FINANCIAL PLANNING TERMS...Stock

What is stock?

A stock is a share in the ownership of a company. As an owner, investors have a claim on the assets and earnings of a company as well as voting rights with the shares. Compared to bonds, stock investors are subject to a greater risk of loss of principal. Stock prices will fluctuate, and there is no guarantee against losses. Stock investors may or may not receive dividends. Dividends and gains on an investment may be subject to federal, state or local income taxes.

Standard & Poor's 500 Stock Index is an index consisting of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large-cap universe.

The DFA Micro Cap Portfolio (formerly U.S. 9-10 Small Company Portfolio) is a mutual fund investing in the smallest 5% of the market universe or smaller than the 1,500th largest US company. The DFA U.S. 9-10 Small Company Portfolio targeted companies in the lowest 9th and 10th deciles ranked by market cap. Small company stocks tend to be less liquid and have greater price fluctuations compared to large company stocks.

ROAD OF RETIREMENT INCOME Series | PART 4 of 7

A decrease in the spending
amount during an extended
bear market is vital for improving
the sustainability of a
retirement portfolio.

ENDOWMENT SPENDING POLICY
PART 4 of 7 Series:
THE ROAD OF RETIREMENT
The Process of Managing Retirement Income

Retirees and their advisors should thoughtfully establish a spending plan to balance the desire to maintain a consistent lifestyle with preserving assets for a retirement that could last 30 to 40 years. 

To achieve this balance, a spending policy should be developed to determine what percentage of the retirement savings will be spent initially and how this amount will change over time to reflect the effects of inflation and the performance of the underlying investment portfolio.

A spending amount is defined as the amount of money withdrawn from the retirement savings to cover expenses. All too often they increase this amount annually by a cost of living adjustment as measured by the Consumer Price Index (CPI). This spending policy is referred to as a "lifestyle" policy since it is intended to provide for a consistent standard of living indexed to inflation.

The lifestyle spending policy, although attractive due to its simplicity, is flawed in two important areas.

   1. This policy does not tie the spending level to the performance of the underlying investment portfolio. As a result, the lifestyle policy never requires the retiree to slow or reduce the spending level during an extended bear market.

   2. In periods of high inflation, spending amounts may increase too rapidly, placing a retirement portfolio at risk of premature depletion.

Blended Approach Retirement Portfolio
DECREASE SPENDING DURING AN EXTENDED BEAR MARKET


Another policy is a blended approach, meaning it uses a percentage of the prior year's spending amount together with a percentage based upon the current portfolio value. When blended together; these two values determine the next year's spending amount. Having a percentage of the spending tied to the performance of the portfolio will increase or decrease the spending amount in tandem with the value of the retirement assets. A decrease in the spending amount during an extended bear market is a vital concept for improving the sustainability of a retirement portfolio.

Endowment Policy Retirement Portfolio
DECREASE SPENDING DURING AN EXTENDED BEAR MARKET GRADUALLY


While the endowment policy is designed to lower the spending amount during a bear market, it does so on a gradual basis, thereby allowing the retiree time to adjust spending and stay on plan. Like the university endowments that use a similar policy, it can provide a balance between funding current operations while also preserving assets to cover future operations.

To begin using an endowment policy, retirees and their advisors must decide on two factors: what spending rate is appropriate and what smoothing rule should be applied, described as follows.

• Spending Rate is the percentage of the portfolio value the retiree will use to determine their annual spending.

• Smoothing Rule determines how quickly to increase or reduce the retiree's annual spending amounts based upon the portfolio's investment performance. Selecting a 90/10 smoothing rule assumes that 90% of the spending amount will be based on the prior year's spending and the 10% will be based upon the portfolio's current valuation.

If you would like us to mail you the information KIT with a FREE CD discussing the ins and outs of managing your retirement income please contact us today.
Review it online here: www.Thornburg.com

Let us get you started!
Online at our website: www.LamonAndStern.com
Call us at 770-951-8411

 --------------------------------------------------------------------------------------------------

Disclosures:


When using the endowment policy, retirees and their advisors can expect that spending amounts may not keep pace with the cost of living, unless the performance of the underlying investment portfolio grows sufficiently to support it. This slow "tightening of the belt" during bear markets is one of the keys to a sustainable retirement portfolio.


Following this strategy does not assure or guarantee sustainability of a retirement portfolio or better performance nor do they protect against investment losses.


