Reading Between the Lines

Once we recognize that all investment portfolios eventually become retirement income portfolios, we can begin to focus on the regular recurring income that they produce… retired or not, the market value of your private portfolio (or of your 401k plan) has no purchasing power.

Yet all 401k programs are performance evaluated on market value growth as opposed to income production.

In late 1999, Microsoft Corporation (MSFT) common stock was at an all time high of $58.38 (split adjusted), and there were thousands of MSFT multi-millionaires out there confident that their retirement was secure…. with a guaranteed monthly income of ?

Please send me an email with the amount of income produced by a million dollars worth of Microsoft in 1999… or your favorite ETF or TDF today.

Several years later, one of those millionaires, and a golf buddy of mine, disclosed that he had just sold the 7 series BMW he had purchased with the proceeds of his MSFT stock… the one “asset” he still had from his dot.com fortune. Pushing 65, he just couldn't bear the memory any longer.

If only he had sold the entire portfolio… or converted enough to tax free Closed End Funds to assure a lifetime income.

Yet no 401k programs today will hold income Closed End Funds (yielding 7% or so right now). Why? Because, according to the Department of Labor, 2% after low expenses is better than 7% after higher expenses.

By September 2000, MSFT stock had fallen by almost 50%; nearly 15 years later, with the market near its highest numberl ever, MSFT (at $47.60) remains 18% below its 1999 level… it didn't pay a dividend until 2003, and its dividend yield today is only 2.6%, after many increases.

Back then, most Mutual Fund portfolios contained MSFT and hundreds of similar NASDAQ securities…  and this was OK with all varieties of regulators and plan fiduciaries because the markets, after all, were trending upward.