New Balance for Your Portfolio

Our recent article about finding your strategy provoked interesting conversations. We quickly saw a new framework for investors to reconcile competing needs and desires. This article puts context around the three central tradeoffs investors face.

Current Income or Long Term Growth?

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Fortunately, there are investments and strategies that offer the opportunity for long term growth while providing current income. Dividend-paying blue chip stocks are the best example. While suitable as part of an appropriate portfolio for many people, growth with income investments do not provide stability of market value, part of the next tradeoff.

Stable Value or Long Term Growth?

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While most people might prefer stability AND growth, it isn’t possible to have all of both. The best we can do is some of each. We ceaselessly seek to inoculate clients against fear of downturns, which are an inherent part of long-term investing. Behavioral Economics suggests that the price of stability is too high And yet most people need some ‘money in the bank’ or stable value holdings. They serve as emergency funds and also build confidence in your investments.

Stable Income or Stable Value?

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This may be the most under-utilized concept in the financial world. Investments that provide reliable recurring income fluctuate in value. And investments that deliver stable value do not provide reliable recurring income. Those now planning to retire have seen a vivid example in their lifetimes. Bank deposit interest rates have ranged from more than 1% per month at times to less than 1% per year at other times. In other words, the value was stable but the income was not.

The key concept here is that people living on their capital do not spend statement value to buy groceries or pay the electric bill. Portfolio income is the key to the monthly budget. Therefore, reliability of income could be more vital than stability of value.

Putting it All Together

We can do a better job of managing our goals when we understand that reliable income and long term growth provide opportunities that stable value holdings do not. Think about these ways to build a portfolio that you can live with:

  • Set aside an emergency fund so you are prepared for the unexpected.
  • Know where your income is coming from for the months and years ahead.
  • Plan for rising cost of living with a certain amount of growth potential.

These are major issues, requiring some thought and discussion. We are available; write or call to set an appointment when we can discuss your situation.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

Stock investing involves risk including loss of principal. The payment of dividends is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time.