Take a look at my new recommended portfolio. The Income Growth Portfolio is for those who can meet their current expenses with an income yield from their portfolios of 3% to 5%. But these investors are relatively young. They need the income and principal to grow over 15 to 30 years to keep pace with inflation.
Many who recently retired or are near retirement fit this description. Baby boomers also should eye this strategy. You could invest only in bonds, but the yields won’t increase over time. Or a portfolio of mostly stocks would keep pace with inflation, but the principal would fluctuate sharply from year to year.
That’s why the Income Growth Portfolio is divided between real estate investment trusts, bonds, and dividend-paying stocks.
The bonds provide us with high income. The REITs and stocks also pay good income. Even better, those dividends generally will increase over time. REITs dividends, for example, increase on average 10% annually. The principal value of these investments also should increase with the stock market and economic growth. They will fluctuate less than the stock market, because the dividends provide a cushion.
My recommended Income Growth Portfolio currently is set to yield between 4% and 5%. That’s the maximum you can withdraw annually from an all-stock portfolio anyway, and this portfolio carries less risk and volatility.
If you want a higher yield, increase the bonds and reduce the stocks. But you will get less growth over time. To get a lower yield with more growth potential, reduce the bonds and increase the stocks and REITs.