Last time we looked at how to generate a paycheck from your investment accounts. Getting money out of your portfolio is important, but just as important is knowing from which account to pull the funds as most retirees are going to have some mix of taxable, tax-deferred (IRA, 401(k), etc.), and tax-free (Roth IRA) accounts at retirement.
For many retiring from Intel, or simply leaving to pursue other opportunities, one of their primary questions is: how do I get a paycheck now that it’s not coming from Intel? I still need to pay bills, buy groceries, etc., so, how do I fund my bank account?
For most, it means a transition from accumulating assets (contributing to the 401k, deferring income from bonuses, etc.) to supporting your spending from the portfolio you've built. Getting a paycheck from your investments can be done in two ways: 1) By spending investment income (interest and dividends) as you earn it—called an Income Approach or, 2) Through a rebalancing process on your broadly diversified portfolio—known as a Total Return Approach.
The Income Approach is simple to setup and execute but has significant drawbacks. Let’s find out what they are and learn the key to generating a paycheck from your investments via a Total Return approach.
"Avoiding a problem with foresight and good design is a cheap, highly leveraged way to do your work.
Extinguishing a problem before it gets expensive and difficult is almost as good, and far better than paying a premium when there's an emergency.
Fretting about an impending problem, worrying about it, imagining the implications of it... all of this is worthless.
Action is almost always cheaper now than it is later." ~Seth Godin on Problems
This spring Intel announced and began executing on a plan to reduce as much as ten percent of its workforce. For most, the rapidity of this round of layoffs was jarring. Mike Rogoway, writing in the Oregonian, paints the following scene:
It happened, typically, in one of Intel's windowless conference rooms, at the end of a long table under droning white fluorescent light. A supervisor arrived, along with someone from human resources.
We've got some bad news, they'd say: You're being laid off. They would pass paperwork across the table and tell you it's time to go. Right then. You might have passed a friend on the way out, pausing just long enough to share the news before handing over your Intel badge and walking out the door, for good.
In hearing from and talking with many people dealing with the layoffs or voluntary separation packages, one thing was common: the speed at which the layoffs were announced and the pace at which Intel required a decision be made was challenging. It made for a stressful period with inadequate time to plan—there wasn't much warning.
What’s more, according to the Oregonian these layoffs fell disproportionately on older workers. Many of these people likely considered retirement still a few years off but now they were left with uncertainty. Can I afford to retire now? Can I afford to work less or take a lower paying position?
When it comes to preparing for the future, and knowing where you stand, action now is better than action later.
Investing well, like any significant endeavor, requires some level of pain to succeed.
In a recent article Brad Stulberg, a writer for Outside Magazine and Runner’s World shared the advice he received from his marathon coach. To succeed as a marathoner, he “would need to learn how to be comfortable with being uncomfortable.” Stulberg says he, “didn’t know it at the time, but that skill, cultivated through running, would help me as much, if not more, off the road as it would on it.”
The importance of developing the discipline to press on when things are painful, and to execute on what’s right in front of you, goes beyond running. This trait carries over to accomplishing anything difficult in life and being a successful investor as well.
With investing the “pain” tends to come from two areas: 1) Paying attention to the fundamentals (i.e., the “boring” stuff) which is required to minimize errors, and 2) being different from other investors. Let’s take a look at each.
Whether you’re approaching retirement or already in it, you probably have questions about Social Security and how it impacts your retirement plan. Social Security is as complex as it is important. The income stream can be an integral part of a well-thought out financial plan and the myriad of options often lead to sub-optimal elections by otherwise well-informed folks. Social Security goes beyond retirement income and provides workers and their families with disability and survivors insurance benefit as well; however, this post will focus on the following key points of Social Security as part of retirement planning:
- How benefits are calculated
- Solvency of the program
- Recent changes to popular claiming strategies
- Social Security as part of your retirement plan
“It is difficult to get a man to understand something, when his salary depends on his not understanding it.” ― Upton Sinclair
Earlier this month writing in Fortune Magazine, Josh Brown, the CEO of Ritholtz Wealth Management, called opposition to a pending Department of Labor (DOL) rule “The Most Horrendous Lie on Wall Street.” It turns out, this lie is already getting exposed.
