Dollars and Sen$e, May 2015


Investment Consultant, Gary Goldberg Financial Services

There are two sides to a person’s financial life – the Income Statement and the Balance Sheet. Unfortunately for most investors, just about everyone in the financial services industry is focused on the balance sheet, and all too often ignore the income statement all together. From an industry perspective, this makes a lot of business sense. After all, brokers and advisors get paid on transactions or the overall size of a client’s portfolio they oversee. As market volatility rises, so does trading activity, and thereby more commissions. And, as time passes, markets rise and so do portfolio values, making fees rise too. The financial press also plays its part, as there is much greater attention paid to market action and the value of the Dow Jones Industrial Average than on the dividend yield of the S&P 500. So, as a result, investors have been conditioned to focus on the balance sheet – worrying about their account value instead of the income the portfolio produces.

There is absolutely nothing wrong with charging fees on the size of a portfolio or commissions on transaction.  The problem arises when this is done to the detriment of investors by failing to educate them on the importance of the income statement. Ask yourself this simple question – do you know your portfolio’s value? I’ll bet the answer is yes. Now ask yourself this question – do you know the dividend yield or income stream your portfolio could generate right now, next year, and ten years from now? If you are anything like most investors, the answer is probably no. You should change your state of mind – focus on income, current or future, and not worry about day-to-day or month-to-month market volatility.

It is perfectly legitimate to accept portfolio volatility (balance sheet fluctuation) as long as you know that in all likelihood it will not reduce your income. Your portfolio will directionally behave with the market but your income stream can be controlled by you. For instance: Let’s say you had a $1 million saved for retirement. Your satisfaction and comfort with your savings will swing along with the market.  A 10% drop and all of the sudden you don’t feel quite as good as you did. A 10% rise and you’re happy as can be… But what about the income? Let’s say you invested the $1 million in the following manner:  $300,000 into a rental property that generates $2,000 in monthly income that is likely to rise by 3% annually over time, $300,000 in a portfolio of high quality dividend paying stocks (such as the ones incorporated into our Dividend Buster Program) yielding over 4 ½% to generate about $1,100 in monthly income, another $250,000 into a managed variable annuity or fixed annuity that generates 5% annual income, or about $1,000 per month, and the last $150,000 into a fixed income portfolio – which doesn’t generate much income right now, but will over time. You now have a portfolio that generates about $4,500 in monthly income, which should increase by some $300 to $500 annually.  If you think about it that way, i.e. from the income statement side, then market fluctuation and volatility affecting your balance sheet will not be as worrisome.

Christopher Hanly is an investment consultant with Gary Goldberg Financial Services in Suffern and can be reached at (845) 368-2900 ext. 247 or