2024-07-25 07:35:00 ET
Summary
- Banks' large loan portfolios are primed to benefit from falling rates.
- Current loans provide higher rates, and declining rates will spur new lending activity.
- Banks are tested heavily by regulators to ensure solvency and maintain lending through a harsh recession.
Co-authored by Treading Softly
When it comes to building a portfolio that's fine-tuned to provide you with income, I like to look for what I call a "livable yield." This would be a yield that I can collect from my portfolio and readily meet my expenses head on without having to dip into my invested principal by selling shares. To do this, I design my portfolio to target an overall yield of 8% to 10%. From time to time, I'll have holdings that yield less than 8% or more than 10%, but the overall target yield is in that range. This provides me with a readily livable yield that is typically double that you would get from using the 4% withdrawal rule, which is designed to wind down the principal of your portfolio over time. By collecting dividends and not selling shares, I avoid what's frequently a specter of disaster for retirement portfolios, the Sequence of Return Risk. If you sell shares in a down market, the impact of that selling, even if only 4%, is exacerbated in subsequent years, affecting your portfolio recovery, and causing you to have a harder time meeting your future financial needs. As you get older and may have more emergencies arise, you'll have a smaller nest egg to pull from, compounding the fear that many retirees have....
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Forget CDs, I'm Earning At Least 8% From My Bank: BTO