I got a nice reminder of why I do what I do a few weeks ago when I met my dad for dinner.
As we sat down to eat, I could tell there was something he wanted to tell me, but he didn’t want to just blurt it out. But, after a few minutes, he couldn’t wait any longer.
“I spoke to your sister earlier today, so she’s already gotten the news. I’ve decided it’s finally time,” he said. “I’m going to retire at the end of this year.”
This news didn’t come as a total surprise. He’s talked about hanging up his hat for a couple years now, and he’s definitely an appropriate age for retirement. But I could tell that he really struggled with the decision. This was not something he chose to do on a whim.
I could also tell that he was apprehensive about it.
He’s in a good spot financially. He lives modestly. He’s paid off his house, he’s already drawing Social Security, and he’s accumulated a decent nest egg over a lifetime of work.
But walking away can be psychologically difficult, particularly for men, who tend to base their identity and sense of self-worth around their careers. When they quit working, they often have a hard time figuring out what to do next.
It’s a major step into the unknown… and it’s scary.
When you’ve been gainfully employed for nearly 50 years, it’s jarring to suddenly have your primary source of income dry up. And this isn’t the 1970s.
Very few Americans enjoy the security of a traditional pension. They’re on their own at a time when the yields on bonds, CDs, and most dividend stocks are near all-time lows.
So, again, this is why I do what I do: analyzing, thinking, and writing about the markets. There are tens of millions of Baby Boomers approaching that same fork in the road that my father just reached. If I can make that transition into retirement a little easier (and a little more comfortable), then I’ve done my job.
I write Peak Income, my income-based investment newsletter, under the assumption that you could put your entire retirement nest egg in the plan.
I try to manage the risk in such a way that, were you to invest your total portfolio in Peak Income’s recommendations, you wouldn’t be at risk of taking major losses. And indeed, right now, 20 of our 23 positions show positive returns.
But I would never recommend you put your entire portfolio in any single strategy, no matter how much I like it, because I’ve been doing this long enough to know better.
Even investing gods like Warren Buffett and George Soros are humble enough to spread their bets among different strategies. It would be reckless not to.
So, with that said, where does Peak Income fit into the mix?
My rule of thumb is 20% to 25%. I recommend limiting your exposure to one single strategy to no more than about 20% to 25% of your portfolio. This isn’t a hard, scientific number. But it is a level I consider prudent.
The investments I recommend in Peak Income are generally quite safe, particularly given how tight I keep our stop-losses. Chances are good that we’ll never take a large loss.
But, like anything that trades on the stock market, they’re prone to occasional bouts of volatility. And, as we saw in 2008, no matter how much research you do, there can always be some new risk that comes out of the blue.
So, again, this is why it makes sense to diversify, and not just among stocks or funds within a portfolio. You should also diversify among strategies.
Speaking of that, I’m hoping to have some good news to report within the next few months.
I’ve already hinted a few times that I’m working on a new project for my readers, coding out a new model that combines the best of value investing with the best of momentum investing.
Early results look very promising, and I hope to have an announcement soon.
Editor, Peak Income