Retirement Income Portfolio Management: The Plan

The reason why people take the risks of investing in the first place is the prospect of achieving a higher “realized” rate of return than is achievable in a risk-free environment … ie. a bank account insured by the FDIC involving compound interest.

  • For the past ten years, such risk-free savings have not been able to compete with riskier media due to artificially low interest rates, forcing traditional “savers” to enter the mutual fund and ETF market.
  • (Funds and ETFs have become the “new” stock market, a place where individual stock prices have become invisible, questions about the company’s fundamentals are met with empty eyes, and media-speaking chapters tell us that people are no longer in the stock market ).

The risk comes in various forms, but the main concerns of a middle-income investor are “financial” and, when investing in income without proper thinking, “market” risk.

  • Financial risk includes the ability of corporations, government organizations and even individuals to meet their financial commitments.
  • Market risk refers to the absolute certainty that all marketable securities will fluctuate in market value … sometimes more than others, but this “reality” must be planned and worked with, never feared.
  • Question: Does the demand for individual stocks increase ETF funds and prices or vice versa?

We can minimize financial risk by choosing only high-quality (investment grade) securities, diversifying them properly, and realizing that changes in market value are in fact “harmless to income.” With an action plan to tackle ‘market risk’, we can actually turn it into an investment opportunity.

  • What do banks do to get the amount of interest they guarantee to depositors? They invest in securities that pay a fixed income, regardless of changes in market value.

You do not need to be a professional investment manager to manage your investment portfolio professionally. But you need to have a long-term plan and know something about asset allocation … often used incorrectly and misunderstood portfolio planning / organization tools.

  • For example, the annual “rebalancing” of the portfolio is a symptom of a dysfunctional asset allocation. The distribution of assets must control every investment decision throughout the year, every year, regardless of changes in market value.

It is also important to recognize that you do not need high-tech computer programs, economic scenario simulators, inflation estimates or stock market forecasts to properly align with your retirement income goal.

What you need is common sense, reasonable expectations, patience, discipline, soft hands and a great driver. The KISS principle must be at the heart of your investment plan; the compound wins the epoxy resin, which keeps the structure safe and secure during the development period.

In addition, focusing on “working capital” (as opposed to market value) will help you through all four major portfolio management processes. (Business majors, remember PLOC?) Finally a chance to use something you learned in college!

Retirement planning

The Retirement Income Portfolio (almost all investment portfolios eventually turn into retirement portfolios) is the financial hero who appears on stage just in time to fill the income gap between what you need to retire and guaranteed payments you will receive from uncle and / or past employers.

How powerful the superhero power is, however, does not depend on the size of the market value number; in terms of retirement, this is the income produced in the suit that protects us from financial villains. Which of these characters do you want to load your wallet with?

  • A million-dollar VTINX portfolio that produces about $ 19,200 a year in spending money.
  • One million dollars, a well-diversified, lucrative portfolio of CEF that generates more than $ 70,000 a year … even with the same distribution of equity as the Vanguard Fund (just under 30%).
  • A portfolio of millions of dollars from GOOG, NFLX and FB, which does not give money to spend at all.

I’ve heard it said that a 4% withdrawal from a retirement income portfolio is normal, but what if it’s not enough to fill your “income gap” and / or more than the amount produced by the portfolio. If both “what ifs” turn out to be true … well, the picture is not good.

And it gets uglier pretty quickly when you look at your actual portfolio of 401k, IRA, TIAA CREF, ROTH, etc. and understand that it does not produce even nearly 4% of actual expenditure income. Full return, yes. Realized expendable income, I’m not afraid.

  • Of course, your portfolio has “grown” in market value over the last ten years, but it is likely that no effort has been made to increase the annual income it generates. Financial markets live by analyzing market value, and as the market grows every year, we are told that everything is fine.
  • So if your “income gap” is more than 4% of your portfolio; what happens if your portfolio produces less than 2% as a Vanguard Retirement Income Fund; or what if the market stops growing by more than 4% per year … while you are still running out of capital at 5%, 6% or even 7% clip ???

The less popular (only available in individual portfolios) closed-end income fund approach has been around for decades and covers all ‘what ifs’. They, combined with investment value stocks (IGVS), have the unique ability to take advantage of fluctuations in market value in both directions, increasing the production of portfolio income with each monthly reinvestment procedure.

  • Monthly reinvestment should never become a DRIP (dividend reinvestment plan) approach, please. The monthly income should be combined for selective reinvestment, where the best effect can be achieved. The goal is to reduce the cost base per share and increase the profitability of the position … with one click.

A retirement income program that focuses only on market value growth is doomed from the start, even at IGVS. All portfolio plans require an income-focused asset allocation of at least 30%, often more but never less. All individual securities purchase decisions must support the operational plan for the allocation of assets “growth objective versus income objective”.

  • The “working capital model” is a 40+ year tested system for automatic pilot asset allocation, which largely guarantees annual income growth when used properly with a minimum income distribution for the purposes.

The following points apply to an asset allocation plan that manages separate taxable and deferred tax portfolios … rather than 401,000 plans, as they usually cannot generate adequate income. Such plans should be allocated for maximum safety within six years of retirement and transferred to a personally targeted IRA physically as soon as possible.

  • The distribution of assets for “income-oriented” starts from 30% of working capital, regardless of the size of the portfolio, the age of the investor or the amount of liquid assets available for investment.
  • Start-up portfolios (less than $ 30,000) must not have an equity component and no more than 50% until six figures are reached. From $ 100,000 (under the age of 45), only 30% of income is acceptable, but not very lucrative.
  • At age 45, or $ 250,000, move to 40% income; 50% at age 50; 60% at the age of 55 and 70% of securities for income after the age of 65 or retirement, whichever comes first.
  • The revenue objective of the portfolio must be kept as fully invested as possible and all definitions of asset allocation must be based on working capital (ie portfolio cost base); cash is considered part of equity or distribution as a “growth target”.
  • Equity investments are limited to seven-year CEFs with experience in equities and / or ‘investment grade equities’ (as defined in the book ‘Brainwashing’).

Even if you are young, you need to stop smoking heavily and develop a growing flow of income. If you maintain income growth, the growth of market value (which you are expected to worship) will take care of itself. Remember that higher market value can increase the size of the hat, but do not pay the bills.

So that’s the plan. Determine your retirement income needs; start your investment program with a focus on income; add stocks as you age and your portfolio becomes more significant; when retirement is looming or the size of the portfolio becomes serious, make the distribution of your income serious.

Don’t worry about inflation, markets or the economy … distributing your assets will get you moving in the right direction while focusing on increasing your income each year.

  • This is the key point of the whole “retirement readiness” scenario. Each dollar added to the portfolio (or earned from the portfolio) is redistributed according to the distribution of assets to “working capital”. When income distribution is over 40%, you will see income grow magically every quarter … no matter what happens in the financial markets.
  • Note that all IGVS pay dividends, which are also divided according to the distribution of assets.

If you are within ten years of retirement age, the rising income stream is exactly what you want to see. Applying the same approach to your IRAs (including 401k rollovers) will result in enough revenue to pay the RMD (mandatory allocation required) and will put you in a position to say without reservation:

Neither the stock market adjustment nor the increase in interest rates will have a negative impact on my retirement income; in fact, I will be able to increase my income even better in both circles.