Saturday, 8 October 2011

Investing Made Simple by Uncle8888 (28)

Read? Investing Made Simple by Uncle8888 (27)

Twin Fears of not-so-rich retirees

Not-so-rich retirees may have twin fears:

  1. Inflation
  2. Bear market
Inflation

Inflation will eat away purchasing power and that will hurt not-so-rich retirees who are more likely to depend on their investment income coming from their accumulated wealth before retirement.

Bear market

Bear market will reduce the wealth level of not-so-rich retirees. It can also be wealth destructive if not-so-rich retirees have to liquidate part of their investment for cash flow during market low. Once this negative return in their investment portfolio is locked in during market low; it will become much harder for their portfolio to recover anywhere near its last peak.

Avoid liquidating any investment during bear market

Facing with one crisis after another, not-so-rich retirees must prepare for the worst bear market and build a resilient portfolio to survive in bear markets and avoid liquidating any investment for cash flow through good asset planning for cash flow.

Investment Income

Some common assets for not-so-rich retirees to receive investment income:

  1. Fixed Income from bonds (capital protection)
  2. Dividend income from stocks (capital at risks)
  3. Rental from properties (investors believe properties are safer than stocks so the risk is lower)
Uncle8888's Investment and Cash flow model

















Uncle8888 is preparing for the worst and avoid liquidating any investment during market low by ensuring that his fixed income and top up from dividend income will be more than enough to meet his basic living expenses during the bear market. In bad times, he will just need to tighten his belt and in good times he will enjoy upgraded life style without worrying too much about his investment and cash flow during bear market.

He will reuse his existing strategy of spending his year-end bonus for his retirement income. Read? Spending year-end bonus and that means he will be spending his last year EARNED income in the current year. In this way he will have absolute control to decide whether to spend freely his EARNED income or retain part of it during bad time to ease the pain for the following year when the economy is not looking good.

How? Will this model work for you if you are retiring soon?

6 comments:

  1. Hi CW8888,
    Well put. Except we have to plan for the day CPF Board doesn't allow us to park our money there after 55 or 62? i'm only saying in case it happens. What shall we do then? Any idea?

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  2. Hi CW8888,

    A resilient portfolio!!! Sound so good.
    Please kindly share with us on current market how could one with about 300k of spare money to achieve it?

    ReplyDelete
  3. Hi CW8888,

    I am also a not-so-rich approaching retirement adopting your 3 prong approach (Fixed Income, Dividends and Rent) to build retirement income. The idea that I am toying with is whether to cash in on high bond prices (due to low interest rate) at some point in the bear market. Risk is that I mis-time the selling and end up with cash that rots in the bank for a long time. Do you have bonds and have you consider this?


    NSR

    ReplyDelete
  4. Hi NSR,

    I don't have bonds. Currently, are there any safe bonds giving more than 4% yield?

    Actually, my portfolio of growth-dividend pillow stocks are already bond-like as none of my hard earned income from employment is at risk in the market.

    CPF OA is 2.5% yield bond-like too. May be it is a bit low and payout is once a year only.

    ReplyDelete
  5. Follow Me? Mine is resilient lor. Mr Bear (2008/09) has awarded me with Masters in Stock Market. hee hee!

    Read? Hey! Are you good at stocks? (3)

    ReplyDelete
  6. Buy and hold strategy is no longer work in this era. Lots of baby boomer got stuck with thier retirement (401K) because of stock market crash.

    The stock market cycle is getting shorter, i.e. 4-5 year. I use to think of buy and hold (like warren buffet) but I change my investment strategy to buy & monitor (market cycle investing). Buy during bear and sell when bull (euphoria).

    I use FA to identify what to buy and TA for when to buy.

    RayNg

    ReplyDelete