Publication: Investor's Notebook
ON NEWSSTANDS TODAY! LIVE FOREVER AND SPEND MONEY | |
Subscribe FREE to Investor's Notebook by clicking here.
Investor's Insight - October 6, 2006
"A Digest of Investment Opinion From the
World's Leading Financial Advisers"
************************************************************
ON NEWSSTANDS TODAY! LIVE FOREVER AND SPEND MONEY
by Scott Burns
Q: I'm in my 50s with considerable savings. I'm also
pretty good at my sales job. I am like many, however,
in that I know how to save but have no idea how to
pragmatically prepare for retirement income. Is a $1
million investment portfolio going to send me dividends
that will pay the bills? Can I generally anticipate a
return of 6 percent a year? Is there a "How to Cash
Out for Dummies" manual? -- B.H., via e-mail
A: You can get the CliffsNotes for the "How to Cash
Out for Dummies" manual on any magazine newsstand --
if you hurry. Just pick up copies of the October issues
of Kiplinger's, Money and Smart Money. The editors at all
three magazines, in a burst of simultaneous ideation, made
your question their cover story.
Kiplinger's cover leads with "Make Your Money Last
FOREVER!"
On its cover, Money offers a special 43-page report,
"Retire Rich: How to Make Your Money Last a Lifetime."
------------------------------------------------------------
I'm Walking Here....
Here's an item (the Telescopic Walking Stick) that I never
really thought I would use. But I decided to try it out
when we went for a walk along a trail a few weeks ago.
It was fun to use.... yes I said fun. When we would come up
to a stream, I would poke at things in it. I also used it
when I wanted to venture off the beaten path, just to make
sure that there were no snakes in front of me. Believe it or
not, it made the walk more enjoyable. Check it out and the
unbelievable low price.
Normal Price: $19.99
DEAL PRICE: $8.27
Whether you're an avid hiker or just looking for a little
extra help walking around, the Telescopic Walking Stick is
just what you need. It's fully adjustable to fit your height
and the spring loaded shaft helps reduce strain on your wrists,
back, knees, legs and feet. With a built in compass it will get
you through hard rocky terrain or just across the street.
Make Walking Fun with The Walking Stick
------------------------------------------------------------
And the cover of Smart Money offers "Stay Rich!
How to Make Your Money Last Forever."
The articles cover the basics on your concern, which
is called "longevity risk" in polite circles. For the
rest of us it's just a big-time version of the old
"end of the money before the end of the month" problem.
One way to think about this is to ask yourself what
investment return you'll need to have the same purchas-
ing power forever. If inflation averages 3 percent,
you'll need to have your portfolio grow by at least that
much each year -- after you have taken your income and
paid for investment management. If you start at 4 per-
cent income -- which is what most financial planners
recommend these days -- you'll need a total portfolio
return of 7 percent net of investment expenses.
That may seem like a modest number, but you can't get
it without taking some risk. If your entire portfolio
was in tax-deferred accounts, you could invest in Trea-
sury Inflation-Protected Securities (TIPS) and have
about 2.3 percent a year to spend, adjusted for infla-
tion, each year.
But I bet that won't float your boat. If you've earned
enough to be able to accumulate a $1 million portfolio,
odds are you'd be seriously inconvenienced by having to
live on $23,000 a year.
From that point on it's all a matter of choosing how
to arrange your assets so that you can maximize your
return, with the least risk. Sadly, it isn't easy to
get objective advice about this because the financial
services industry is structured so that it gets the
most income when you take the most risk -- by investing
in equities. Worse, I know of no major firm that con-
siders its charges when it tells you how much income
you can take. The net result is that most people are
likely to have significantly more risk in their port-
folios than they should have.
Based on historical data, it should be possible to achieve
a 7 percent total return with a simple mixture of large-
capitalization stocks (such as the S&P 500) and in-
termediate bonds. According to Ibbotson Associates, for
instance, the long-term return on large common stocks
has been 10.4 percent annualized, while the long-term
return on intermediate-term government bonds has been
5.3 percent. Over the same period, inflation has run at
an annualized rate of 3.0 percent.
------------------------------------------------------------
BRIEFCASE/LAPTOP BAG
Normal Price: $19.99
DEAL PRICE: $5.99
Plain and simple this is one heck of a deal. Discounted
below cost, you'll want to pick up a couple. Makes a
great gift. Check it out by visiting:
Briefcase/Laptop Bag
------------------------------------------------------------
A conservative 40 percent equity/60 percent fixed-income
portfolio could be expected to produce a long-term ann-
ualized return of 7.34 percent -- enough to meet the 7
percent total return goal, excluding management expenses.
Build a traditional balanced portfolio that's 60 percent
equities, 40 percent fixed-income, and the long-term
annualized return would be 8.36 percent.
If these returns were absolutely steady, life would be
simple. But the returns vary greatly. A few really bad
years can do enormous damage to your portfolio -- and to
your long-term standard of living. That's why your with-
drawal rate is limited.
The only way to cope with this is through portfolio di-
versification, hoping that adding different asset classes
-- such as international stocks, REITs and life annuities
-- can (1) smooth the annual return and (2) reduce risk.
No matter how the portfolio is constructed, however, our
increasing longevity makes it difficult to withdraw more
than 5 percent a year from our nest eggs.
You can discuss this issue or any other topic in the new
Investor's Insight forum. Check it out here...
Investor's Insight Forum
(Investor's Insight reflects the opinions of experts. It does
not recommend any specific investments, and no endorsement is
implied or should be inferred. For more information, contact
the individual firms cited).
COPYRIGHT 2006 UNIVERSAL PRESS SYNDICATE
-----------------------------------------------------------
GopherCentral's Question of the Week
Colin Powell recently revealed that he was fired by
President Bush. Do you agree that this was a good
decision?
Please take a moment to share your opinion, visit:
Question of the Week
------------------------------------------------------------
Viral Videos on the Net at evtv1.com
www.evtv1.com
************************************************************
Want some Fun and Amusements sent to your email F-R-E-E?
Visit:
More Fun & Newsletters
____________________________________________________________
END OF INVESTOR'S INSIGHT
Copyright 2006 by NextEra Media. All rights reserved.
Go ahead and forward this, in its entirety, to others.
 E-Mail this issue
Subscribe FREE to Investor's Notebook by clicking here.
|