Money Talks: Income versus growth

William F. Hague

For investors here in paradise, certainly these are anxious times when to comes to both the pending hurricane season, as well as the very real and legitimate concern with the stock markets and the longevity of the recent “Trump Effect.” Here is where retired investors of all demographics should become more focused on their portfolio holdings as we await the fate of a record stock market run in terms of length as well as total return.

Many retired investors rely on a stream of income from their portfolios in order to maintain their lifestyles. Other are simply forced to take the annual required minimum distribution, or RMD, from their IRA’s. Generally both of these investors will have a combination of both income and growth holdings.

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When we think of income versus growth, many will say; “ … well, I want both … ” This is perfectly reasonable objective as the cornerstone of retirement for most investors is to effectively build, preserve and protect their assets. This, of course, would require both income as well as growth holdings. In the pursuit of these combined objectives, many retired investors find themselves with an asset base that may experience swings in values going forward. Of course, for most, the swing has only been one way for roughly seven years now, and that is of course, up in value.

There are a couple of variables that not only differentiate the income holdings from the growth holdings, but there are also similarities that may coincide with the timing of market gyrations. First, on the income side, many who rely on their life savings receive a stream of income from both stocks and bonds based on yield. In many cases, yield refers to the dividend income form a popular income stock holding known as “preferred stock.” This particular holding is not immune from losses in value when the markets lose value, but perhaps more important is the fact that in most cases, regardless of the stock price movement, the annual stream if income generally stays level and predictable.

Here is where the income investors must decide if they are comfortable with portfolio losses, and if so, then “how much is too much?” Again, the lifestyle income from these stocks will not necessarily drop, however investors should be prepared for monthly statement with dropping values at some point. Perhaps the most common income holding is good old bonds. Yes, bonds now on the heels of a full decade of record low rates have not had much worry about as they have continued to hit home runs during this prolonged interest rate suppression.

Here again, we all know that rates can only go up from here, in fact The Fed has given investors a time table for the rate increases, of course subject to change. The only thing we do not know is how far is too far before the impact of rising rates finally starts to generate bond losses with everything from individual bonds to mutual funds with bond holdings. The latter is far more reaching, unfortunately, as many retired investors are not even aware that their mutual funds may have exposure to bonds. This too, shall come to light at some point. The good news here in both cases is that even with pending losses “on paper” the income generated by most bond holdings should remain fairly stable. Of course, there are exceptions to this rule.

When we think of growth holdings within a given portfolio, many have simply relied on traditional growth stocks to achieve this objective with much success during the last seven years. In fact, so much success that many have simply blocked out the pain that came with the last market meltdown.

The key for many retired investors at this juncture is to achieve and maintain transparency and liquidity should the losses become too great to bear. Investors vary within their loss/pain thresholds and this is why frank conversation regarding potential losses comes in to play. Fortunately, many investors have found both income and growth in the powerful combination of income from insured index investing and growth from managed futures … all of which lead to the life of a SWAN, Sleep Well At Night.

William F. Hague is a managing partner of Hague Wealth Management; 239-389-1999 or The opinions and observations stated above are those of the columnist.