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. Investors Need Income: Either Income Today or Income Tomorrow
We believe people save money for income: either income today or income tomorrow. Furthermore, we believe this income must grow over time. The headwind of inflation means your future money won’t go as far tomorrow as it does today.
As of December, 2023 rates for 10-Year U.S. Treasury Bonds sit at about 4.3% according to CNBC. 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 much higher inflation rates.*
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. Growth of Income not Growth for Income
We focus on investing in companies with a demonstrated history of dividend payments and growth. These payments represent consistent income for our clients. Furthermore these payments help to insulate client income from market movements, as dividend payments are not directly affected by changes in a companies’ price.
This is how we invest for growth of income, instead of the typical growth for income. Growth for income typically favors investing in companies solely focused on a growing stock price, then hoping to sell those companies at a higher price in the future.
Rather, our client’s success is measured based on growing income generated from the investment via dividend payments, not just the value of the investment.
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.