Total Return Analysis In Correcting Markets

It has been three months since the S & P 500 hit its latest All Time High (ATH) of $4,796.56. Since January 3rd, the average was been down as much as 14%, and this morning it started the day down about 5% for the year. The US Aggregate Bond Market Index is down roughly 6% thus far, and both could certainly go lower with each anticipated uptick in rates.

So a weak stock market for one, the specter of a full year of rising interest rates for two, stubborn inflationary pressure on the economy for three, and a major super power flexing its muscles in a war that we all hope will soon be over... except for the international law suits.

That's four big negatives overshadowing your 2022 "Total Return" prospects and here are some recent headlines that probably will increase the angst for all of you:

• ?It's Been One Of The Top 5 Worst Starts To A Year For Stocks And Bonds... Forbes 3/14/22
• ?Equities Stumble to Begin 2022; Bonds Drop Sharply as Yields Rise... Benchmark Review, recent
• ?Bond Market Suffers Worst Quarter in Decades... Wall Street Journal 4/1/22

So if all market numbers are in the DOWN 6% neighborhood for the Quarter, inclusive of any income they (the stocks and bonds) have produced during the period, where has the money come from to pay your RMDs, recurring expenses, grandkids allowances, lease payments, 2021 taxes, etc.? ?

Right, when the markets go down, most of you have to sell securities to pay the bills, possibly at capital losses or, for some, huge taxable gains. "Total Loss Analysis" (something Wall Street won't talk to you about), is a much bigger reality in down markets than total return analysis is in an up market. You can't spend total return without capitalizing on it (i.e., selling); you have no choice but to sell in the face of "Total Loss Analysis"... and it's always painful.?

• The Total Return Shell Game article 'splains some of the problems with TRA, particularly for investors who need income from their portfolios.

Every day, week, or month that this downward (or even sideways moving) market continues, your need to "invade principal" to pay the bills becomes more and more of a long term problem... a Total Loss nightmare! ?

Generally speaking, in any month that the markets do not rise or produce income that is more than you need to spend, you will be forced to violate the first commandment of investing:?

• Thou shalt never, not ever, invade your principal (i.e., your Working Capital).

If you need to spend 4% or more per year from your investment portfolio(s), most advisors would have you counting on the stock market to produce the gains needed to finance those excesses. This is their program, like it or not, even though they themselves have been taught since freshman Investments 101 that stocks are inherently more risky than all income purpose investments.

So, as I'm sure you noticed a few paragraphs north of here, I highlighted, italicized, and underlined a "most of you" comment. ?I did that because the rest of you can absolutely save yourselves from the "Total Loss Analysis" scenario outlined above. It's easy to do on your own but, admittedly, difficult to do through most professional investment advisors. If you can't take the time to learn to do it yourself, you need to find a pro who will be willing to do it for you... this may not be easy, for several reasons.?

Think a minute about what is actually happening out there in the investment world. The stock market is only 5% below the highest level in its history, but you still can't count on either Mutual Funds or ETFs to produce the 4%+ dependable cash flow you require. With interest rate change sensitive securities, the only thing that really changes with lower prices is the increased yield you can get on new or existing portfolios of existing securities.

• Such portfolios that were paying 6% just a few months ago are paying around 8% today; tax free bond portfolios are paying over 5%.

It's those portfolios of existing (rate change price sensitive) securities that most professionals don't want you to get involved with, even though they have been around 100 years longer than ETFs and thirty or more longer than Mutual Funds. And they are specifically focused, designed even, to maximize the income produced for shareholders... even most of the equity content variety are income focused! ?

Yes, they are entirely different from the individual securities they contain, but their consistent distribution track records more than make up for all the quirks that your advisor will tell you about.?

There are hundreds of multi year experienced securities out there that have been paying far more than the 4% you will need in retirement... many with more than 25 years of distribution history to analyze. There are nearly 100 stock market content portfolios that pay just as much as the income purpose variety.?

Since many of these contain hundreds of securities, you can continue to own all the stock market darlings, all varietals of income securities, from all sectors, while using all the strategies used by professional managers everywhere... in an environment where the yields after expenses are seriously higher than your portfolio is likely producing now.

Isn't it time that you told your professional that you want your portfolio to produce more than what you need to spend in retirement... regardless of what is going on in the world, the stock market, or with interest rates? Isn't it time you got yourself "Retirement Income Ready??

And one more note, what if you need (or would like to have) five, six, or seven per cent in spending money... after expenses? ?

• Over the years, none of the stock market averages, and almost none of the MFs and ETFs would have been able to produce those income numbers every year... not even in "Total Return" analytics.

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

Learn more about managed portfolios designed for retirement income production: https://www.facebook.com/groups/2492361287697923/

?