Straight Talk from Al Jacobs

 

GENERATING CASH FLOW: FEW GOOD CHOICES

 

A revealing Online article appeared not long ago: “Turn Your Nest Egg Into Steady Cash.”  It compared two routes by which retirees might invest their available cash so to obtain a steady flow of income. The methods offered were predictable: an insurance company annuity or a mutual fund’s payout fund.  Both techniques are highly promoted by their respective industries. Unfortunately, each presents defects.

 

The annuity route, both fixed and variable, doesn’t entice me. The industry specializes in high fees and burdensome withdrawal penalties. In addition, the initial cost of the annuity is lost to your forever. An added disadvantage is that the payments you receive become worth relatively less over time; you’ll not grow old in comfort.

 

The mutual-fund industry’s alternative, referred to as “managed payout” or “target distribution” funds, introduces uncertainties of its own. Although the management fees are somewhat less, and the amount you invest doesn’t automatically cease to be yours, there are no assurances cash flow will continue at a predicted rate. If the mutual fund managers guess wrong in their investment decisions, you may find your income stream reduced to little or nothing … with no recourse.

 

Sorry I can’t recommend a technique for you to realize a predictable annual return on your money of 10 percent or greater. Although I regularly generate this for myself, it constitutes a full-time job, not passive investment. Most persons shy away from these sorts of tasks, as expending effort seems to take the fun out of their lives.

 

So what do I suggest?  Here in 2018, for pure passive return with no risk, a deposit into a number of Online banks will pay interest of up to 2½%. Better yet, if you’re willing to take a little time and effort in analyzing offerings, there are firms which make mortgage loans and then sell portions of them to investors to yield returns of 7% or better. In most cases they’re relatively sound, though you must be selective.

 

A final thought: There’s really no one around to guide the average American through the investment thicket. Most financial advisors specialize in taking a fee while providing little of substantive value to the client.  Welcome to the world of reality.

 

 

Al Jacobs, a professional investor for nearly a half-

century, issues weekly financial articles in which he

shares his financial knowledge and experience.

You may view them on http://www.roadwaytoprosperity.com