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Addressing the Income Challenge

Key Takeaways
  • Low interest rates are likely to persist, limiting the income and return from cash and government bonds.

  • Investors need to remain flexible on ways to address the income challenge by expanding the idea of where you can look for income in your portfolio. 

  • Building a plan that can adjust to dynamic markets and choosing a withdrawal rate that is sustainable are likely parts of a successful income plan going forward. 

Implication of low interest rates
For investors and savers, interest rates look very different today than several decades ago. My parents often recite the good old days when they were able to live off the income from their savings. Two decades ago, at the start of 2000, the 10-year Treasury yielded was 6.7%. Interest rates have continued to fall consistently to 3.8% at the start of 2010 to a measly 0.7% in May 2020. This has important implications for return expectations of bond performance. According to research by Blackrock, the 10-year Treasury yield at the start of the decade provides a good gauge for bond returns using the most commonly cited bond index of Bloomberg Barclays Aggregate Index (AGG) going forward. For example, the 10-year Treasury was yielding 3.8% on Jan 1, 2010 and the annualized return for the AGG through the decade was 3.75%¹. 

Extrapolating those results to today results in low return potentials over the next 10 years as the 10-year Treasury started the year at 1.8% and has since fallen to roughly 0.7% as of May 1, 2020. That means that if you were to retire today and invest $1 million of your hard-earned nest egg in the 10-year Treasury, you could only count on $7,000 a year and perhaps even less than that after accounting for inflation.
What can income investors do?
Flexibility is key for investors looking to make the nest egg last longer. The idea of income can come from harvesting capital gains along with interest and dividends, even spending down some of your principal. Below, we have highlighted some of the considerations for investors going forward.

Investors will likely need to accept greater risk through investments like high-yield bonds, real assets, and equities. Equity investments may be suitable to provide growth and income for those with time horizons of greater than five years and who are prepared to take additional risk. Despite the recent rally in stocks, given historically low Treasury yields, the ratio of S&P 500 dividend yield compared to the 10-year Treasury yield is near the highest level since the 1990s, which provides additional sources of growth and income.  
That does not mean Treasuries and higher quality bonds do not have a place in your income portfolios going forward. Instead, likely the primary purpose of Treasuries will be as a buffer during periods of market volatility rather than a source of returns like years past.  

Building a retirement portfolio by including additional sources of income like equities introduces yet another challenge called the sequence of return risk. In simple terms, that means as investors you may encounter poor returns early on in your retirement as you begin taking distributions from your comingled portfolio of stocks and bonds. This has a potential to impair the portfolio returns as selling assets like equities at their lows may prevent the recovery of the portfolio. A simple solution to address this conundrum has been to utilize a bucketing strategy. The strategy separates your investments into “buckets” for near term, medium- and longer-term spending. Addressing your near-term income needs so that you have adequate cash or lower-risk investments while separating your growth assets can help you ride through a low yield period or a period when equities are down.

Lastly, as investors we cannot control market returns but there are areas we can control, such as planning for our goals, that can adjust to the dynamic markets and selecting the withdrawal rate. With low yields likely to stick around for a while, investors need to rethink the historic guideline of 4% withdrawal rule to a likely lower starting withdrawal rate. Perhaps the most important part to address the challenge is to have a goals-based plan that helps you track success along the way.

Challenges of a low-interest rate environment leaves investors with the hard choices of reducing spending rates, pulling more from savings earlier or taking on more risks to answer the real-life conundrum of making retirement assets last. While it may not be simple, flexibility and a thoughtful approach are they key for investors to rise to the income challenge.

1 https://www.barrons.com/articles/with-rates-so-low-income-investors-need-to-rethink-bonds-51591404975?emailToken=961ad13fb4cfa380df5879a81978cd33m6ZploSS7LwRIzr9MV52TN%2FZvVyhcNP2E9q1lV%2B2G5DKqI7%2BeiQfJC2ckYrCRtC1fPu7T0u0wb7xwe9BsSKCo9bXTC7T4%2BPjaU81bzPj3HINwxvixiuPWS94yaA%2BumrI

AssetMark, Inc. 1655 Grant Street 10th Floor
Concord, CA 94520-2445

This report is for informational purposes only, and is not a solicitation, and should not be considered as investment or tax advice. The information has been drawn from sources believed to be reliable, but its accuracy is not guaranteed, and is subject to change. Investing involves risk, including the possible loss of principal. Past performance does not guarantee future results. Asset allocation alone cannot eliminate the risk of fluctuating prices and uncertain returns. There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. No investment strategy, such as asset allocation, can guarantee a profit or protect against a loss. Actual client results will vary based on investment selection, timing, and market conditions. It is not possible to invest directly in an index.AssetMark, Inc. is an investment adviser registered with the Securities and Exchange Commission.

©2020 AssetMark, Inc. All rights reserved.

