asset management assocates
Private Portfolio Management


Many investors that are looking for current income buy stocks and bonds that are paying high dividends. There are several problems with this approach.  

First, various companies pay their dividends on different dates and in different months. It is a difficult task to get them to pay consistently when income is needed. Also, you tend to get small checks throughout the month and it is a lot of paper to manage.

The second thing is that by owning all dividend producing investments, you are investing all of your money into one “asset class” and you are missing the opportunities from other asset classes that do not pay dividends. Also, for some, the dividend income could be a tax burden.

Finally, growth is a very important part of a retiree's portfolio. What appears to be  good income today, may not be in 15, 20 or even 30 years. The fact is that people are living longer than ever in retirement and they are also much more active. It is not unreasonable to retire at age 60 and still be healthy and active at age 85.

Therefore, it is better to build a portfolio for income and growth. Doing this requires the same level of diversification that you needed in pre-retirement years with a little more focus on capital preservation.

One way to do this is to build a diversified portfolio across several asset classes and let all of the income or dividends reinvest. At the same time, keep some money in a cash or money market account and draw a monthly or quarterly check from that account to pay current expenses. As the rest of the portfolio grows, certain items could be sold off and the money dropped into the cash account to fund the monthly disbursement. In other words, you are not living off of interest, but interest and principal with the focus on preserving or growing the botom line. If you can  grow your values, you can grow your income in the future.

The general rule is to take 4-6% of a portfolio as income. A well diversified portfolio should do better than one that is not diversified. Of course, as you exceed the 4-6% income level, it becomes more difficult to grow a portfolio. So, on a $100,000 portfolio, you should be able to withdraw $5,000 per year and continue to grow the portfolio over time. When doing this, the portfolio has to be monitored to see how good a job you are doing in preserving principal. Income adjustments may have to be made if there are changes in the underlying markets.

This is the way that we manage a portfolio for income. It has worked very well.


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