The pending DOL rule, as the Wall Street Journal describes, would “require brokers to put the interests of retirement savers ahead of their own.” It would hold all investment professionals who provide advice on retirement accounts to the fiduciary standard.
This sounds like a no-brainer right? Wait, aren’t all advisors required to put their client’s interests first?
“A goal is a dream with a deadline.” ~ Napolean Hill
Anytime is the right time to set financial goals. The beginning of the year may be a popular time to set them—with nearly half of all Americans reporting that they “usually make” a New Year’s resolution—but, January isn’t the only time of the year to do it. It’s never too late to get your financial house in order. (Side note: this article was supposed to go up at the beginning of the year, something that obviously didn’t happen, but the key, of course, is doing it at some point.) So the best time to set your financial goals is NOW, whenever this may be!
During a holiday gathering, a family member made the following toast: "May 2016 be as good as 2015 was bad."
To start the year, investors may have felt the same way. Bloomberg called 2015 “The Year Nothing Worked” as stocks, bonds and cash all went “nowhere.” US stocks (S&P 500) were up 1.4%, International stocks (MSCI World ex/US) down 3.0%, Bonds (Barclays Aggregate Bond Index) were up 0.6% and cash returned 0.0% (Short-term Treasuries). Outside of Emerging market stocks and commodities, it was a pretty uneventful year.
However, “nowhere” sounds pretty good so far in 2016, with the S&P 500 officially off to its worst start to any calendar year.
But as Ben Carlson, author and Director of Institutional Asset Management at Ritholtz Wealth Management, recently wrote, “Sometimes stocks go down. That’s why they’re called risk assets. Half of all years since 1950 have seen a double-digit correction in stocks. Get used to it.”
Engineer. Pilot. Astronaut. Col. Chris Hadfield is all three. And during his time commanding the International Space Station, he likely also had the status of the “most popular man (not) on Earth.” While in orbit he became somewhat of a social media sensation—posting breathtaking pictures of Earth from orbit, educational videos about life in zero gravity and the first-ever music video recorded in space.
If that’s not enough, he’s also an author. Earlier this year, I read his book titled “An Astronaut’s Guide to Life on Earth.” I’d recommend it for anyone interested in space and science, or simply hard work, determination and being prepared for anything.
But, it turns out there are a surprising number of lessons that apply to investing as well. So, here are eight investing lessons you can learn from an engineer, or, if you prefer, pilot and astronaut (All quotes in green were pulled from the book):
“You’re optimizing on all the wrong parameters.”
~A father to his son
Note: I look forward to Thanksgiving each year—good food is part of that for sure, but also as a time to focus on the things that really matter in life, and to spend time with family and friends. With that in mind, I present the following post inspired by a father's advice to focus on what matters.
Each week I receive a digital stack of investment articles to read. I read many, but for me there are few “can’t miss” authors. One of these is Mebane Faber, the Chief Investment Officer of Cambria Investment Management.
Meb earned his status on the top of my digital stack for a couple reasons: His investment approach could be summarized as “what do the data tell us?” Investing based on the evidence. The second reason is he gets that there is more to life than investing. Investing is rarely about just making the most money; it’s a means to an end, not an end in and of itself.
At Cordant we call this deliberate investing, or managing your wealth intentionally. Before you can set the “best” investment strategy for you, you really need to know what you are trying to accomplish by investing.
Filed under the “more to life than investing” category, Meb wrote an article last year titled “My Investing Mentor”—hint, it’s his dad.
In the post, Meb reveals one of his dad’s favorite lines: “You’re optimizing on all the wrong parameters.” In other words, the things you’re paying attention to are not going to get you the results you seek. They’re either things you can’t control or things that don’t matter. This is such great investing advice and life advice in general.
The investment industry is constantly trying to get people to pay attention to: things that don’t matter in achieving their goals, or the things over which they have no control. In short, the industry is good at telling people to optimize on the wrong parameters.
So with that in mind, here are 5 ways the investment industry optimizes on all the wrong parameters and some common sense advice for turning that around.