100404 | C20-16192 | 06/2020 | EXP 06/30/2021
Five charts that track how the U.S. economy is recovering from coronavirus
With states continuing to lift coronavirus restrictions, people across the U.S. have felt more comfortable traveling, taking transit, eating out and even moving to a new home.

Improvement across the travel and restaurant industries, as well as the housing market, could signal that a broader economic recovery is on the horizon even though the pandemic is still ongoing. 

These five charts illustrate trends in key economic indicators that help track reopening progress in the U.S.

Direction requests
Travelers are relying more on Apple Maps for help regarding public transportation, according to the latest data from the navigation app. Transit directions from the app are at almost half of what they were in January as more people return to work in urban centers like New York City and San Francisco. However, requests for walking and driving directions fell lower than what they were earlier in June. 
Hotel occupancy 
Hotels are filling up more with an occupancy rate of about 42%, according to data from global hospitality research company STR. With more kids out of school and summer weather underway, families across the country may be looking forward to traveling. Norfolk/Virginia Beach, Virginia was the only major travel market to achieve above a 50% hotel occupancy rate, but was followed close behind by Phoenix, New York City and Tampa, Fla., according to STR.
Air travel 
The number of daily travelers going through airport security checkpoints is down around 80% compared to last year, according to data from the Transportation Security Administration. Passenger numbers have crept up steadily since they plummeted in March during the early stages of the coronavirus pandemic. The air travel industry is now waiting to see if passenger numbers make a bigger rebound during the busy summer season.
Home purchases 
Mortgage applications for buying a single-family home are now up 21% compared to last year as mortgage rates drop to record lows, according to data from the Mortgage Bankers Association. “Purchase applications increased to the highest level in over 11 years and for the ninth consecutive week,” said Joel Kan, associate vice president of economic and industry forecasting at MBA. “The housing market continues to experience the release of unrealized pent-up demand from earlier this spring, as well as a gradual improvement in consumer confidence.”
Source: https://www.cnbc.com/2020/06/21/here-are-five-charts-that-track-how-the-us-economy-is-recovering-from-coronavirus.html
Title: Here are five charts that track how the U.S. economy is recovering from 
coronavirus, Author: Hannah Miller
© 2020 CNBC LLC. All Rights Reserved. A Division of NBCUniversal
Play Ball: MLB announces
2020 regular season
Major League Baseball has officially announced a plan to return to play that features players reporting for training by July 1, leading up to a proposed 60-game regular-season schedule anticipated to begin on July 23 and 24.

“Major League Baseball is thrilled to announce that the 2020 season is on the horizon,” Commissioner Rob Manfred said in a statement. “We have provided the Players Association with a schedule to play 60 games and are excited to provide our great fans with Baseball again soon.”

The decision was reached Monday by a unanimous vote of the 30 MLB clubs under the terms of the March 26 agreement struck by the league and the MLB Players Association that came after Spring Training camps were shut down because of the coronavirus pandemic.
The league asked the MLBPA to confirm that players could report to training camps by July 1, which the union agreed to on Tuesday. MLB is working with a variety of public health experts, infectious disease specialists and technology providers on a comprehensive approach that aims to facilitate a safe return.

Players will undergo COVID-19 testing upon arrival, then begin workouts if they test negative. Players, coaches and support staff will be tested for COVID-19 every other day during training camps, the regular season and postseason. Anybody testing positive will be quarantined. Two negative tests are reportedly required for a return. Players will also receive temperature/symptom checks at least twice per day, and antibody testing will be conducted approximately once per month.

Title: Play Ball: MLB announces 2020 regular season By: Mark Feinsand
Source: https://www.mlb.com/news/mlb-announces-2020-regular-season
© 2020 MLB Advanced Media, LP. All rights reserved.
Peach Cobbler

  • 8 large peaches, peeled and cut into eighths 
  • 1 cup sugar 
  • 3/4 cup regular oats
  • 1/4 teaspoon kosher salt 
  • 1/4 teaspoon nutmeg
  • 1/3 cup chopped crystallized ginger
  • 1/4 teaspoon nutmeg
  • 1 (16.5-oz.) box super-moist white cake mix (such as Better Crocker) 
  • 1/2 cup butter, melted 
  • 1/4 cup ginger ale 
  • 1 teaspoon vanilla extract
  • 1 pint of vanilla ice cream (optional)


TIME: 2 Hours & 40 Minutes

  1. Toss together peaches, sugar, and ginger in a 6-quart slow cooker.
  2. Combine cake mix and remaining ingredients; spread over peach mixture. Cover and cook on HIGH 2 to 3 hours. Remove lid and let stand 15 minutes.
  3. Add a scoop of vanilla ice cream to each plate and serve.
Sources: https://www.http://www.southernliving.com/recipes/peach-cobbler-recipe; Produceforkids.com
Scroll down past picture for answers.
Source: http://www.printmysudoku.com
Householder Group Estate and Retirement Specialists LLC. advisors are Registered Representatives with and securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Householder Group Estate and Retirement Specialists LLC., a Registered Investment Advisor and separate entity from LPL Financial.