Many people simply rely on the interest and dividend income generated in a portfolio to supply their cash needs. This can result in a portfolio being much riskier than is appropriate. For example, during the past several years when interest rates have been at historic lows, one would need to invest in lower quality and/or longer-term bonds in order to get the targeted income solely from bonds. Or for those who solely focus on dividends, the dangers of this strategy presented themselves when financial stocks, which are typically high-dividend payers, fell significantly in value during the 2008 financial crisis. Another risk associated with solely focusing on dividends and interest for income, ignoring capital gains and refusing to touch principal is that one could be living significantly below their means.
Embrace the fact that your investment portfolio has multiple sources of cash flow that can be relied upon. Appreciate that those different sources will each contribute to your total cash flow in different ways under different market conditions. Doing so will help to ensure that you maximize both the cash flow potential of the account and the portfolio’s longevity without assuming more risk than you are comfortable with or that is appropriate for your situation.
Core Wealth Management is a fee-only wealth management firm located in Jupiter, FL. Our CFP® professionals provide investment management, financial planning, and advisory services, while always strictly abiding by the highest fiduciary standards. For more information, contact us today at 561-491-0231.
Jackie Goldstick, CFP® is the Director of Financial Planning at Core Wealth Management. She is a member of the National Association of Personal Financial Advisors (NAPFA) as well as the Financial Planning Association (FPA).