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#2 of Series

Updated: Oct 19, 2022

How do I structure my portfolio for the income I want? Based on my age, is there a "prescribed" portfolio?

Broadly, there are two ways to build a retirement income portfolio.

  1. Income-Based: Limit your spending to the “yield” from the portfolio – the income-based approach. You would only consume the income (dividends and interest) that the portfolio generated. At low interest rates and dividend yields, it may not generate enough income to meet your spending needs. Investors in this approach often increase exposure to “higher yielding” investments (reach for yield) to get the income needed to meet expenses which increases the risk of the portfolio. In a low yield environment, some of the highest yielding investments are the most popular, and therefore are relatively expensive and have lower expected total returns. A last point, company dividend policies could change.

  2. Total Return Approach: I believe a better approach is to build a portfolio based on your need, willingness, and ability to take risks. This approach seeks to build a mix of investments with a total expected return (dividends, interest, and appreciation) to meet your goals and is unconcerned with how income is generated – through yield or selling securities. The yield of the portfolio is simply a byproduct of a broadly diversified portfolio.

Your time horizon is a key factor in building a portfolio. The appropriate strategy to fund a goal that is five years away will certainly differ from a strategy for a goal that is 30 years away.

However, your age may not be the most important factor. What matters more is your need, willingness, and ability to take risks. And remember, if you are the typical married couple, retiring at age 62, there is a high probability that one of you will continue to need income in 30 years!

So, how do you structure a portfolio for the income you want? It depends! A qualified advisor may be able to help. I encourage you to find a guide.

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