I have said before that the primary goal of successful retirement income investing isn’t growth OR income, but growth OF income. For people who are nearing retirement today, as we look over the horizon toward the thirty years that lie ahead, we must ask the question: Is it time to rethink the conventional wisdom of decades past?

Historically, the popular answer for providing retirement income (though not necessarily the correct answer) has been bonds. During the past 30 years, this has been a pretty stable way to address the issue given that we experienced nearly 40 years of falling interest rates. And if you recall from previous posts, rates and prices are inversely related. In other words, when rates fall, prices rise.

Here is what has occurred with the 10-year Treasury rate over the last 60 years or so with the peak occurring in 1981.

But looking at where rates are today, which direction do you think rates are likely to go? It is entirely possible that they could go down, but that doesn’t seem likely over the course of your 30-year retirement.

And what of inflation? How has that changed over the last 70 years or so? It is, more or less, a constant slide up and to the right.

In other words, the cost of everything you may want to purchase in retirement is likely to keep going up and bond rates are in the basement offering less than 1% at current. Can you live on less than 1% of your portfolio?

This pretty much leaves you with one thing you can do - that is to do what has, historically, always worked: Invest in equities.

For what it’s worth, I realize this isn’t a popular answer at the moment. But let’s be honest, it never has been a popular answer despite decade after decade of evidence. But as I have settled on trying to help 10 million people make better retirement decisions, sometimes what you need to hear may not be what you want to hear.

Is it possible that you could make it through retirement putting your money under a mattress or in CDs, or in bonds? Maybe so, but you must realize that you are placing a bet on a roulette wheel, but with worse odds.

Many people are currently getting caught up in the uncertainties surrounding the current market and that is understandable. My job, as I see it, is to help people make rational decisions in the face of uncertain circumstances.

With the entirety of our country’s history to look back upon (not to mention centuries of continued human innovation), are we to believe that the Great Companies of America and the World will fail to thrive over the long run? Assuming they do thrive again, and I believe they will, what do you think is likely to happen to the returns, earnings and dividends of these great companies?

This may very well be your answer to the growth of income problem.

Stay the course,

Ashby

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This post is not advice. Please see additional disclaimers.