Producing $2,500 of Monthly Income with a $100,000 Portfolio

I recently went down to Florida to see my folks and found something disturbing as I talked to their friends.

We all know that many people who have been on fixed incomes lost 50% of more of their portfolios during the crash but what I hadn’t realized is how deeply this was impacting those retirees because their fund/pension managers have, for the most part, done nothing to adjust their investing strategies at the market bottom.

The average American has just $88,000 when they retire but we’re not talking about them - we are talking about the retirees we aspire to be - the upper percentile Seniors in like the ones in West Palm Beach and Boca Raton, Florida. The average couple there had closer to $1M in portflio assets before the crash and closer to $600,000 now. Even so, that can cause quite an income adjustment for a retired couple.

Fortunately most of these people own their homes and get free government health care (Medicare) so they are not as devastated as younger Americans who are still paying off their homes and just working on saving for retirement while trying to provide health care and education for their children. With Social Security (another thing that is iffy for us younger Baby Boomers down the road) adding $2,000 a month, the average 6% rate of return on a balanced portfolio of $1M was $5,000 a month plus $2,000 from SS = $7,000 a month, generally enough to pay taxes and bills for the house, eat out once in a while, support 2 cars, do a bit of traveling and even belong to a golf club (dues in the average high-end development are $15,000 a year).

The idea, of course, is to do all this WITHOUT dipping into the $1M principal that’s invested in stocks and bonds. Then came the crash. The S&P dropped from 1,500 to 666, down 55% in less than a year. Suddenly the $5,000 a month that came from investments dropped to $2,500 a month or less. Even worse, many classic portfolio mainstays like dividend paying financial institutions and American manufacturing companies were among the worst hits with dividends being canceled and some financials going to zero so quickly there was no chance to get out, especially with the do-nothing type of investment brokers that most retirees end up with.

Unfortunately, we hit a bottom (sort of) in November of last year and kept going lower through March. 6 months at the bottom with things getting worse caused a lot of retirees to move to cash or to eat into their principals, selling stocks at the bottom and then missing much of the move up. So people who had $1M in 2007 to live on for the rest of their lives now have $600,000 if they are lucky. If you haven’t considered where you will be at age 65, I strongly urge you to use this nifty retirement calculator and start saving much more than you thought you should right away!

Given that the average ROI for a retiree’s portfolio is 6%, or just $3,000 a month on $600,000, I am proposing to try an experiment that moves $100,000 into a virtual portfolio as a test run that can, by itself, generate $2,500 a month. It will be riskier than the normal mix of stocks and bonds but we will attempt to hedge the positions as well as possible using various strategies that do not take a lot of babysitting. Making $2,500 against the existing mix will drive the monthly portfolio income from $3,000 to $5,000 - right back to where it was when the portfolio had $1M in it. This can stop people from having to cut into their principal while we ride out the down market while only putting 20% of the overall capital at greater risk.

Keep in mind this is a virtual portfolio but our last $100,000 Portfolio had a WEEKLY return of over $1,000 since April 10th and is retiring this week with more than our year’s goal of 20% after just 4 months. Hopefully we can replicate that performance here and, as the previous portfolio was so popular, we have been asked to form an alliance with Wall Street Survivor, who will be making a live, virtual portfolio available to all Premium Members of PSW free of charge. I will also be sending out Alerts on all $100K Portfolio moves to Premium, Basic and Alert subscribers, so make sure you have one of those if you wish to follow this $100KP, where we will go into detail on each of the strategies, much as we did with the original $100KP.

Our goal here is going to be to establish the principle of the portflio in Q3, to give people comfort that this can work over time and then, on October 1st, my plan is to restart the portfolio with a fresh $100K utilizing some new technology we are working on to allow an even higher level of Alerts on all portfolio moves, possibly even including account linking.

If you know anyone living on a fixed income who may be interested in seeing how savings can be leveraged to produce a bette income stream, feel free to use your existing member link to send them a free trial of the PSW Report, which will allow them the option of upgrading to an Alert membership to follow us for just $49/month, where they can track all the portfolio moves. The Portfolio itself will be available at all times under our Portfolio tab for Basic and Premium members only as last time too many Members had trouble getting fills on some of our less liquid plays with the publically available $100KP.

Well, that’s the intro - the next post is private and we’ll lay out our first round of picks!