A High Income Strategy for a Retirement Portfolio
- Thread starter jodistrict
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A rule of thumb is to withdraw no more than about 40-50% of your expected long-term annual return each year, and ideally no more than 1/3. So if you have a stock/bonds mix which would make around 6% per annum, you shouldn't withdraw more than about 3% per annum.
In other words, you need about 2 times your current capital to be ok, and 3 times to be truly safe. If you withdraw 6% per annum then one nasty bear market or poor-performing decade will be enough to put you at risk of going broke or having to scale back seriously.
You are IMO thinking the wrong way about risk. You are targeting a hurdle rate and then trying to justify purchases of risky assets because you want to achieve your hurdle rate. This is how people end up overpaying for risky assets. Instead, you should target a maximum level of risk and only invest in risky assets when the risk falls below your tolerance level.
My advice would be look to withdraw say 3% per annum, and pursue more conservative investing. If that's not enough then your choices are either take calculated risks and go for the double, accepting the chance you might lose 30-50% instead and be kinda fucked. Or somehow increase your income by other methods e.g. working harder, longer, doing a 2nd job etc.
In the years before I retired to trade full time I tried all kinds of trading. It cost me big but I found swing and position trading fit me perfectly. But determining how to make it work took me to a whole different level.
Because my background was programming in IT I was able to build automated trading systems and get to that next level. But that was just the beginning because I had to teach myself trade psychology, trade planning, risk management, money management and live trade management. In the end it was like starting a whole new career; but it was one that I was passionate about.
So my advice to you if you planning to trade in your retirement is that you must be prepared to pay a price to get there because there is no free ride in trading to even get 6% a year.
If you do attempt to trade then separate your funds and decide the maximum you can afford to lose as a retiree in one account and trade only in that one account. Then go after higher returns in the trading account. But be prepared to lose before you win.
I would stand clear of all âwealth management groupsâ for income. Every well to do zip code in the U.S. is being pummeled by these people and their schemes. âCome out to a big free meal and hear all about the great profitsâ¦â Then they take all your money, charge high fees and rarely live up to their promises.
Then what do you do if not trading. Like those above said âYou've posed some questions that 10's of 1,000's of investors and retirees have asked for ages â¦â There are some good suggestions like those from Piezoe and Shhhhh, but no easy answers.
Because my background was programming in IT I was able to build automated trading systems and get to that next level. But that was just the beginning because I had to teach myself trade psychology, trade planning, risk management, money management and live trade management. In the end it was like starting a whole new career; but it was one that I was passionate about.
So my advice to you if you planning to trade in your retirement is that you must be prepared to pay a price to get there because there is no free ride in trading to even get 6% a year.
If you do attempt to trade then separate your funds and decide the maximum you can afford to lose as a retiree in one account and trade only in that one account. Then go after higher returns in the trading account. But be prepared to lose before you win.
I would stand clear of all âwealth management groupsâ for income. Every well to do zip code in the U.S. is being pummeled by these people and their schemes. âCome out to a big free meal and hear all about the great profitsâ¦â Then they take all your money, charge high fees and rarely live up to their promises.
Then what do you do if not trading. Like those above said âYou've posed some questions that 10's of 1,000's of investors and retirees have asked for ages â¦â There are some good suggestions like those from Piezoe and Shhhhh, but no easy answers.
Stop looking at the problem in a one dimensional way ... "I need 6%". What you need is to fund your retirement and that may mean different things in different years. Since you want a rate in excess of the "risk free" return the market currently offers (of course we would all doubt the words risk free) you need to take risk. The question is what risk to take.
I say bet on inflation. Staying in short term instruments for the next few years until you can lock in much higher yields is probably a good bet. In the meantime dip into principle. The bet is the "dip" will be far outweighed over the long haul by the opportunity having cash will present a year or two down the road.
Put half into "inflation assets" -- gold, silver etc. I would wait awhile before doming that but hey ... timing that trade is hard.
If I were worrying about 20+ years I would bet against paper and in favor of inflation. I would not bet on money managers or boutiques or anybody's pitch.
I say bet on inflation. Staying in short term instruments for the next few years until you can lock in much higher yields is probably a good bet. In the meantime dip into principle. The bet is the "dip" will be far outweighed over the long haul by the opportunity having cash will present a year or two down the road.
Put half into "inflation assets" -- gold, silver etc. I would wait awhile before doming that but hey ... timing that trade is hard.
If I were worrying about 20+ years I would bet against paper and in favor of inflation. I would not bet on money managers or boutiques or anybody's pitch.
Even though retired, your portfolio is likely large enough to include a small percentage of risk capital. This money, properly managed, can grow and increase the return for your entire portfolio to 6% and above. As mentioned in a previous post, let others work for you. These managers get a percentage of the profits. They are therefore highly motivated to maximize profits for you. For a specific recommendation email me.
I say now is a great time to find a long volatility fund and make a purchase of such fund to get uncorrelated alpha. Most are for high-net worth folks, but you might be able to synthesize this with some etfs risk based assets - VIX, treasury calls, etc.
To facilitate this you should also familiarize yourself with some risk control techniques and some ways of getting uncorrelated assets into your portfolio.
Betting on inflation seems to be priced into the Market, no?
To facilitate this you should also familiarize yourself with some risk control techniques and some ways of getting uncorrelated assets into your portfolio.
Betting on inflation seems to be priced into the Market, no?
My suggestion is based on assumption that you have about $ 600 K and need $ 36,000 as a ROI.
Step 1/
Take 500K and invest in INSURED municipal bonds. I recently bought a few Munis with yield to call over 5% and those are tax free yields.
This should get you about $27,000/year
Step2
Take 50K and invest them into recession proof, high dividend company, AT&T, Verizon, some canadian Oil Trusts like PWE.
This should give you about $3,000/year
Step 3
Take 30K and daytrade conservatively eminis like NQ 6E,6B.
This should give you $ 6,000/year.
Goal accomplished
No.
The efficient market theory says everything is priced in. I do not believe that theory has any validity. We are already witnessing asset inflation in many parts of the world and even here at home. Does anyone believe that the free market price of housing in the US would be at these lofty levels unless there was significant government induced inflation (compared to market forces ex government support) that has prevented or at least delayed the final leg (20 or 25%?) down.
We create money and credit far in excess of the economy's demand for it I believe precious metals and many other hard assets will outperform specie over the coming two decades by a wide margin.
The efficient market theory says everything is priced in. I do not believe that theory has any validity. We are already witnessing asset inflation in many parts of the world and even here at home. Does anyone believe that the free market price of housing in the US would be at these lofty levels unless there was significant government induced inflation (compared to market forces ex government support) that has prevented or at least delayed the final leg (20 or 25%?) down.
We create money and credit far in excess of the economy's demand for it I believe precious metals and many other hard assets will outperform specie over the coming two decades by a wide margin.