Invest 4 Income

One of the fundamental flaws in the Financial Planning & Superannuation Industries dates back to the time that the modern Superannuation system commenced. Most Financial Planners and Superannuation providers design their recommendations around the concept that their clients will accumulate capital whilst they are working and once retired drawdown on that same capital to fund their lifestyle. Both the clients and the adviser hope that they (the client) expire before the capital does!

However, there are a number of serious flaws in this process – people on average are living longer.

Firstly, in 1985, a woman who retired at the age of 65 was expected to live for 18.5 years. By 2010 this had risen to 22 years. What will it be in another 25 years?

Secondly, drawing down on your capital during negative years has a dramatic effect on the longevity of your capital. This is due to the fact that you then have a smaller number of investments to grow during the positive years. This is why so many retirees have been impacted by the GFC and have still failed to see their investments return to pre-GFC levels.

By comparison, if you invest with the goal of producing a growing income stream the fluctuations in your capital become almost irrelevant. The reasons for this are:

• By not needing to sell investments in negative years you benefit from having a consistent portfolio to produce your income;
• By not needing to sell investments in negative years you benefit from having the same number of investments to grow during positive years;
• By having a portfolio that produces the income you require on a year to year basis, life expectancy is no longer a consideration. Even if you live to be 100 you would still be receiving an income from your investments; and
• By not touching your capital you have the ability to bequeath an income stream to your heirs or the charity/ies of your choice.

So, if it makes more sense to invest for income rather than capital growth why do most financial planners not do this?

Put simply, because they don’t have the skills or knowledge to construct strategies & investment portfolio’s to achieve this. At Strategy Financial Consulting our focus is to produce the income our clients need, when they need it.