Yield | Wisdom, Wealth, and Wellness

Many wealthy and retired investors frequently express a need for yield to sustain their lifestyle in retirement. In this post, Jonathan Satovsky explores why a shift in perspective from chasing yield to managing wealth like a university endowment might not only meet but exceed your long-term financial goals.

“I need yield.”

“I need income.”

This is what I hear, often, from very wealthy and or retired investors who are looking to replace their cash flow in their retirement years.

I want to challenge this notion of the need for yield, the need for income, and the need for cash flow in retirement and reframe it like an endowment. Imagine you are Michigan, Harvard, or Yale’s endowment and you are drawing 3-5% from your investment assets.

Why do I say that? If you are seeking yield and cash flow, I believe, and there’s a lot of evidence to this, that it does not lead to the best total wealth over a lifetime, this is for a couple of reasons.

Number one, oftentimes the yield is taxable at ordinary income tax rates.

Number two, if you had a choice between two investments, an investment that was yielding 4%, or an investment that was growing at 8%, that you could sell off 4% a year to meet your cash flow needs, which one is better?

Well, 4% lest potentially 50% in taxes, nets you 2%. 8%, lest capital gain rates, could net you over 6%. So that’s three times the amount of income and/or cumulative assets that you can have over a lifetime.

So think about that on your path to Wisdom, Wealth, and Wellness. Put yourself in the mindset of an endowment for multi-generational wealth.

Have a great day.