We’ve been working for the past year or so on developing a simple, cost-effective way to generate income for clients in retirement. In years past, you could simply ladder investment grade corporate or U.S. Treasury bonds, and earn a nice 5-7% yield on your portfolio with very little risk.
However, since 2008, the Federal Reserve, in its attempt to keep the economy growing, has set it’s overnight lending rate to banks at zero percent. This key interest rate has influenced interest rates the world over. And while you can now borrow to purchase at house at sub-4%, the losers in a low-interest rate environment are retirees attempting to live off the income generated by their savings.
Enter Sustainable Income Portfolios, or what we call SIPs. We have developed 8 optimized SIPs ranging from ultra-conservative to aggressive, that aim to provide investors inflation-adjusted income, indefinitely. The more aggressive you go on the scale, the more principal fluctuation you are likely to endure. However, as in any investment, the lower the risk, the lower the potential reward.
Currently (as of 5/2/2016), all of our SIPs generate income between 2.9% and 6.5% in annual distributed income. There is potential for price appreciation in all but the most conservative SIP.
The ultra-conservative SIP that provides the 2.9% yield is best suited to those investors looking to protect principal, but yearning for more yield than a bank will provide. The other seven SIPs should all be able to keep up with inflation as asset prices rise, in addition to the monthly income they provide. The most aggressive SIP has the potential for a total annual return of up to 11%, based on past returns and volatility.
You can learn more at www.SIPIncome.com.