One does not retire on assets. Retirement is achieved by converting assets into income that pays for living expenses and provides the lifestyle desired. Interest income from lending money (buying bond funds, junk bond funds, municipal bond funds, CDs, Treasuries) is no longer a viable means for sustaining low-risk income in retirement. It was not so before 1979, and it is not so today. The interim, 1979-2007, was an unusual period of high real interest rates that is not likely to return any time soon. How did pre-1979 investors convert assets into low-risk income? By purchasing preferred equity. Our Early Retirement portfolio consists of 2/3 preferred equities and yields 6% after fees by buying A-rated preferred securities.
Asset Appreciation Portfolios
To accelerate the date when a client can retire, the goal is to earn them more in asset application than they would achieve in an income fund after taxes. Otherwise they might as well just own the income fund. Note: Just because a client may by young and in the prime of their earning years is no excuse to lose their money. Beware the investment advisor who asks your age. An equity portfolio can be strewn all over the place in client's disparate holdings or can be all in one places. We assume that our portfolio is the only equity portfolio a client will need. We can do the balancing better than the client. We will buy value, growth, emerging markets, technology, etc. and weight them all accordingly to optimize return vs. risk.
- Conservative Growth
In the DHFA Conservative Growth Portfolio, we seek out Blue Chip growth companies or those that exhibit blue-chip characteristics as defined by:
- Enough revenue growth potential to boost EPS at least 10% per year.
- Attractive traditional measures of value such as low PE and PEG ratios.
- Those which have earned enough market respect to reduce susceptibility to volatile swings in the stock price
The DHFA Value Portfolio invests in overlooked and out-of-favor stocks with high margins, high returns on capital and low valuations. The portfolio manages its risk by only holding a limited number of high conviction investment ideas with limited perceived downside potential.
- Total Return
In the DHFA Total Return Equity Portfolio, we invest primarily in two kinds of companies:
- Those with reliable double-digit revenue growth and a valuation that we feel will allow the stock price to grow commensurate with those revenues.
- Those with turnaround potential the market is not recognizing.
Double-digit returns are necessary to justify the cost of capital inherent in common equity. Because we prefer to limit competition, inventory risk, and capital intensity, we favor virtual companies over their hard-asset based alternatives. This virtual world of commerce is also experiencing hockey-stick growth.