St. Augustine Woman's Journal - Educational Resource to the Women of St. Johns County Since 2009

By Rosa Shala
Shala Financial 

Meeting Your Income Needs Begins with Identifying Them


August 1, 2017 | View PDF

Whether it's pulling out of the Paris Agreement on climate change, a testimony given by the former FBI Director, or the ongoing investigation into Russia's interference in the 2016 election, Donald Trump's presidency has been a tumultuous one so far. Yet, for whatever reason, the stock market has remained largely oblivious to all the turmoil. Although upward momentum from the November election ended in late March when Trump's healthcare bill stalled, the markets have mostly continued to hover around their peak highs-despite one controversy after another coming out of the White House. Instead, it seems that big investors have focused on things like an encouraging jobs report, a slight first-quarter GDP increase over the fourth quarter of 2016, and their continued hope for the success of Trump's economic agenda.

As for how long Wall Street will remain patient and hopeful-that's anyone's guess. But, as I also noted in another recent newsletter, an increasing number of analysts are now forecasting that a major directional change in the markets is likely no matter what happens with Trump. Legendary investor Jim Rogers told Business Insider recently that he believes a market crash is coming in the near future that will "rival anything he has seen in his lifetime."

Another telling and potentially ominous detail I've discussed before has also remained consistent: big investors haven't been fleeing the bond market in favor of stocks. They have remained committed to both, which is a possible indication that their optimism isn't as great as it might seem. In fact, the 10-Year Treasury rate actually dropped from 2.29 at the beginning of May to 2.19 as of early June. 3 To me, this suggests that big investors are still "hedging their bets" just in case.

Income Starts with Defense

Of course, you already know I believe that if you're retired or near retirement, you shouldn't really be making bets with your portfolio at all, never mind hedging them. You should, instead, be focusing on overprotection and strategies designed to generate the income you need to achieve your retirement goals regardless of market conditions.

But, how exactly do you know how much income that is? Well, you probably don't until you sit down and figure it out-ideally with the help of a qualified financial advisor who specializes in income-based strategies. Not making this effort is a common and sometimes very costly mistake among retirees and near-retirees because it causes them to stick with risky growth strategies with a mindset of: "I better get all I can just in case." To use a sports analogy, these people are focusing on offense even after they have more than enough points to win the game, and well after they should have shifted their focus to defense. They continue to unnecessarily invest for growth, forgetting-until it's too late-that growth can quickly turn to shrinkage.

As you may already know, once you do shift your focus to income instead of growth, you quickly realize that financial defense is a natural byproduct of investing for income. That's important because your principal needs to be secure to reliably generate the interest and dividends you need to achieve your goals. In my experience, an ideal asset allocation for most people heading into retirement is one in which no more than 30 to 40 percent of your portfolio is in riskier options like stocks or stock mutual funds (even those, I believe, should be dividend-paying stocks), and the rest is in alternative strategies specifically designed for protection and income.

That kind of allocation allows you to utilize the four percent cash flow rule, meaning your investments are reliably generating at least four percent annual income through interest and dividends. For example, ideally, if you have one million dollars in invested assets, you should be able to generate approximately $40,000 a year in income because of the way your assets are allocated. Whatever the amount, the trick is to then add it to your Social Security benefits and any other sources of retirement income (such as a pension). Then, you should measure the total against your specific retirement goals, living expenses, and expected length of retirement.

Of course, these are all just examples based on rules of thumb. The point is that whether you're already retired or just in the planning process, knowing your specific goals and determining your income needs are good steps toward helping you recognize the strategic value of overprotection and the importance of satisfying your retirement needs and goals from income instead of principal.

Investment Advisory Services offered through Sound Income Strategies, LLC, an SEC Registered Investment Advisory Firm. Shala Financial and Sound Income Strategies, LLC are not associated entities.

For a frank and informative discussion on managing the risk in your portfolio, contact the office of Shala Financial at 352-207-7920 or [email protected]

Or register for their next workshop:

August 22, 2017 at 5:30PM Main Library

August 29, 2017 at 6:00PM Anastasia Island Library

September 26, 2017 at 6:30PM Anastasia Island Library

September 29, 2017 at 11:00AM Main Library Library

352-207-7920 • [email protected]


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