At the close of the third quarter, the S&P 500 was down just
over 10% for 2011. Retirees living off their portfolios may face
tough decisions over the next few months when it comes time to make
their next withdrawal. The standard 4% withdrawal rule faces added
scrutiny each and every time the market declines. When portfolio
income becomes a priority, it is time to abandon your customary
mutual fund portfolio and find an
investment strategy
aligned with your objectives.
Typical investment portfolios consist of a mixture of stocks,
bonds, or a handful of mutual funds. On an annual or quarterly
basis, advisors will rebalance the portfolio freeing up the cash
necessary for future withdrawals. After the process, retirees have
the cash available to spend over the next period. In appreciating
or flat markets, the procedure should meet the needs of most
retirees. However, if we've learned anything from the last few
years, we will experience bear markets on average every 5 years. In
these bad years, investors are forced to sell assets for a loss and
give up any opportunity to regain this value in the future. Click
here
to read more about the devastating effect of reverse
compounding.
Every time an investor is forced to sell assets at a loss to
meet future withdrawal needs they jeopardize the sustainability of
their retirement portfolio over the long-run. Using historical data
and Monte Carlo simulations, advisors were confident that retirees
could take an annual inflation-adjusted 4% withdrawal with little
chance of running out of money. However, even the best simulations
did not expect retirees to experience both a technology bubble and
financial crisis in such a short period of time. Those people that
retired just prior to these events experienced large initial
declines and a very
unfavorable sequence of returns
.
It is time for Baby Boomers with an income objective to abandon
the capital appreciation model. The Buy and Hope strategy only
works as markets are going up which doesn't happen all the time.
We've created an investment strategy centered on cash flow with a
core objective of avoiding selling stock at a loss. Our approach to
income involves the use of exchange-traded options on common stock.
Options are an important tool in an investor's toolbox for managing
risk and/or creating cash flow from a portfolio. Traditional
sources of income like bonds, dividend stocks, and real estate fall
short of most investors needs. When 4% just won't cut it, and
you're tired of being at the mercy of the market, I encourage you
to find a
better solution
.
The intent of this article is to help expand your financial
education. Although the information included may be relevant to
your particular situation, it is not meant to be personalized
advice. When it comes to investing, insurance and financial
planning, it is important to speak to a professional and get advice
that is tailored to your unique, individual situation. All
investments involve risk including possible loss of principal.
Investment objectives, risks and other information are contained in
the Snider Investment Method Owner's Manual; read and consider them
carefully before investing. More information can be found on our
website or by calling 1-888-6SNIDER. Past performance is not
indicative of future results.