If ever there were an appropriate analogy for how to invest for retirement, it would be the classic fable of The Three Little Pigs. As you may recall, those three little pigs tried three different structures to protect against the Big Bad Wolf. Similarly, there are at least three kinds of “building materials” that investors typically employ as they try to prevent today’s low-interest rates from consuming their sources for retirement income:
1. Dividend-Yielding Stocks
2. High-Yield Bonds
3. Total Return Investing
We will explore each of these common strategies and explain why the evidence supports building and preserving your retirement income reserve through total-return investing. The approach may require a bit more prep work and a little extra explanation, but like solid brick, we believe it offers the most durable and dependable protection when those hungry wolves are huffing and puffing at your retirement-planning door.
We understand why bulking up on dividend yielding stocks can seem like a tempting way to enhance your retirement income, especially when interest rates are low. You buy into select stocks that have been spinning off dependable dividends at prescribed times. The dividend payments appear to leave your principal intact, while promising better income than a low-yielding short-term government bond has to offer.
Safe, easy money … or so the fable goes. Unfortunately, the reasoning doesn’t hold up as well upon evidence-based inspection. Let’s dive in and take a closer look at that retirement income stream you’re hoping to generate from dividend-yielding stocks.
Douglas Finley founded Finley Wealth Management, a Fee-Only Registered Investment Advisor, with the goal of creating a firm that eliminated the conflicts of interest inherent in the financial planner – advisor/client relationship. The firm specializes in financial planning and investment management for high-net-worth individuals and families.
6 Tax Planning Strategies to Optimize Your Retirement Wealth
Taxes Never Retire, but Benefits Escape
Smart Social Security Strategies for Married Couples
10 Steps to Easing Financial Anxiety During Major Life Changes
The Tao of Wealth Management
A Focus on Fixed Income
What’s Social Security Got for You?
Timing is Critical for Boomers Preparing to Claim Social Security