The tough thing about overcoming an addiction is that the addict is usually the last to know they have a problem. So, are you a stock market addict? Read on to find out.
In life, our earliest paradigms are what shape our future experiences. For example, many in their 30s and 40s have a healthy respect for the potential dangers of stock market investing, since their earliest experiences with investing involved the bursting of the tech bubble and the housing market debacle.
On the other hand, those born before 1968, members of the Income Generation, first got serious about investing during the 1980s and 90s, in what was the best stock market in U.S. history. During that time, investors saw the Dow Jones Industrial Average shoot up from 838 at the start of the 80s to 11,497 by the end of the 90s.1
As a result, many investors and their advisors became dangerously addicted to stock market investing. Additionally, since many were participating in the market through workplace 401(k)s that invested primarily in mutual funds, many began to mistakenly associate mutual funds with safety.
Due to the tremendous growth they experienced at this time, many investors also developed the misconception that “Growth” and “Return” mean the same thing. As a result, their financial paradigm became focused on investing for growth in the stock market.
However, the reality is that Growth is just one component of return; Income is the other.
Total Return = Income + Growth
It is important to note that Growth (G) comes from capital appreciation and usually involves stock market investing, which can be highly unpredictable. The problem with investing for Growth is that the “G” can easily turn into an “L” (loss) and leave retirees scrambling to make ends meet during retirement.
Income, on the other hand, comes from interest and dividend payments and can be much more predictable, especially when you’re investing by contract, which is the case when it comes to fixed-income investing.
For example, let’s say you’ve determined you’ll need a total return of $50,000 per year to cover expenses during retirement. If your investments are generating $30,000 in Income each year, then you would need to generate $20,000 each year from the Growth component of your portfolio.
As you know, the stock market fluctuates up and down. Well, what would happen if we experienced a major market correction and you were no longer able to generate $20,000 from the Growth component of your portfolio?
- Would you be willing to change your lifestyle and learn to make do with less?
- Would you tap into the principal balance of your savings — knowing what a slippery slope that could be?
- Would you be willing and able to go back to work?
Obviously, none of these options are very appealing, but then again, nothing about an addiction is very appealing.
That’s why it’s so important for anyone close to retirement age to break their addiction to the stock market and make the switch to Investing for Income — ahead of retirement.
Instead of having to live with the constant fear that the next stock market crash could take half of your retirement savings, you could start enjoying the greater sense of consistency that Investing for Income can provide.
Not only will you be more able to protect your savings from economic uncertainties, but you’ll also be able to establish ongoing streams of income that you can count on well into retirement.
As I‘ve mentioned before, I believe the Dow and other indexes are overdue for a major correction — one that could be in the neighborhood of 40 to 70%.
So, with the question not being a matter of if, but when, it’s become imperative for anyone close to retirement age to make the switch to Investing for Income ASAP.
If you’d like to learn more about why making the switch to Investing for Income can make all the difference in your quality of life during retirement, visit theincomegeneration.com to download the free report: The Case for Fixed Income.
Of course, you can keep yourself informed on the financial issues that matter most to you by tuning into "The Income Generation Show" on Newsmax TV each Sunday at 10:00 AM.
- The Dow Jones Industrial Average (DJIA) closed at 838.74 on 12/31/1979 and closed at 11,497.12 on 12/31/1999
Investment Advisory Services offered through Sound Income Strategies, LLC, an SEC Registered Investment Advisory Firm.
David J. Scranton, CLU, ChFC, CFP, CFA, MSFS, is a nationally renowned money manager, Amazon Bestselling author, national TV host of Newsmax TV's "The Income Generation," founder of Sound Income Strategies, LLC, and CEO and founder of Advisors’ Academy. With over 30 years of experience in the industry, Scranton specializes in income-generating savings and conservative investment strategies.
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