Income vs. Growth
Income vs. Growth... we believe you can have both!
Focusing on investment income may be more reliable in covering living expenses than relying on stock market gains...
For many years investors became accustomed to extended periods of stock market gains which generated enough capital appreciation from which they could live. In addition, in past years we saw significantly higher interest rates and commensurate bond yields that investors could rely on for generating retirement income. Those days are now gone, with yields now at all time low levels - and we may not see a return to higher rates for many years to come.
Asset management requires focus; it works best when investors have a clear investment objective. In today's environment, it takes much more work and greater sophistication in order to generate higher income levels that are consistent and growing.
With equity prices at near all-time highs and bond yields near all-time lows, where is an investor to turn for retirement income?
Income Producing Securities
We believe that a carefully selected combination of income producing securities can not only provide for a good income stream, but be tailored to provide a growing income stream that will keep up with (or exceed) inflation.
Many income securities are interest rate sensitive (meaning their prices tend to move down when interest rates rise) so careful attention to the asset balance and exposure is very important.
Did we say this was easy? Not at all - that is why using an advisor who is experienced and specializes in managing for income and income growth is critical.
At RWM, we discuss your income needs and put together a plan for the coming years - an income plan that you can use to monitor your financial well-being. Investments are then carefully selected with your income goals in mind.
This isn't a short-term attempt to maximize returns with little attention to risk. This is a focus on producing regular income to meet your living requirements while seeking to protect capital in volatile markets.
This is an alternative approach to asset managers who are only focused on equaling or beating the stock markets price returns. Competing with market returns can add significant risk, does not directly address your income needs and is not very useful when the market produces a negative return, as in 1994, 2000, 2001, 2002, 2008 and 2018.
Achieving an income level that meets your goals and grows with inflation may set you free from the worry that comes with needing stock prices to go up in order to maintain your lifestyle objectives.
Read the next tab: Income: A Rental Property Analogy & Free Cash Flow
Disclaimer: There is no assurance that these techniques are suitable for all investors or will yield positive outcomes.