Market Beat: The 4 percent rule | SierraSun.com
YOUR AD HERE »

Market Beat: The 4 percent rule

TRUCKEE, Calif. andamp;#8212; Investors in need of income in todayandamp;#8217;s volatile markets face some unique challenges. This is not your grandfatherandamp;#8217;s market. Interest rates are at all time lows while market volatility has recently been hitting all time highs.In a normal interest rate environment, investors can ladder high quality bonds and expect to receive decent cash flow. Many planners and investors use the 4 percent rule for withdrawals from retirement accounts.The 4 percent rule is also known as the andamp;#8220;Trinity Study.andamp;#8221; It was originally published in 1998 by three professors at Trinity College in Texas and applies to the ideal withdrawal rate of a retirement fund. The rule suggests that you withdraw 4 percent or your portfolio in the first year of retirement, then each year increase that by an inflation adjuster, the cash flow keeps up with inflation.Using that methodology retirees have a very high probability of seeing their funds last at least 30 years. In the original study, a 50-50 stock and bond portfolio had a 95 percent success rate.If treasury bonds were paying 7 percent or so, it would be a simple matter to design a portfolio that would meet or exceed the 4 percent rule. Today that is not so easy. Investors face record low interest rates, choppy markets and inflation.While growth investors can sit in cash during volatile markets and wait out periods of instability and falling equity prices, income investors often cannot. If income investors sit in cash at essentially 0 percent and withdraw at 4 percent to 5 percent, they are guaranteed that they will deplete their principle. Growth investors can sit on the sidelines in cash and wait for opportunities to invest.Income investors have a need for a steady, reliable stream of cash flow that is not so easy to find in todayandamp;#8217;s market without taking on an undesirable level of risk.Kenneth Roberts, a Truckee-based Registered Investment Advisor, has been in the securities business since 1992, has worked as a branch manager for a major Wall Street firm and is currently a portfolio manager for Fusion Asset Management. Information on his money management service can be found at http://www.fusiontargetretirement.com or by calling 775-675-8065. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.


Support Local Journalism

 

Support Local Journalism

Readers around Lake Tahoe, Truckee, and beyond make the Sierra Sun's work possible. Your financial contribution supports our efforts to deliver quality, locally relevant journalism.

Now more than ever, your support is critical to help us keep our community informed about the evolving coronavirus pandemic and the impact it is having locally. Every contribution, however large or small, will make a difference.

Your donation will help us continue to cover COVID-19 and our other vital local news.


Start a dialogue, stay on topic and be civil.
If you don't follow the rules, your comment may be deleted.

User Legend: iconModerator iconTrusted User


News

Palisades Tahoe moves up opening day to Friday

|

OLYMPIC VALLEY, Calif. — Following a massive early-season storm that delivered 10.5 inches of precipitation in just 24 hours — and three and a half feet of snow at upper elevations — Palisades Tahoe will…



See more