One of the good things about being the “old guy in the corner office” is the opportunity to share your experience with others. As a private portfolio manager, bringing people from active careers into nearly as active retirements has always been a major objective.
Many of us are not retired because we don’t choose to be… knowing that we can retire, when we actually want to, is where we need our professionals (and our benefit programs) to bring us.
Over the past 45 years, market value focused retirement plans (nearly all investment portfolios become retirement portfolios eventually) have been disrupted by three major financial meltdowns… income and quality sensitive portfolio structures based on “working capital” instead of market value have proven to be reliable income development vehicles during such times.
Today’s 401k programs are treated as though they are retirement programs when, in reality, they lack (purposefully, perhaps) the single most important element of all retirement plans… the income.
Today’s investment community is so focused on short term blinks of the market value eye, that it seems blind to the ultimate purpose of these popular investment programs. You just can’t spend market value or “total return”… you need to grow income, and this should be the long-term objective.
Short term market value change is just too emotional an issue to run a long term decision model… all the portfolio variables are cyclical and need to be our friends. Lower prices need to be as welcomed as higher prices, and neither should be allowed to impact the growth of portfolio income.
Cost based asset allocation grows income every year regardless of what happens in the financial markets… that bears repeating. Cost based asset allocation grows income regardless of changes in security market values.
Portfolios need to be structured/managed so that cyclical changes are beneficial, not problematic.
“Retirement readiness” is not possible without reliable income produced by a “purpose” structured investment portfolio. Every security in the portfolio must produce income, even those that we purchase mainly for growth. IGVSI stocks accomplish this within the equity asset allocation.
Defined contribution plans have become the “nest egg” builders of the modern era… but their market value focus (even in target retirement and income funds), makes them unsuitable as income development vehicles.
What happens to 401k advisee portfolios when the market corrects? It should never be allowed to impact the projected income….