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. It 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.


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 and comfort level.

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.

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 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.

  1. Payment

    The transfer of one form of good, service or financial asset ...
  2. Savings Rate

    The amount of money, expressed as a percentage or ratio, that ...
  3. Drawdown Percentage

    The portion of a retirement account that a retiree withdraws ...
  4. Accumulation Period

    1. The phase in an investor's life when he/she builds up his/her ...
  5. After-Tax Real Rate Of Return

    The actual financial benefit of an investment after accounting ...
  6. Risk Tolerance

    The degree of variability in investment returns that an individual ...
Related Articles
  1. Retirement

    5 Retirement-Wrecking Moves

    These common mistakes can sabotage your nest egg and your plans for retiring.
  2. Retirement

    6 Retirement Savings Tips for 45- To 54-Year-Olds

    Now is the time to kick savings into high gear. Find out how.
  3. Financial Advisor

    A Key Tip for Making Your Nest Egg Last Longer

    Retirees who don't want to deplete their nest eggs during a bear market should make sure to do the following.
  4. Financial Advisor

    How to Create a Retirement Investment Policy

    A retirement policy statement can be a good idea for clients. Here's how to create one.
  5. Retirement

    Introduction: Protecting Your Nest Egg

    Protecting your nest egg involves maximizing savings and minimizing taxes. For the following 12 weeks, we will explain the best ways to do both.
  6. Retirement

    Save Now To Retire Earlier - Or Just Work Longer?

    Working longer might seem a solution, but job and health risks make it an unreliable option. Compound interest, though, means savings always make money.
  7. Retirement

    Inflation And Your Retirement

    When you're setting financial goals and saving for retirement, don't forget to factor in inflation. Here's how to fight back and protect your future.
  8. Retirement

    How to Plan for the Longevity Risk in Retirement

    Retirement can last a long time, which means people have to plan and prepare for the real risk of outliving their nest egg,
  1. Is it easier to save for retirement if you start earlier in life? Can I make up for ...

    In general, the earlier you start saving for retirement, the easier it will be to afford, given the number of financial obligations ... Read Answer >>
Trading Center