Recently, a retired widow met with me to discuss her concerns about having enough income from her investments. I reviewed her portfolio and made some suggestions about restructuring her investments to get predictable income. Here are some ideas I brought up:
Bonds pay a set amount on a fixed schedule, so if you are looking for predictable income, consider including bonds in your investment portfolio. A bond’s interest rate is usually commensurate with the level of risk; if you buy a “high-yield bond” (often known as a “junk bond”), you get a higher interest rate than if you buy a high-quality bond. A well-designed portfolio may incorporate different types of bonds in order to diversify risk.
Consider buying multiple bonds and building a bond ladder
Another way to diversify the risk over time while creating a predictable income stream is to use a technique called “bond laddering.” This means you buy a series of bonds with successive maturities, for example, one, two, three, four, and five years. When the first bond matures at the end of the first year, you reinvest the principal in a new five-year bond at the prevailing interest rate. As each of the first set of bonds matures at the end of each year, you do the same thing. This way, you have ongoing and dependable returns. You can customize the rungs of your ladder (i.e., the amounts of money you wish to invest), the height (meaning the longer- and shorter-term investments), and materials (types of bonds) to suit your own personal needs and risk tolerance. Bonds do have risks, so be sure to speak to a financial professional, or get in touch with my office, to determine if they’re right for you.
Two free videos on bond ladders
I created two short (and free!) videos about creating a bond ladder. Watch them here: Profile-financial.com/bond-ladder. If you have investments in the United States or are concerned about increasing the income from your portfolio, call my office (02-624-2788) and see if we can help you with a portfolio review.
Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.
Published September 28, 2015. Updated November 2020