Table Of Contents
Low Interest Rates
I have been advising and writing on investing in a low interest rate environment for decades now. I recall writing an article for the Wentworth Courier back in February 2003 (see below) on this very dilemma. It is so interesting to revisit my opening words in that article:
Today in an environment where interest rates are likely to stay between 4% and 6% over the medium to long term, and where rental yields ... are now 2% to 3% many Australians, who have accumulated substantial wealth are now concerned about their investments not providing sufficient income stream to meet their living needs ... I’m sure that most retirees would love to be receiving 4-6% today, but the 12 month rate of 0.65% being offered by our leading bank at the moment is likely to be the yield on most secure fixed interest investments for at least the next five years.
Investment Principles
Since 1989 I have been successfully guiding retirees on the foundation of three investment principles:
1. Don’t chase yield, as the higher the interest yield the higher the risk eg. Estate Mortgage in 1990;
2. Don’t invest any money in the share market that you will need to use in the next five years; and
3. Purchase equity in companies that are growing their earnings rather than paying out the majority of their profits as dividends.
These principles were primarily developed from studying famed US investor Warren Buffet. What I found most intriguing about Buffet was the shareholders of his company, Berkshire Hathaway, are wealthier today because Buffet won’t allow dividends to be paid. Buffet advises shareholders that they can generate a far higher income stream by what he calls the “sell-off approach”, which is almost identical to the Draw Down Approach that my clients have benefited from since 1994. The difference with my approach is that each draw down is taken from cash and fixed interest investments, rather than selling shares as Buffet suggests. By using this approach my clients have comfortably drawn an income stream of between 6% and 8% over the last two to three decades.
An Invitation
If you would like to secure a 6% to 8% income stream by utilising our Draw Down Approach, please phone or email to arrange an initial discussion with me that I will provide without cost or obligation.
Disclaimer: This information is general advice only, & has been prepared without taking into account the objectives, financial situation, or needs of any individual. It is not a specific recommendation to buy, sell or hold any product or security. Readers should seek financial advice before making a decision & should consider the appropriateness of this advice in light of their own objectives, financial situation, &needs.
