Case in point. A couple needs $60,000 in annual cash flow from their portfolio. A $2.0 million portfolio can easily sustain this level of distribution over the long haul (35+ years) because the level of distribution is three percent.
The question then becomes what level of growth is needed to sustain this three percent level of distribution plus inflation. Assuming the long-term rate of inflation is three percent our portfolio needs to achieve a six percent annual growth rate. Does your portfolio need to set up to produce a ten percent level of distribution? Only if wealth accumulation is the secondary goal.
Your portfolio can be structured for a more moderated growth rate which will provide your required cash flow plus inflation. In short, building a portfolio which produces enough wealth to allow you to achieve all your investment goals.
Cowan Capital Advisors utilizes Nitrogen risk management software to determine the following:
Establish what your self-assessed baseline risk tolerance is.
Determine what the risk of your current portfolio is and if that risk is consistent with your baseline risk tolerance.
Analyzing how much risk do you actually need to take to meet your financial objectives.
