Retirement Income Fund - RIF

  

Categories: Retirement

When you're young, you can take risks. Ride a motorcycle. Go bungee jumping. Sing karaoke on a first date.

As you get older, though, you'll tend to dial back the risky behavior. Dinner at 4 pm, in bed by 7 pm. Never drive over 40 MPH, eat plenty of fiber...that sort of thing. Also, you might invest in a retirement investment fund.

This product represents mutual funds pitched at people already in retirement. The funds aren't looking to blow the doors off with eye-popping returns. No chasing high-flying tech stocks or trying to take advantage of fluctuations in volatile emerging currencies.

The point of these funds is to preserve capital and provide a solid total return for people who might have to start eating cat food if their portfolios get destroyed by a big market move. As such, these funds stick to conservative investments, mixing equities with bonds and cash to maximize returns with limited risk.

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Finance: What is sequence risk, and how ...2 Views

00:00

Finance Allah Shmoop What is sequence risk and how can

00:05

it derail retirement All right people You worked as a

00:10

plumber The requisite You know butt crack growth started when

00:14

you fell in love with non light Miller beer in

00:17

your early twenties And it grew as you did in

00:19

direct proportion With your savings you put as much as

00:22

you could into your four Oh one k overtime You

00:25

grew a plumbing in parts business nicely You owned a

00:27

small building you invested in stocks that paid a dividend

00:31

If you bought bonds that matured at different times you

00:34

bought a last to die life insurance policy for your

00:37

kids and you paid off your home mortgage Yeah So

00:40

at the end of your working career you have a

00:41

whole mess of assets which you will gradually sell off

00:45

the hey for Hawaii resort bills to pay from my

00:47

ties with pink umbrellas in him And you know to

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pay for his and her massages for you and your

00:52

wife of forty three years So where does sequence risk

00:56

come alive in this otherwise beautiful American dream story Well

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let's start with the bonds When you were fifty three

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you put ten grand into a six percent corporate fund

01:04

coming do twenty years later at seventy one Now with

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only two years ago until that bond matures Well you

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know you have a few more interest payments due coming

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to you And then that bond pays ten grand in

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two years It's original principles being returned to you Luckily

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you bought one of these bonds every two years in

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your fifties and sixties such that you knew they would

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come to our rather pay back your original principle of

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ten grand every two years for a decade in change

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You have all this cash cash Ola coming to you

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from other places as well It comes in the form

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of dividends from your stocks and the likely sale of

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your building and a whole bunch of other little assets

01:41

that you'll slowly pull out of Your four Oh one

01:43

k pay taxes on it So where does sequence risk

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then Come in Like what's wrong with all this Well

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for you Joe the plumber you've done an excellent job

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diversifying the cash liquidity needs that you'll have to fund

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the rest of your life together You know with your

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wife The cash comes in waves gentle waves of ten

02:01

grand here twenty grand there of stream of dividends So

02:04

you always have cash handy to pay your bills It's

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really easy right Well what about Bob Bob the plumber

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not the builder He made the same money you did

02:13

but has everything in growth stocks and one big fat

02:17

building He owns no bonds no other cash producing entities

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That's it So he's been doing just fine selling shares

02:23

Obama's on Facebook Google Netflix And if you have a

02:25

growth stocks would performed well But things never work out

02:28

so well in the real world After President Oprah decided

02:31

to regulate Silicon Valley those stocks all got cut in

02:35

half and then worse and kept falling and falling and

02:37

falling And well now Bob has no liquidity because he

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depended on selling growth stocks to fund his life Even

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though the stocks are crazy cheap now he still has

02:46

to keep selling them Pay taxes on well any gains

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he may still have left from when he bottom a

02:51

while ago and then use those cash proceeds to hopefully

02:55

be able to fund his life He also has that

02:57

building which is in a bear market now and it

02:59

can't really sell so he'll get only a third for

03:02

it If he has to sell it right now can

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he borrow against it Kenny margin against his stocks Really

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risky If you start doing that because of stocks keep

03:10

going down then your margin executes a call provisions and

03:14

basically you lose all of your stocks meaning if stocks

03:17

go down and your margin rates are more than fifty

03:19

percent the broker's likely will force you to sell even

03:22

more stocks And so you lose even more money and

03:24

it means probably a lot fewer mai tais for Bob

03:28

So sequence risk is all about retirement planning so that

03:31

retirees have oodles of cash coming in regularly safely to

03:35

fund the lives they want you know in their golden

03:38

years there Why Well because most hotels won't take flush

03:42

valves or trap vents or toilet seats as payment eh

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