Rockbridge Named #81 on CNBC's Top 100 Fee Only Wealth Mgmt Firms List
Mar 15

Investing for Retirement Income – Part 2

by Daniel Edinger

One of today’s biggest challenges facing investors in retirement or in semi-retirement is obtaining enough income and growth from their portfolio to match annual expenses.  Is it possible to create a mix of steady income, upside potential and longevity protection by a blend of 80 percent bonds and 20 percent stocks?

My definition of income investing is to construct a portfolio with a heavier emphasis on income producing assets.  Ideally, the investor does not need to access principal to meet daily living expenses.  In a low rate environment, this becomes difficult without relying on high yield bonds for a significant part of the portfolio mix.  Another common approach with investors is to hold high paying dividend stocks.

An alternative investment approach is to maintain a more balanced portfolio allocation, understanding that principal will need to be accessed to meet annual expenses.  This allows for a higher equity allocation with the possibility for overall portfolio gains with stock appreciation.

The income dilemma highlights how investing is about tradeoffs between different risks.  Perhaps more analysis of risk factors and which risks to mitigate would result in portfolio allocation decisions that investors can be more comfortable with.

Some risk factors can be easily addressed—e.g. diversification and keeping fees low.  But few investors see these as important if they believe they are missing the next new investment opportunity.  I have a neighbor that claims to have recently made a lot of money investing in oil futures.  I suggested that while his gamble paid off, that this was not investing.  But he cannot see the risks inherent in this strategy, in part, because the gamble paid off. But is this any worse investment behavior then the investor who is so concerned about the next financial catastrophe that he can only purchase insured CDs?

So to meet cash needs, perhaps the investor needs to first address the risks associated with different investment strategies and understand their tolerance for various risks.

For some investors, a comfortable risk tradeoff may well be an 80/20 split between bonds and stocks.

You Might Also Like

Other articles filed under Retirement

Market Commentary – October 2018

October 22, 2018
Stock Markets For the last quarter, stocks are up except for Emerging Markets, which were close to flat. Domestic stocks are seemingly shrugging off the uncertainties of increasing interest rates, trade wars and tariffs. Year to date, an Emerging Market...
Continue Reading

Is Your Cash Earning Interest?

October 16, 2018
Interest rates are rising, and yet you may not be earning much on your cash.  As financial markets finally begin to reflect a recovery from the crisis of 2008-09, the brokerage industry is changing the way they handle customers’ cash,...
Continue Reading

Understanding Bond Returns

October 12, 2018
We had several clients this year reach out to ask how bonds were performing in their portfolios. These are great questions, so we created a few items to address what you see in your statements.  Some people notice they have...
Continue Reading

New Tax Law Makes Bundling Gifts to Donor-Advised Funds Attractive

October 9, 2018
“Give, but give until it hurts.” - Mother Teresa -    I don’t think Mother Teresa paid much attention to the tax code, but her quote is unusually prescient for 2018 taxpayers.  The changes have made it unlikely to get...
Continue Reading

What to Ask Your Financial Advisor

September 20, 2018
How does/and how much does your advisor get paid? Fees matter.  It is important to know how much you are paying and the value you receive for that payment.  If you're paying 1% or more for only investment management with no...
Continue Reading

‹ Back to Blog Home

getting started is simple

315.671.0588 info@rockbridgeinvest.com Schedule a meeting Sign Up for Our Newsletter