If you were a bond investor in the past three decades, you looked like a genius. As interest rates fell over the past 30 years, prices of high-quality bonds (Treasuries, Municipals, and higher-rated Corporate bonds) rose.

High-quality bond prices do not behave like stock prices. They are determined largely by interest movements. While a stock can go up or down regardless of news, bonds are more about mathematics. If interest rates go way down, bond prices are going to go up. Not maybe. They WILL go up!

Simply reverting to slightly higher interest levels could create a tough atmosphere for bond investors. In response, income-oriented investors have reached for yield into areas they don’t understand, taking risks that they are not comfortable with but deem necessary to meet their goals.

Source: Federal Reserve Bank of St. Louis 2016.


To us, there are five things a retirement income portfolio must aim to deliver: Preserve Capital, Produce Income, Grow over the long-term, maintain Liquidity and keep total costs Reasonable.

Here is how we approach this head-on at Sungarden®:

  1. Preserve – we prioritize hedging against major losses. We use inverse ETFs (Exchange-Traded Funds) but can employ protective options as well, if needed. ETFs are a cross between index mutual funds and stocks. They trade on the public stock exchanges, and they represent a set of securities having a common theme. These securities are a key part of our attempt to deliver on our primary goal as investors: “avoid the big loss.”
  2. Produce Income – dividends that are sufficient, stable and growing offer a great alternative to bond interest from a washed out bond market. That is, the cash paid in a client portfolio is sufficient to meet their desired income from the account. We also want that dividend cash flow to be stable and not subject to being cut or eliminated by the company issuing it. And, we prefer to see that dividend payment grow over time, to fight inflation. We devote significant attention in our research to separating companies whose dividends we believe are sustainable from those whose yields are temptingly high, but not likely to continue without being cut.
  3. Long-Term Growth – we have identified 10 long-term themes we consider to be undeniable, and they form the focus of our investment approach. By staying focused within these themes, we aim to capitalize on specific secular trends that will outlast the occasional bumps and bruises that limit returns of stock investors that simply “buy the market.” And while we hope to own these companies for a long time, we do not hesitate to practice “portfolio management” if our analysis suggests that is a good idea. As with everything we do at Sungarden®, it’s a constant tradeoff between our expected reward potential and potential decline in value. That balancing act is what we work at every day.
  4. Total Cost – our industry is obsessed with finding low-cost mutual funds and ETFs. But think about it: what is the expense ratio of an individual stock? ZERO. By converting our portfolios from their former mutual fund orientation to one that mixes individual stocks and ETFs (we use only ETFs and mutual funds for smaller accounts), we estimate that the “expense ratio” (i.e. internal cost of the securities we own) of our portfolios is less than 1/3 of what it had been two years ago. We also believe that we can derive more quality income from individual stocks than buying stock mutual funds, as fund expenses cut into the dividends produced. Please note that there is a cost associated with trading individual stocks. Trading turnover and costs should be carefully considered when evaluating any investment strategy.
  5. Liquidity – stocks trade intraday, ETFs do as well. Mutual funds offer next-day liquidity. That’s as far as most investment approaches need to go, in our opinion.