What will your income be during retirement, and will it grow with you?
This might be the single most important question you face as a pre-retiree. Many financial advisors would have you focus on the value of your portfolio, but we take a different approach.
1. Low Interest Rate Environment
As of May, 2017 rates for 10-Year U.S. Treasury Bonds sit at about 1.8% according to the Wall Street Journal. While this may generate a low-risk return on principal, it does little to protect your purchasing power. What was once the go-to strategy for long-term low-risk investing is no longer a viable option when coupled with the current 3% inflation rate.*
2. Inflation Slowly, Silently Destroys Wealth
The problem most investors face lies in fixed income, which by definition means it will not increase. Meanwhile, inflation gradually erodes the future value of your income—effectively decreasing your long-term purchasing power. Inflation is a slow and silent killer. Unless income grows at a higher rate than inflation, the investor will continue to grow poor slowly.
1. Focus on “Every” Companies
We invest in “Every”-type companies: Everyone, everywhere, everyday buys their products and services.
They have strong financials with growing profits. They have demonstrated a history of consistently growing shareholder dividends through good times and bad. They have a competitive advantage and an established global presence offering products to consumers and businesses around the world.
2. Growing the Income, Not Just the Value
Investment success is measured based on income generated from the investment, not just the value of the investment. We seek to provide consistent income that grows at a rate exceeding inflation. Investors who only spend the income from their investments never worry about a temporary loss in value.
Consistency v. Volatility
The orange line represents dividend payments to investors and how they’ve steadily grown over time. Compare this to the blue line: the stock’s price.
Stock investing involves risk including potential loss of principal. The payment of dividends is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time. Past performance is no guarantee of future results. No strategy assures success or protects against loss.
*Government bonds are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
In my decade plus time advising clients, I have seen this truth—my most joyful clients are my most successful investors. Not the other way around. The rewards follow the joy, not joy the rewards. They view the future as bright and invest faithfully in it knowing that no amount of market return will ever be able to generate an internal joy, but that prudent stewardship and a long-term perspective can perpetuate the upward spiral of joy.