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.
Take it from us, we are honored to have very intimate, fragile conversations with clients like you every single day. And if you’ve been a part of those conversations, you know that it can be very emotional.
Sometimes we think myopically that money is just about numbers—it’s spreadsheets and calculators. All we need to do be completely rational and figure out how to get the most out of an investments. But that’s not all money is.
You may have heard the phrase: “Personal finance is a whole lot more PERSONAL, than it is finance.” There is so much truth in those words.