Free Wealth Management Guide Investing Proceeds From the Sale of Farm or Ranch | Page 8

to leverage your investment. While leveraging real estate
with debt can be a source of profit, it is also a big source
of risk.

the most common investment vehicles are: Real Estate
Investment Trusts (REITs), Exchange Traded Funds (ETFs)
and Mutual Funds.

From an investment standpoint, real estate can be a
good source of income and has historically been a good
hedge against inflation. A disadvantage of real estate is
the costs and effort involved in acquiring and owning it.
Various expenses such as insurance, property taxes and
maintenance expenses can affect your return and tenant issues can be a real headache. Also, unless you can
afford to own multiple properties, you may not be able to
obtain adequate diversification.

For detailed information on how to invest wisely in the
stock and bond market, request Wealth Guide series
titled: Smart Investment Strategies.

For more information, request Wealth Guide titled: Investing in Commercial Real Estate.
Stocks
Stocks represent a share ownership in a company. By
owning stocks, you own a stake in the company and you
are able to receive dividends and appreciation of share
prices. The advantages of stocks are that of all asset
classes, stocks have historically provided investors with
the highest rate of return. The disadvantage is there can
be extreme volatility in prices and the potential for a
company to go bankrupt. From a tax standpoint, stocks
offer the same stepped-up basis at death that real estate
offers. This tax advantage can save your heirs money.
Bonds
A bond is a debt security, similar to an I.O.U. When you
purchase a bond, you are lending money to a government,
municipality, corporation, federal agency or other entity
known as the issuer. In return for the loan, the issuer
promises to pay you a specified rate of interest during
the life of the bond and to repay the face value of the
bond (the principal) when it “matures,” or comes due. The
advantages of bonds are that they can be a relatively safe
investment and a good source of income. The disadvantage with bonds is prices are volatile and don’t offer the
same potential appreciation in price as stocks do.

Investment Vehicles
There are a variety of investment vehicles you can invest in that allow you to diversify among multiple stocks,
bonds and real estate properties. These are passive investments that are professionally managed and can often
be opened with low initial investment amounts. Three of

Retirement Income Planning
Accumulating assets is one thing. Converting those assets into a retirement income stream you can’t outlive is
another. One way to derive income from your investments
is to distribute only the interest and/or dividends the
investments generate each year. Another way is to take a
combination of interest, dividends and capital gains each
year and to rebalance the portfolio regularly to its target
allocation.
The 4% Rule for Systematic Withdrawals
A systematic withdrawal strategy is designed for a
person to take predetermined periodic withdrawals from
a portfolio of stocks, bonds or mutual funds. A rule of
thumb for creating sustainable retirement income is the
4% Rule. According to this rule, if you invest in a portfolio comprised of 60% stocks and real estate and 40%
bonds, you can initially withdraw 4% of your money,
increase that amount in subsequent years to keep pace
with inflation, and still have a 90% probability of not running out of money over a 30-year retirement.
Bucket Approach
Another strategy for distributing income from an investment portfolio is to divide your money into two different
“buckets.” Bucket one is comprised of safe investments
such as money market funds, CD’s, short-term high quality bond funds and possibly an immediate annuity. Deposit enough money into bucket one to pay your income
needs for five years. All income for the first five years
is distributed from that bucket. In bucket two, invest
in more aggressive investments such as stock and real
estate funds. No distributions are taken from bucket two
until the end of year five. After year five, you refill bucket
one