One of the biggest problems investors who are approaching retirement, or are now retired, have shared with me over the years is, how can we earn enough to stay ahead of increasing costs, (inflation) with our investments without taking a lot of risk? The solution IS applying the very successful strategy of Positive Return Positioning™.
In any attempt to develop a sustainable investing philosophy an investor must be able to separate themselves from mixed messages, primarily those that promote speculation over common sense. Positive Return Positioning is based on logic and reason, incorporating timeless financial principles that are as old as the Bible. I’ve found no other strategy in all my years of investigation and counsel as an advisor that helps investors hold onto their income producing money more impressively than Positive Return Positioning™.
I believe this to be an undeniable truth; the economy is not a deterministic system. Instead, it is a very chaotic system at its core in which randomness is involved in its direction and constant re-direction. Chaos theory, as it relates to investing, postulates that even small changes in economic conditions will render forecasting practically impossible. Predicting market direction correctly once or twice is possible, but it’s been shown to be virtually impossible to do with any consistency, and consistency is the key for successfully investing your retirement money! Investors must develop a strategy that has proven consistency to survive down markets and thrive in up markets while simultaneously keeping their income stream unaffected.
The Positive Return Positioning™strategy provides the opportunity for investors to keep the gains they’ve earned over the years and still grow their money while receiving income from guaranteed accounts at the same time. It is not a pie in the sky formula, rather it is based on solid financial principles that work well.
Most investors have many needs, wants, and desires for their future, and successful investing demands the money be there, when needed-on time and available. I call this your “Life Support” money, kinda like life support in a hospital. If you need it, it better be there. For instance,you may need a reliable income stream for yourself and any dependents when you no longer work for a living. Life support money is what a LifeDesign portfolio is structured for and what Positive Return Positioning™ will keep growing for you throughout your life.
The strategy works like this. To make sure you keep previous investment gains in your portfolio while you are still working, before retirement, you introduce a trigger point, meaning a specific target date (like when you are going to retire) when the money will be used to support your income needs. Every year upon review,before retirement, this target date could change if necessary; it is not set in stone. Life has a funny way of twisting and turning which creates the necessity for target dates to be flexible.
Once a target date has been established,go backward in time 60 months before you will need “Life Support” income, then an automatic trigger (that we set up) peels the required dollar amount for one year’s worth of spending needs (5 years early) from your portfolio (while it’s in a positive or high-return period) and sends those funds to guaranteed accounts for protection.
This annual process of sending one year’s worth of money to guaranteed investments is repeated for 5 years. This transfer of funds continues until you reach the date when you trigger your “Life Support” income, and surprise, the money is there, ready to use (5 years’ worth in safe funds) not to be lost during a down stock market that could be happening in your first year or years into retirement right when you need the money to live on!
Why 5-years’ worth? If you have a properly built portfolio with an “Economy-Driven Multifactor” approach you should never experience a time when this portfolio is down more than 3 years in a row as has been the case for the last 4 decades. This gives plenty of cushion with an extra 2 years if needed. A properly designed portfolio has shown this to be true over the last 40 plus years even during the 2000 and 2008 market declines.
If you are already retired you simply take 5 years’ worth of annual spending and move it into the guaranteed side of your portfolio, this way the balance will be increasing on the growth side to stay ahead of future inflation. Each year in retirement you either take the annual amount needed from the growth side (if the market is in an up position) or from the guaranteed side (if the market is down that year). When you must use money for your annual spending needs from the guaranteed side you simply replenish it from the growth side during up markets.
During this 5-year transfer process (meaning you are pre-funding and not yet retired) if the assets in your portfolio are in a positive position, because markets are in an up cycle,you make the annual percentage move. If the assets are down in that year you don’t move any money because you don’t want to sell low.This is the whole idea behind a positive return approach. You wait because you still have a full 60 months before your retirement date, being patient and waiting for the economy to return positive,before moving the required percentage from growth assets to safety assets in your LifeDesign fund.By doing so,this Positive Return Positioning™ strategy allows investors to sell only “after” the markets have returned positive.
When the markets return to a positive return position in your portfolio (remember you have 5 years to wait patiently) you make up the percentage you didn’t move into safety the previous year or years when the markets were down. So, if you had to wait 2 years for the markets to return you would move twice as much in that up year. If you had to wait 3 years then you move 3 times as much and so on. This same strategy is used in the years during retirement when you are spending for your annual needs. You only spend your annual needs from the growth side during up market years (selling high). You only spend out of the guaranteed side when the growth side is experiencing a down cycle and continue to replenish the guaranteed side when the markets are up keeping 5-years of needs spending in the guaranteed side.
For this strategy to be successful you cannot have a portfolio containing high-risk speculative investments. You must maintain a properly structured portfolio for your “Life Support” money. Remember, this is money you need for your future income. For information on how to build a properly structured portfolio please read my white paper How to Build an Economy-Driven Multifactor Portfolio.
And don’t mistake this strategy for a traditional “buy and hold” philosophy. Buy and hold is a half-truth. You see, buy and hold never works when you hold the “wrong” investments in the wrong percentages! You must have a properly designed portfolio that survives well in down markets and thrives in up markets. I know of no better method of active or passive investing that comes close to offering an investor a way to avoid losing money in the markets than employing a Positive Return Positioning™ philosophy in conjunction with a proper growth-producing portfolio. Many folks in their later years put most of all their money in CD’s, government bonds, treasuries, money markets and so on that don’t even earn enough to keep up with inflation. I hope you will consider Positive Return Positioning™ for your important “Life Support” money.
Note: the phrase “Positive Return Positioning” does not mean that there’s absolutely no chance of loss. There are absolutely no guarantees in the world of investing. Entire economies could go under; a major depression could even cause governments to collapse. Only God truly knows and controls anything. The strategy of Positive Return Positioning gives investors a way to grow and protect wealth that works better than any method I have ever seen.
Aware Investing, Inc. is a Registered Investment Advisory firm in the state of Colorado. These are the views of Damon Lane and should not be construed as investment advice as such. Damon Lane highly recommends the reader seek investment counsel before implementing any of the ideas presented in this paper. Damon Lane does not engage in rendering tax or legal advice. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. All information in this paper is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.