Can I Live Off My Investments? | Investment Portfolio Review | Summary and Q&A

TL;DR

Lisa, a 55-year-old investor, is living off her stock portfolio and wants to grow it to sustain her expenses. However, her portfolio is heavily concentrated in individual stocks, with two stocks comprising almost half of it. She should diversify her portfolio, consider adding bonds and other asset classes, and aim for a lower withdrawal rate to ensure long-term sustainability.

Key Insights

• ✳️ Diversification is crucial to reduce risk and protect a portfolio from potential stock-specific challenges.
• ❣️ Having a heavy concentration in individual stocks can be risky, and it is advisable to diversify into different sectors and asset classes.
• 😘 A lower withdrawal rate, such as 4%, increases the likelihood of sustaining the portfolio's value over a longer period.
• 🥅 Regular portfolio rebalancing ensures the allocation aligns with the investor's goals and risk tolerance.
• 💐 Lisa could consider alternative investments like bonds, REITs, and ETFs to add diversification and stability to her portfolio.
• 💦 It is beneficial for Lisa to explore potential part-time work opportunities to supplement her income and reduce the reliance on portfolio withdrawals.
• ❓ Consideration of other investment sectors, such as financials, healthcare, and telecom stocks, can provide additional diversification opportunities.

Transcript

hey bowtie nation joseph hoger and the first in our investment portfolio review series i get questions every week of people wanting me to review their portfolios and add suggestions i don't do personal consulting anymore but i thought this would be a great way to kind of meet in the middle help out and do this as part of a video series it's going t... Read More

Questions & Answers

Q: Why is it risky for Lisa to have more than 10% of her portfolio invested in individual stocks?

Holding a significant portion of a portfolio in individual stocks can expose an investor to concentrated risk. If any of these stocks face challenges, it may significantly impact the overall portfolio's value. Diversification is key to minimizing risk.

Q: What are some alternative investments besides stocks that Lisa could consider to diversify her portfolio?

Lisa could consider adding bonds, real estate investment trusts (REITs), exchange-traded funds (ETFs), or even direct investments in real estate. These investments can provide diversification and stability in her portfolio.

Q: What is the recommended withdrawal rate for Lisa's portfolio to ensure long-term sustainability?

Based on the Trinity Study, a widely referenced retirement study, it is generally recommended to withdraw no more than 4% of the portfolio initially. With a portfolio of $480,000, Lisa could withdraw approximately $19,200 annually, adjusting for inflation.

Q: How often should Lisa rebalance her portfolio?

Rebalancing the portfolio once a year is typically sufficient. This involves selling some winners and buying underperforming assets to maintain the desired asset allocation and prevent excessive concentration in certain stocks or sectors.

Summary & Key Takeaways

• Lisa is a 55-year-old investor with a $480,000 portfolio, primarily composed of individual stocks and a Fidelity 401(k) plan.

• She left the labor market during the pandemic to care for her parents and is living off her portfolio, withdrawing approximately $3,500 a month.

• Her goal is to grow her portfolio to sustain an 8% withdrawal rate, but her portfolio is heavily concentrated in two stocks, Apple and Costco.