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How To Maximize Your Income Portfolio Using A Four Sleeve Approach.
A simple but good explanation on a sample of a sleeve portfolio.
It would be interesting to know if anyone here besides Old_Skeet uses a sleeve system for their retirement? How do you like or dislike it. Are there other systems you prefer. Enjoy the article.
I do tend to think define asset classes in my portfolio as per the article. Namely: equities, debt, real-assets, and cash. I don't do this solely/specifically for income, but for overall total return, of which income is typically an important component.
Though to be honest, at the moment, one asset predominates: cash.
I have found the sleeve system a neat and good way to organize my holdings by assigning them to an area and then on into a sleeve. It has worked well for me over the past years; and, I am sure it will grow in use as more and more investors look for better organization and management systems.
If I were to list the fifty three funds that I own in a mass list so to speak ... Most would say what a hodge podge mess. How does he know what he has?
Now, if I list them by my area and within the sleeve that holds them then it becomes more organized and one has a better picture of what they own. And, if one fund falters then there are the others to offer support and to continue to propel the sleeve.
My "sleeve" system has 5 "Pots". Most holdings are in a taxable account. Core holdings include those in the Cash, Ballast, Moderate Volatility, and Stock Pots. The fifth Pot is the Special Situations Pot. Active trading is permitted in that ~10% of the portfolio. But, even there my primary tendency inclines to holding most investments for a year or more. There are 11 categories as the investments in some of the Pots get subdivided. The basic portfolio focus is on total return with low turnover of core holdings. The portfolio gets an annual review of its 35 holdings with changes in core holdings happening during that time period. Enough cash is kept on hand to handle annually predefined quarterly withdrawals without disturbing the core holdings. The final quarterly withdrawal of the year is increased if conditions are favorable. The system can comfortably be ignored for extended periods if traveling or other activities dictate. The organization of the holdings has evolved somewhat during my 10 years of retirement but is fairly stable now. This "Pot" system works well for me.
@davfor, Thanks for sharing that. I like how you customized the pots/sleeves to your situation and preferences. One thing in particular I like about this system is that just like your's, it can run by itself with minimal effort.
@MFO Members: I believe in the "Make It Simple, Stupid" One a capital preservation portfolio, treasuries, investment grade bonds, preferred stocks, real estate, and a very small amount of cash. The second, a capital appreciation portfolio, stocks, junk bonds, and mutual funds. Regards, Ted
Not at all certain that this qualifies as a "sleeve" system: US Equity, 25% / US Bond, 16 % / US Balanced, 10% / World & EM Equity, 28% / Cash Equivalents, 17%
@old_skeet. May I ask if you pay loads on all the funds you hold? Without checking previous posts, my impression is that you frequently cite A class funds in your sleeves. Thanks.
As to investing sleeves for this house; not unlike the seasonal changes in Michigan, we have had and do have sleeves of varying types in an attempt to be appropritate for investment seasons.
Not unlike the changing weather, regardless of the forecast; we always hope to have "packed" or have available to change into the proper sleeve length and weighing of material.
So if I've got this right, what used to be accounts: savings, checking & possibly brokerage became buckets. Somewhere along the line these buckets transformed or evolved into sleeves. What's next, fingers?, knuckles?, something else?
Frankly all I see with anything beyond possibly 10-12 funds is a bucket, sorry sleeve, of expense fees going out the door under the false pretense of diversification. You might have different managers but they are all buying the same stuff you could get in any index. I'd rather pocket those ER's and have them working for me rather than lining the pockets or leather interiors of some financial advisor or fund manager. But that's just me and I'm kinda old and stupid that way.
I am certainly not one to discuss simplification, but I have a lot of individual holdings. In terms of funds, I'd just think you'd get too much overlap if you have 50+ funds. Still, as I've said in the past, whatever works for the individual and beyond that, whatever helps you sleep comfortably at night.
For the foreseeable future, I have the luxury of letting my Fund Managers decide on how much cash is prudent to keep on hand, uninvested. Not tapping dividends yet. Reinvesting everything, all profits.
I also use "sleeves", and attribute this to a series of comments by Skeet some time ago. The only portion of my portfolio to leverage this mental accounting technique is indeed for income.
The reason for this is fairly straightforward....it really makes no difference how much money you've accumulated to fund retirement, the key is how much annual income this accumulated money can generate. The sleeve approach to income helps to account for the various and sometimes disconnected sources for this income outside of re-balancing from pure equity fund holdings.
This accounting, plus re-balancing of more pure equity-based funds leads to a bucket 1 allocation for general expenses. I differ a bit from Skeet in that I don't, as an example, have a small cap value "sleeve". I just have small cap value allocations by virtue of one or two funds. It is merely semantics.
>>>>it really makes no difference how much money you've accumulated to fund retirement, the key is how much annual income this accumulated money can generate.<<<<
Cant' you get to the point where it makes all the difference in the world and where you don't need any more income from what you have accumulated? Is it a mortal sin to simply draw down your principal (accumulated money) to fund your living expenses in old age? I don't mean that facetiously. I am always curious what motivates older investors, especially those that have most/all their living expenses covered by SS and pensions. I know a lot of elderly people in my local community who have no investments whatsoever and are happy as larks because they have no income worries. Maybe I am getting too philosophical here late on a Friday.
