Portfolio Management Planning In West Chester PA - Financial & Investment Tips for Retirement Income

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Imagine, you have just spent the last 30+ years of your life devoted to work. The seemingly endless routine of making the daily commute only to spend countless hours in meetings, speaking with customers, and tackling challenges is about to come to an end. Through years of diligent savings and sacrifice you have amassed a nest egg worthy of retirement. There is only one problem……how do you turn your nest egg into a money machine? More specifically, how do you make your nest egg produce a reliable income source for today and into the foreseeable future?

Most investors would tell you the answer is to invest in bonds or certificates of deposit. These are important income producing vehicles, but they are only part of the answer. While each retiree´s income requirements vary, there are some simple strategies you can follow to help generate a predictable and lasting income stream from your investments. Here are a few steps you can follow:

1. Divide your Portfolio into 3 Pools of Money

Take an inventory of your investments and categorize them by their inherent level of risk (i.e. volatility in price). Cash and bonds typically fall into a low risk category, large cap stocks and companies with regular dividend payments are moderate risk, while small companies, international, or alternative investments are high risk. Once you have classified each investment, assign them to a money pool with pool #1 representing low risk, pool #2 for moderate risk, and pool #3 for high risk. Here is a quick example of a hypothetical portfolio:

Portfolio Allocation:5% in Cash Risk:Low Bucket:1

Portfolio Allocation:10% in Government Bonds Risk:Low Bucket:1

Portfolio Allocation:25% in Corporate Bonds Risk:Moderate Bucket:2

Portfolio Allocation:35% in Large Cap Stocks Risk:High Bucket:3

Portfolio Allocation:10% in Small Cap Stocks Risk:High Bucket:3

Portfolio Allocation:15% in Emerging Markets Risk:High Bucket:3

When you need money from your portfolio you simply pull funds from investments represented by pool #1. We pull from pool #1 because low risk investments do not fluctuate greatly in price and provide a steady stream of income by the interest payments they provide. This means two things, the money will be available when you need it and it ensures part of your portfolio will stay invested in higher risk investments that have the potential to provide long-term growth. Be sure to rebalance your portfolio regularly as withdrawals will deplete bucket 1 over time. It would be wise to find a qualified financial planner for this strategy as they can help you set up a regular system of payments and rebalance your portfolio as needed.

2. Diversify your Fixed Income Investments by Maturity

Diversification is just as important in a bond portfolio as it is in a stock portfolio. Bonds expose an investor to a number of risks such as maturity risk. This is the risk that the prevailing interest rate to reinvest will be inferior to what the maturing bond was paying. One way an investor can recoup a similar interest rate / income stream is to pay a premium for a similar quality bond or purchase a bond with a lower credit rating, thus exposing them to increased risk.

A solution is to spread the bond allocation of your portfolio among a range of maturities. This is also known as a bond ladder and can be accomplished with bond funds or individual bonds. Basically, as the shorter term bonds mature they are reinvested at prevailing market rates. This allows you to participate when rates rise by locking in new money at higher rates. However, should rates fall you are protected because you still hold bonds with longer maturities, which are locked in at higher rates. This strategy is beneficial because it provides a more consistent income and greater liquidity since bonds in the portfolio are maturing at steady intervals.

3. Use After Tax Money First

Use after tax accounts first before you begin to dip into your IRA or other tax-deferred accounts. There is no sense in paying income taxes on withdrawals before you have too. Allowing your tax deferred funds more time to growth can result in higher account balances than could otherwise be achieved in a taxable account. This will ultimately provide greater financial resources farther down the road of retirement.

Disclosure:

There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. No investment strategy, such as asset allocation, can guarantee a profit or protect against loss in periods of declining values.

Securities and Advisory Services Offered through Royal Alliance Associates, Inc. Member FINRA/SIPC.

Advisory services offered through Key Financial, Inc.

A Registered Investment Advisor not affiliated with Royal Alliance.

1560 McDaniel Drive, West Chester, PA 19380

E-mail: pbrennan@keyfinancialinc.com, Phone: 610-429-9050

For more information, please visit www.keyfinancialinc.com.