3 Investing Keys to Help Retirees Sleep Well at Night


3 Investing Keys to Help Retirees Sleep Well at Night



Can money buy happiness in retirement? I think it can, but the cost might be lower than you think.

We often miss the point when philosophizing about the benefits of having money vs. not. Of course, most of us would prefer having a lot of money, but there’s a social or self-imposed pressure not to admit it. “If I were truly enlightened, I wouldn’t need money to make me happy,” we think while jealously scrolling through our neighbors’ Hawaiian vacation photos on Instagram and Facebook. That may be true in a perfect world, but I don’t know anyone who lives in one of those.

The pragmatic truth is that we need money; therefore, it’s okay to want it. Materialistic associations need not be attached to this essential possession. Where folks run into trouble is when they forget why they desire financial prosperity in the first place. If the goal becomes money itself rather than the opportunities it can provide for stability, companionship, flexibility, health, and enjoyment, then we have a problem. As long as those priorities are in place, sufficient legal tender allows us the freedom to make memories with those we love without the stress of struggling to pay for it.

In short, monetary security allows happy retirees to SWAN: Sleep Well At Night.

Remain Steady in Turbulent Times

The inflationary period we’re currently enduring has investors concerned. In addition to the gut punch of exorbitant egg prices or paying more at the pump, folks worry about what it means for their 401(k)’s and other investment accounts.

The Federal Reserve’s (the Fed) penchant for raising interest rates has added to the collective anxiety for current and future retirees. Will it ever end? And when it does, will we plunge into a recession? Where is the light at the end of the tunnel, especially for people looking to retire or already in retirement?

In turbulent times many people forget about the steadiness of income investing, so let’s use a hypothetical situation to trigger our memory. Imagine you have $1 million. If your overall portfolio generates yields of 4 percent, you’ll receive $40,000 in dividend paychecks per year. Unfortunately, the dollar value of your portfolio may have dropped by 5 or 10 percent due to recent tough times. That’s a $50,000 to $100,000 loss of value on paper. But if that income remains steady, you’ll still generate $40,000 in actual cash for the year.

This cash flow from dividends and interest payments is real and spectacular. So, keep that income in mind and let it counterbalance the apprehension of a fluctuating market.

3 Powerful Keys to Help Investors SWAN

Challenging times create retirement jitters, so my team and I devised ways to calm the mind. We help our clients understand three powerful keys to help them SWAN.

  1. The Power of a Plan. If you don’t know what you want to do, you’ll never do anything.
  2. The Power of Understanding Cash Flow. Your steady portfolio cash flow comes from reliable, value-oriented companies and the dividends they pay.
  3. The Power of Diversification. Most ETFs can hold between 100 and 250 stocks, alleviating the worry of one company falling apart. That many companies won’t crumble unless the world ends.

Despite the ongoing tumult, there is a break in the clouds: as interest rates ascend, so do the payout of bonds. In other words, the bad news is that interest rates are up, and the good news is that interest rates are up. If I have to drink from the well of bad news, I’d rather chase it with a shot of good news.

Protect your Purchasing Power

I recently had the honor of interviewing Dr. Burt Malkiel, the legendary author of A Random Walk Down Wall Street, for my Retire Sooner podcast. He mentioned the critical role bonds, among other less risky assets, can play in our mental and financial health. “Part of the thing is to get a fair, substantial part of your portfolio in very, very safe, short-term securities,” he said. “And, for the nervous nellies, that’s probably bigger than it is for other people. And also to have asset classes that don’t move exactly in the same direction as the stock market. And this is one of the reasons why I think real estate funds, which would impart a little more stability into a portfolio that still has inflation protection, will work. And, even some bonds, recognizing that bonds aren’t going to do it for you all the time.”

To be clear, I’m still a proponent of dividend-paying equities over bonds. For my money, I believe that’s the best way to protect your purchasing power. Typically, dividend rates stay ahead of inflation. But, if I were to jump on the bond train, now would be the time.

I should note that I don’t endorse any specific investments, but when Burt speaks, I always listen. “In general,” he told me, “Bonds move in opposite directions (from equities), but when inflation just exploded from 1 percent to the high single digits, bonds were tough. And so, what it suggests to me is probably you need some bonds, but maybe the thing you ought to look for are inflation-indexed bonds as another way in which you can get some stability.”

Burt even mentioned that U.S. Treasury I Bonds have recently yielded high single-digits. If folks want to do that, single individuals can buy up to $10,000, and married couples can purchase $20,000 per year. These assets can help calm the restless mind that tends to interrupt the blissful slumber we crave.

Burt frets about the Fed getting interest rates back down to 2 percent or less. “If you’re worried the way I am that they might not, that safe part would look for instruments that are inflation-indexed, and those will be a wonderful balance for the volatility of the equity market.”

It goes without saying that we all should keep an appropriate amount of emergency funds somewhere that can be accessed quickly. Burt agreed that this could help ease fears. “For some people who are really, really concerned, it does mean that you want other asset classes in there, including, frankly, a good proportion of your portfolio in money market funds. I think the only solution is that everyone needs at least some liquid funds because, you know, the medical emergency happens just when junior has cracked up the family car.”

As one might guess, picking the brain of Dr. Burt Malkiel bears more fruit than I can share here. However, you can find the entire episode on my website or wherever you listen to podcasts.

Maintain a Diversified Portfolio

Though it doesn’t seem like it, history shows that the U.S. market goes up more than it goes down, and over time the income generated through a diversified portfolio ought to remain consistent. The interest paid on bonds should stay constant when markets go down. Likewise, dividend-paying stocks tend to continue paying similar amounts if you’re invested in solid quality, value-oriented companies.

You can’t control inflation or interest rates, but you can manage your anxiety. If you remember the power of SWAN and the keys to help you get there, you increase your chances of finding happiness in retirement. Our team at Capital Investment Advisors is always here to help if you have a financial question or would like to review your investing strategy.

If that counts as buying happiness, sign me up!

This information is provided to you as a resource for informational purposes only and is not to be viewed as investment advice or recommendations. Investing involves risk, including the possible loss of principal. There is no guarantee offered that investment return, yield, or performance will be achieved. There will be periods of performance fluctuations, including periods of negative returns and periods where dividends will not be paid. Past performance is not indicative of future results when considering any investment vehicle. This information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. There are many aspects and criteria that must be examined and considered before investing. Investment decisions should not be made solely based on information contained in this article. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax, or investment advisor before making any investment/tax/estate/financial planning considerations or decisions. The information contained in the article is strictly an opinion and it is not known whether the strategies will be successful. The views and opinions expressed are for educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions


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