save and invest so that we can enjoy a long and prosperous retirement.
retirement And
that requires periodically checking in to see exactly where we are on that journey.

A full retirement check-up requires a little bit of ɒ Identify your short- and long-term financial goals
time and a full examination of all of the pieces of ɒ Develop a budget,
budget both now and in retirement
your financial life, but you can jump-start that
ɒ Assess current cash flow, assets, and liabilities
process and get a more general picture from our
suite of Foolish Calculators.*
Calculators ɒ Make a plan to save for college,
college if applicable
How much will you need to retire? That answer ɒ Analyze life insurance needs (as well as other
can vary widely from person to person, but if you’re insurance needs
needs), tax planning strategies,
strategies and
looking for a quick rule of thumb, see the guidelines estate planning needs
below from T. Rowe Price that express how much
investors should have saved as a multiple of their Check when you’ve
gross household income. Don’t take these figures as completed Step 8
gospel, but they can provide a broad assessment of
how “on track” you might be. And once you know
where you stand—for better or for worse—you’ll Top Resources
have a better idea of what you may need to adjust to ɒ If you are still working, check out this
meet your retirement goals. comprehensive retirement calculator
Beyond assessing your retirement readiness, to see how prepared you are to retire
investors should also begin to develop a financial
ɒ If you are retired, check out this
plan, which includes the following components:
plan
calculator to see how long your
savings might last
How much of your income to save ⮧ ɒ See the components of a financial plan
at age 30 investors should have saved 0.5× income
35 1 to 1.5× income
APPROXIMATE
40 1.5 to 2.5× income MIDPOINT: 2×
45 2.5 to 4× income 3×
50 3.5 to 6× income 5×
55 4.5 to 8× income 7×
60 6 to 11× income 9×
65 7.5 to 14× income 11×

0 5 10 15× income
Source: T. Rowe Price

The Motley Fool Plan for Financial Freedom 9

 The Motley Fool
Plan for Financial Freedom

Financial planning is a complex process, but our hope is that this checklist can help you
organize your financial life and provide a better understanding of what you may need to do
to begin the process of building a successful investing portfolio and a more comprehensive
financial plan.

Plan on, Fool!

Disclosures
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley
Fool’s board of directors.

Tom Gardner has positions in Adyen, Airbnb, Arista Networks, Atlassian, Mastercard, Shopify,
Snowflake, Tesla, and Zoom Video Communications.

The Motley Fool has positions in Adobe, Adyen, Airbnb, Amazon, Apple, Arista Networks,
Atlassian, Mastercard, Nvidia, Roku, Shopify, Snowflake, Tesla, Vanguard Real Estate ETF,
Vanguard Small-Cap ETF, Vanguard Total International Stock ETF, Vanguard Total Stock Market
ETF, Vanguard Value ETF, Walt Disney, and Zoom Video Communications.

The Motley Fool has a disclosure policy.

policy
* Please note, these tools and our Fool Plan Guide are not personalized guidance (we are not an
investment adviser and cannot offer personalized financial advice), but rather tools you can
use when reviewing your current portfolio. Every portfolio is different. These tools are for
informational purposes only. For more information please see our Tools Terms of Service.
Service

10 The Motley Fool Plan for Financial Freedom