>>>>it really makes no difference how much money you've accumulated to fund retirement, the key is how much annual income this accumulated money can generate.<<<<
Cant' you get to the point where it makes all the difference in the world and where you don't need any more income from what you have accumulated? Is it a mortal sin to simply draw down your principal (accumulated money) to fund your living expenses in old age?
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I suppose if you are an ultra high net worth individual, then my comment is silly. Or if you know precisely how many years you will be on this side of the grass. That's not me, and I don't.
I need to make sure my money lasts as long as I do, and that requires a bit of planning. I have no problem whatsoever with spending capital...I just don't know how long I will need to do that. I am retiring in May, so I've spent more than a few hours planning this escape.
Thanks and good luck in retirement. Again, wasn't trying to be combative. It seems lately I've seen too many people in my Mayberry type town pass away and with way too much money in the seven figures. Another lady I know well is 82 and her 1.8 million nest egg is now being spent on round the clock nursing care as she hardly knows who she is and no longer has control over her financial affairs. Like me, this lady took frugality to another level and looked where it got her. Balancing wealth accumulation to infinity vs spending in old age to reap/enjoy the fruits of our labor is a topic I would like to see addressed here more.
Balancing wealth accumulation to infinity vs spending in old age to reap/enjoy the fruits of our labor is a topic I would like to see addressed here more.
Hi @Junkster- What a great idea for a topic.Not to be a smartalec (for a change) but why don't you gather some thoughts along the lines of what you said above, and start a dedicated thread, and let's see where we get to.
Balancing wealth accumulation to infinity vs spending in old age to reap/enjoy the fruits of our labor is a topic I would like to see addressed here more.
Hi @Junkster- What a great idea for a topic.Not to be a smartalec (for a change) but why don't you gather some thoughts along the lines of what you said above, and start a dedicated thread, and let's see where we get to.
Thanks... take care- OJ
Thanks OJ, will do just that and post something Monday. Weekends I try and stay out of here. Have a nice one!
Comments
Though to be honest, at the moment, one asset predominates: cash.
If I were to list the fifty three funds that I own in a mass list so to speak ... Most would say what a hodge podge mess. How does he know what he has?
Now, if I list them by my area and within the sleeve that holds them then it becomes more organized and one has a better picture of what they own. And, if one fund falters then there are the others to offer support and to continue to propel the sleeve.
Old_Skeet
Regards,
Ted
US Equity, 25% / US Bond, 16 % / US Balanced, 10% / World & EM Equity, 28% / Cash Equivalents, 17%
Not unlike the changing weather, regardless of the forecast; we always hope to have "packed" or have available to change into the proper sleeve length and weighing of material.
Catch
Frankly all I see with anything beyond possibly 10-12 funds is a bucket, sorry sleeve, of expense fees going out the door under the false pretense of diversification. You might have different managers but they are all buying the same stuff you could get in any index. I'd rather pocket those ER's and have them working for me rather than lining the pockets or leather interiors of some financial advisor or fund manager. But that's just me and I'm kinda old and stupid that way.
Through the years some sales loads have been paid. Currently, a good number of my purchases are now at nav or reduced sales loads.
Old_Skeet
Sieve - Definition and More from the Free Merriam-Webster Dictionary:
"A kitchen tool that has many small holes ..."
The reason for this is fairly straightforward....it really makes no difference how much money you've accumulated to fund retirement, the key is how much annual income this accumulated money can generate. The sleeve approach to income helps to account for the various and sometimes disconnected sources for this income outside of re-balancing from pure equity fund holdings.
This accounting, plus re-balancing of more pure equity-based funds leads to a bucket 1 allocation for general expenses. I differ a bit from Skeet in that I don't, as an example, have a small cap value "sleeve". I just have small cap value allocations by virtue of one or two funds. It is merely semantics.
Cant' you get to the point where it makes all the difference in the world and where you don't need any more income from what you have accumulated? Is it a mortal sin to simply draw down your principal (accumulated money) to fund your living expenses in old age? I don't mean that facetiously. I am always curious what motivates older investors, especially those that have most/all their living expenses covered by SS and pensions. I know a lot of elderly people in my local community who have no investments whatsoever and are happy as larks because they have no income worries.
Maybe I am getting too philosophical here late on a Friday.
I need to make sure my money lasts as long as I do, and that requires a bit of planning. I have no problem whatsoever with spending capital...I just don't know how long I will need to do that. I am retiring in May, so I've spent more than a few hours planning this escape.
Hi @Junkster- What a great idea for a topic.Not to be a smartalec (for a change) but why don't you gather some thoughts along the lines of what you said above, and start a dedicated thread, and let's see where we get to.
Thanks... take care- OJ
Gary
http://www.cnn.com/2015/02/05/us/vermont-frugal-man-donates-millions/index.html
M* discussion forum of topic:
http://socialize.morningstar.com/NewSocialize/forums/p/346310/3616294.aspx#3616294