You have been saving and investing diligently in your 401k, your IRA, and maybe even in a brokerage account. You have been diversified in the different areas of the market and watched the value go up and down. You have researched low-cost growth funds that have done really well for you. Over time it has grown to what you could use to retire and serve the long-awaited senior mission. But wait, as you move from growing your nest egg to needing it to fund your service and expenses, do the same growth funds and allocations that have gotten you here stay the right ones that will get you to where you are going now?

A Time of Investment Change

Throughout your working life, you’ve work very hard to save and invest to grow your money. We spend decades learning and being trained how to invest for growth. But as you make the transition from saving and growing for retirement to sustaining and spending during retirement, the strategy and assets that were best aren’t the best anymore. In fact, without changes, it could cause you tax and sell timing problems that could compound more problems as time goes on.

Several years before you need to start withdrawing some income, making gradual changes from investing for growth to investing for income will go a long way to alleviating the problems that could throw off an otherwise solid base.

It’s important to understand how growth and income investing differ:

Investing for Growth

• Objective: Growth investing aims to achieve capital appreciation over the long term. Investors focus on assets that have the potential to increase in value significantly.
• Assets: Growth investors typically invest in high-potential stocks that are expected to grow rapidly. These stocks may not pay regular dividends but offer the potential for substantial gains.
• Risk Tolerance: Growth investors are willing to take on higher risk because they prioritize long-term growth and are comfortable with market volatility.
• Time Horizon: Growth investing requires a longer time horizon, allowing investments to compound and appreciate over years.
• Example: A working investor who allocates funds to small companies with high growth potential is following a growth investing strategy

Investing for Income

• Objective: The primary goal of income investing is to generate a steady stream of income. This income can come from various sources, such as interest, dividends, or rents.
• Assets: Income investors typically focus on assets that provide regular cash flows. These assets may include dividend-paying stocks, bonds, real estate investment trusts (REITs), and other income-generating securities.
• Risk Tolerance: Income investors tend to be more risk-averse because they prioritize stability and consistent returns.
• Time Horizon: Income investing is often associated with a shorter time horizon, as investors seek immediate income.
• Example: A retiree who relies on dividend income from their stock portfolio for living expenses is following an income investing strategy.

It’s in the combination

Because a lot of people may be in retirement upwards for 40 years, one cannot ignore investing for growth if they want their portfolio to keep up for all those years. It’s all about the combination: how much of your portfolio will be generating income, how much will be generating growth.

One way to determine this is by using the bucket method. I’ll discuss this in the next post.

Conclusion

By taking steps several years before you retire and want to serve a mission, starting to make incremental adjustments to how you are investing can go a long way to helping you avoid sequence of return problems or putting yourself in position to pay more in taxes. Thus setting yourself up for

Alan B Faerber CFP®, CRPC®