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<< Read More: Danger! Will Robinson Danger! - Part Two

Today will be the third installment of a 3 article series. Right now while we are all startled like a deer in headlights we should take a step back and ask ourselves: “Who am I and why am I investing in the stock market?”. There are basically 3 types of investors: 1) Those in their wealth accumulation stage, 2) Those in their wealth preservation stage, and 3) Those in their wealth distribution phase. These stages usually parallel with what age you are.

Today I will be addressing the investors who are in the distribution stage of their investment life cycle. You are probably over 65, saved and invested wisely all your life, and accumulated a substantial nest egg, enough to live off of for the rest of your life.  You put your kids through college, set aside some money to help the grandkids continue their education, and hopefully even paid off your mortgage.

You haven't gotten to where you are without knowing the value of a dollar so even though you drive luxury cars you still look for Certified Preowned bargains and drive them until they start to get regular repair bills. You like to dine out but not the early bird specials. You know which restaurants have 50% off bottles of wine night but you know a $100 dollar bottle isn't twice as good as a $50 bottle.   Comfortable but not pretentious.

You need a plan that will allow you to begin spending, but spending wisely and keeping up with inflation. Most Certified Financial Planners will recommend a mixed portfolio that will allow you to withdraw about 5% a year, but at the same time beat inflation which has averaged about 3% a year. Ballpark, you need a portfolio that will average an 8% return over the rest of your life.

That cannot be done with a portfolio of bonds or CDs. You'll go broke before you know it. Over the past 10 years Bonds have actually had a negative rate of return, Real Estate Investment Trusts have had about an annual 5.50% return, and Business Development Companies have about a 5.16% annual rate of return while the S&P 500 returned about 11.70%, the tech heavy Nasdaq 100 about 17.00%, and Private Equity around 14.08% annually.

You can see that a properly balanced portfolio can easily give you a blended annual rate of return of over the 8% and you will accomplish your goals.

If you have mostly stocks, a little Real Estate, and a little fixed income you'll have it made.

Below I have a 20-year chart of the Value Line Arithmetic Index of 1700 equally weighted stocks.

Notice that although the price continually rises there were major setbacks along the way,  If your portfolio also contained some Real Estate and fixed income the cart would be a little bit smoother.

An aggressive portfolio of large caps and tech would maximize your return but if you can't stand that roller coaster ride diversify with other more stable but lower returns in alternative assets to smooth out the ride

Be careful but be smart.

More By This Author:

Danger! Will Robinson Danger! - Part Two
Danger! Will Robinson Danger! - Part One
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