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Portfolio > Portfolio Construction

Send your clients packing

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I don’t know about you, but if my advisor had a strategy that would allow me to go on vacation without the stress of how it will affect my retirement income, I’d sign up in a heartbeat, as would most anyone. Vacations have never been more popular than they are today; couple that with a worry-free portfolio strategy and you will have your clients and prospects diving into the turquoise waters of the ocean, as well as singing your praises. I recently learned of just such a strategy from Andrew Dodds, founder of Dodds Wealth Management Group. He calls it the “Caribbean Strategy.”

Dodds makes sure his clients have confidence in this plan by telling them that their dividends and interest (plus any outside pensions or Social Security) will pay the bills. As he explains, “The Caribbean Strategy invests in quality companies with high dividends and earnings, which is far different than the ‘Total Return Strategy’ that can give a false certainty that someone can stay retired in a flat or down market. A retiree simply won’t earn enough to stay retired.”

For example, if the stock market remained flat for 10 years (which is very possible), a client on the Caribbean Strategy would have maintained her principal, spending only dividends and income. Using the Total Return model, the principal would be substantially spent down and the retiree could potentially have to return to work.

Dodds further explains his strategy. “If a client needs $100,000 per year to stay retired and she has $20,000 of Social Security and $30,000 in pensions, then we only need to send them $50,000 per year,” he says. “Ideally, we would design the portfolio to have net dividends and interest to equal $50,000. If a portfolio averaged 4 percent dividends and interest, then you would need $1,250,000 of investment capital.

“Simply put, if an advisor can earn all the client’s needed distributions for retirement from secure dividends and interest, then the client can go ‘on vacation,’ cruising the Caribbean, feeling confident about the future. Even if the stock market drops by 25 percent or takes 10 years to recover, the client can stay relaxed knowing all her bills will be paid over the next 10 years by dividends and interest. If she never has to sell a stock to pay the bills when it is down, then she has the faith and courage to not sell at the bottom.”

What a concept. And especially when you consider the fact that women – young, old, single, married or widowed – are fueling an explosive growth in the travel industry. In fact, 72 million American women traveled during the past year. We now know that the average traveler is not a 28-year-old male, but a 47-year-old female. And 70 percent of all travel decisions are made by women; regardless of who they travel with, who pays for the trip or where they go, a woman is the decision-maker. So go ahead, invest in the Caribbean Strategy, and send your clients packing.


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