Investments carry risks, including possible loss of principal. Investments in equity securities are subject to additional risks, such as greater market fluctuations. Bonds are subject to certain risks, including interest-rate risk, credit risk, and inflation risk. The principal value of bonds will fluctuate relative to changes in interest rates, decreasing when interest rates rise. Investments in stocks and bonds are not FDIC insured, nor are they deposits of or guaranteed by a bank or any other entity.


The performance of any index is not indicative of the performance of any particular investment. Unless otherwise noted, index returns reflect the reinvestment of income dividends and capital gains, if any, but do not reflect fees, brokerage commissions or other expenses of investing. Investors may not make direct investments into any index.


Before investing, carefully consider the investment goals, risks, charges, and expenses. For a prospectus containing this and other information, contact your financial advisor. Read it carefully before investing.

ROAD OF RETIREMENT INCOME Series | PART 3 of 7

Alleviate reverse dollar
cost averaging with a
trusted retirement advisor.

SEQUENCE OF RETURNS &
REVERSE DOLLAR COST AVERAGING
PART 3 of 7 Series:
THE ROAD OF RETIREMENT
The Process of Managing Retirement Income

The effect on a retirement portfolio under the stress of systematic withdrawals can be quite dramatic.

Sequence of returns is simply the order in which returns are realized by a retiree. The consequences of a bad sequence of returns, especially early in retirement, can mean premature depletion of the portfolio.

Retirees need to avoid being in the position of having to sell during inopportune market environments. Being forced to sell at the wrong time can result in "reverse dollar cost averaging".

Reverse Dollar Cost Averaging
PLAN TO ALLEVIATE REVERSE DOLLAR COST AVERAGING

During the pre-retirement or accumulation stage, investors making systematic deposits into an investment portfolio will typically benefit from "dollar cost averaging". This benefit results from nothing more than taking advantage of periodic drops in the price of an investment being systematically purchased. During these periods of share price decline, the investor is getting more shares for the dollars being invested.

Once an investor retires and begins to receive systematic withdrawals from their retirement portfolio, these periodic declines in the price of these shares, now being sold to cover expenses, becomes detrimental. Retirees look to generate a certain amount of dollars to pay expenses so when the share prices of the investments in the portfolio decline, the retiree has to sell more shares to raise the dollars needed. This is "reverse" dollar cost averaging.

Best Practices for Retirement Income Planning
RETAIN CONTROL OVER YOUR RETIREMENT ASSETS

To help alleviate the effects of the sequence of returns and reverse dollar cost averaging, there are four very simple best practices that can be incorporated into your retirement income planning.

   1. Diversify Your Portfolio by staying invested in cash, fixed income and stocks.

   2. Use a Cash Flow Reserve Ladder when structuring the portfolio to provide allocations to cash and short-term, highly liquid investments, which is optimal. The retiree is not under duress to have to sell.

   3. Develop a Growing Income Stream using high and growing dividend paying stocks for the equity portion of the portfolio can provide a growing income stream that should reduce the dependency on capital appreciation to achieve the retirement plan.

   4. Use a Trusted Financial Advisor who can help thoughtfully develop and manage your retirement income plan. They can provide a line of defense during times of market turbulence.

While there is no way to adequately predict the sequence of returns you will experience during your retirement, you can control the timing of when you sell your assets to support expenses. Using the strategies outlined in this article can provide a framework that will help alleviate the negative effects of reverse dollar cost averaging and should be appropriate for the majority of retirees looking to retain control over their retirement assets.

If you would like us to mail you the information KIT with a FREE CD discussing the ins and outs of managing your retirement income please contact us today.
Review it online here: www.Thornburg.com

Let us get you started!
Online at our website: www.LamonAndStern.com
Call us at 770-951-8411

 --------------------------------------------------------------------------------------------------

Disclosures:

Following these strategies does not assure or guarantee sustainability of a retirement portfolio or better performance nor do they protect against investment losses.

Investments carry risks, including possible loss of principal. Bonds are subject to certain risks, including interest rate risk, credit risk, and inflation risk. The principal value of bonds will fluctuate relative to changes in interest rates, decreasing when interest rates rise. Investments in equity securities are subject to additional risks, such as greater market fluctuations. Investments in stocks and bonds are not FDIC insured, nor are they deposits of or guaranteed by a bank or any other entity.

The views expressed in this article are subject to change.

Diversification does not assure or guarantee better performance and cannot eliminate the risk of investment losses.