The Perfect Portfolio Is Like The Perfect Horse

Co-produced with Treading Softly.

In life, I’ve learned that rejecting new experiences can lead to complacency. Worse, it can also lead to losing the love of learning. Personal growth often requires the input of new experiences to challenge preconceived ideas or past experiences.

So when I was presented with the opportunity to go on a horseback trail ride recently, I jumped on it. Have I ever ridden a horse before? No. Did I know how to climb on a horse, sit in a saddle correctly, or work the reigns? No, no, and nope!

Yet, I took the opportunity without hesitation. I wanted to have that experience. I trusted that those whom I was going with could guide me effectively and wouldn’t put me on a horse that a novice couldn’t control properly.

Long story short, I had a blast. It was an hour of exploring the wilderness after a brief rundown of the basics of riding and how to communicate effectively, via the reigns, with my horse.

When I got home, I wasn’t too sore, much to the disappointment of my peers, who expected me to be sore and exhausted – I guess I’m not as old in body as they expected! I’d credit the enjoyment and thrill of a new experience for the lack of soreness.

I also took some time to look deeper into what makes a good trail horse – again recognizing that I am no equestrian expert in the slightest, although we do have multiple in our High Dividend Opportunities community – and what I discovered made me realize that in many respects, a good trail horse is similar to our Income Method.

So today, we’re taking a moment to turn High Dividend Opportunities into High Equine Opportunities, and let’s talk about how a good trail horse and an excellent income portfolio are similar.

Let’s dive in.

Level-headedness is a Must

An easily-spooked horse can be extremely dangerous in many situations. Horses are large and powerful and often do not realize their own size. So when a horse is spooked, it can run over or through obstacles it likely otherwise would never think of doing so.

That’s not what you want out in the wilderness.

When you’re out there, you do not know what you will encounter. One constant in the wild is that things are constantly changing, and you will likely come across the unexpected, so expect to do so.

A level-headed horse will take it all in stride. Sure, it may still get spooked at times, but an overarching trait of level-headedness can make a trail ride more enjoyable for both rider and horse.

An income investor and, by extension, an income portfolio must also contain a high degree of level-headedness. This can come in many forms, but for income investors, it means a high degree of understanding of why you are investing and how.

You see, frequently, investors will buy an investment because someone else said it was “good” without evaluating their viewpoint. When I highlight an investment, I do so from an income-first perspective. I’m not looking for a quick flip but a long-term holding. This means if its price fluctuates, but the fundamentals are sound, I’ll keep on holding and collecting my dividends.

I don’t get spooked easily.

Yet we’ve seen that often the market reacts like an easily spooked horse. Something “scary” happens, and boom! Investors are off running away, much like that spooked horse.

So how else can you benefit from level-headedness? Dividends themselves are a source of stability. When the market value of your portfolio climbs and falls, it brings a high level of comfort to continue to see your income pouring in. This works like a psychological salve that calms the mind and soothes one’s emotions. It’s easy to keep the faith and maintain one’s course when income is pouring in still.

Stamina to Keep Going

Have you ever had an animal give up mid-trip? I own four dogs, varying in size from 16 lbs to over 100 lbs, and I’ve had times when one of them decides our walk is over when it isn’t. I try to motivate them and encourage them, but at times, I’ve been stuck carrying a dog home to complete our predetermined walk. You can’t achieve that as easily with a horse.

So you need a horse with the stamina to complete the ride from start to finish. This may mean helping build up that horse’s stamina over time or ensuring the horse you take already has the stamina to complete the task at hand.

You, likewise, cannot afford to have a portfolio that gives out before its job is completed. Historically, a retirement portfolio is tasked with surviving at least 30 years. Yet many retirees live with the perpetual fear that they’ll outlive their primary source of savings and income. I don’t blame them. They are told to slowly cannibalize all their hard work to live out their retired days. As they get old, that safety net gets smaller and smaller. It’s a real risk they may need it, and it may not be big enough to catch them.

This is where I find income investing has a benefit that other types of investing do not offer. I am not forced to sell shares to pay bills. I collect income and use that, I also reinvest my dividends to keep my income and portfolio growing.

I don’t need to guess if my portfolio is up to the task – I can see exactly how much income it produces. Compare that to your income needs, and ensure that you have a cushion. You want your portfolio to produce at least 25% more income than you need. That is the excess that will be reinvested for growth.

This way, my portfolio isn’t shrinking over time. It continues to grow at a healthy pace and remains as strong as ever. If you are nearing retirement and contemplating whether you have enough, you won’t have to guess. You will know and then be able to adjust your plans accordingly. Maybe you do want to work a few more years to build up your income faster. Or maybe you decide that you can live a more modest lifestyle and take less income out.

Imagine a trail rider eating parts of their horse on a regular basis but expecting it to carry them over the entire trail. It’s a gross mental image, but it’s what so many of you are doing to your retirement portfolio as you ride it through your retirement!

Don’t do that. Enjoy the income – or the views on the trail – and don’t eat your horse as you ride.

Comfort

You can have a horse with a wonderful temperament who has the stamina to traverse the globe, but if its gait is horribly uncomfortable, you’ll never ride it.

If your portfolio is doing everything it should, but you cannot enjoy its output because it’s too volatile or risky for your risk tolerance. You won’t survive the trip, you’ll hop off and take the nearest exit.

I recommend holding at least 40% of your portfolio in fixed income. They are less volatile investments, provide a steady income stream, and help ease the pain many feel internally from volatility. Furthermore, I recommend holding at least 42 unique investments – this will ensure that you are diversified and not excessively impacted by any single investment.

Both of these are designed to specifically make the trip through retirement more comfortable.

Need a little more padding? Up your fixed income allocation, or diversify further.

Risk-tolerance low? Take an easier trail, or in terms of investments, if you don’t need a higher yield, buy the yield offering that’s lower risk.

It’s your income and your retirement. Find what income level is comfortable to carry you through retirement and design your portfolio to meet that target.

When you combine the appropriate comfort with an income portfolio with the stamina to carry you through retirement with ease and the level-headedness to keep the faith when the storms of life kick up around you – all thanks to that steady pouring of income into your account! – you’ll have the recipe for an outstanding and low-stress retirement.

My team and I have dedicated years to helping tens of thousands of retirees just like you discover income investing and benefit from it. You can do this. I believe in you.

Find your perfect horse, and enjoy the ride!