Not Your Grandfather’s Retirement Portfolio

Sheaff Brock perspectives on investing for retirement dividend income and growth

Not Your Grandfather’s Retirement Portfolio

“We are living in an interesting time,” says Sheaff Brock Director and National Sales Manager, Jim Murphy, “and three factors are going to make all the difference when it comes to retirement planning.” Those factors are:

  1. Longevity
  2. Low capital market expectations
  3. Low interest rates (with the threat of ‘rising interest rates’ looming)

Murphy believes that, “The idea of basing your sole retirement income on dividends and interest [from your investment portfolio] can be a challenge for investors facing retirement. Investors need to keep their minds open to a larger and more diverse set of investment solutions—solutions that can offer retirees both the income they need and the growth necessary to sustain purchasing power.”

He observes:

  • people are living longer,
  • have low capital market expectations, and
  • face historically low interest rates.

Murphy goes on to declare that adequate planning to ensure income in retirement is a must. Some investors may face fundamental changes to how they approach this task. For example, it is becoming increasingly important for investors to compare the allocation of debt securities to equities in their retirement portfolios. Doing so will ensure that they have enough growth-type holdings to hedge inflation risk. Hopefully, this will grow their portfolio over time.

In regards to dividend-paying stocks, Murphy notes that investors should be careful not just to look to the highest-paying offerings in dividend-paying stocks. They should also consider stocks that have been growing their dividend payment over time.

Investors need to be comfortable with a ‘total-return’-type strategy for their overall income needs through retirement. Total-return withdrawal plans will involve some principal along with dividend and interest income to meet income needs.

Additionally, investors must hold a healthy respect for ‘The Big I’—Inflation. Murphy comments, “Sheaff Brock’s Dividend Growth & Income Portfolio is based on the principle that, when it comes to inflation, defense is sometimes the best offense.”

Dividends play defense in several ways:

  • They can indicate the health of overall corporate governance (a ‘healthier’ company generally issues a dividend).
  • They may provide some degree of downside protection (if the price of the stock declines, the income from its dividend can act as a cushion).
  • If a dividend is considered a ‘qualified’ dividend, it is taxed at the capital gains rate (instead of the generally less-favorable ordinary income rate taxed to non-qualified assets).

This ‘interesting time’ we are living in provides challenges for the investor looking to meet income needs in retirement.

Murphy’s recommendation? Consider investing in dividend-paying stocks which offer not only income from dividends payments, but can offer growth in payout over time and an opportunity for capital appreciation. Hardly your grandfather’s retirement portfolio!

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