Is it possible to simultaneously reduce risk, taxes, and fees while improving performance and transparency? I think so. Below I describe my building blocks approach to target a robust and growing stream of income.
Retirement Income
My building blocks approach to income provides a refreshing alternative to the statistical approaches used by most other advisors. This approach effectively pre-chisels much of your retirement income upfront. This can reduce future chiseling away from your portfolio that leaves you at the mercy of the market.
The first step is to use the low-risk side of your portfolio to purchase a baseline of income. This income should last as long as you live – basically serving as a personal pension. The second step is to focus the riskier side of your portfolio on high-quality stocks. I typically prefer stocks that have paid and increased their dividends for 10 years or more.
We have now created a level stream of income from the low-risk side of the portfolio. We have also targeted an increasing stream of income from the stock dividends. Intuitively, you can think about just stacking these sources of income like building blocks.
Rather than chipping away at the principal to generate synthetic dividends, this approach lets the portfolio generate your income naturally. This can mitigate, if not eliminate, the need for portfolio management. As a result, this can significantly reduce costs. Moreover, less rebalancing translates into fewer capital gains – thereby increasing tax efficiency too.
More information
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My building blocks approach to income can mitigate or possibly eliminate the need for portfolio management. Accordingly, this can significantly reduce capital gains triggered by portfolio rebalancing. Moreover, I typically use index funds or ETFs which are generally more tax-efficient than most mutual funds.
My building blocks approach to income provides a refreshing alternative to the statistical approaches used by most other advisors. This approach effectively pre-chisels much of your retirement income upfront. This can reduce future chiseling away from your portfolio that leaves you at the mercy of the market.