What kind of investment portfolio do you have, income or growth?

Wall Street has conditioned the investing public that the only way to make money from investing is through growth – buying low and selling high. Investors stuff money in their 401(k)’s hoping that it will grow enough to sustain them through their retirements.

The problem with a growth portfolio is what happens when you’re set to retire but the market crashes and the growth you were counting on is gone?

Many workers who had stashed away earnings into 401(k)’s through their jobs for years and were preparing for retirement in 2002 or 2008 discovered the painful weakness of a growth portfolio.

In the aftermath of the dot-com crash, the stock market dropped 76.81% between March and October of 2002. A $500,000 growth portfolio before the crash was now worth only $115,950 after the crash. You’re thinking:  “Well, why didn’t they just wait for the stock market to rebound?”

In the aftermath of the dot-com crash, it took four years for the markets to recover to pre-cash levels. Retirees need cash from their 401(k)’s to meet their living expenses at the time of retirement – not four years later.

The other problem with a growth portfolio like a 401(k) is you typically cannot access cash from it except in rare cases and usually without incurring a penalty.

Ultra-wealthy investors prefer an income portfolio over a growth portfolio – especially a portfolio of assets uncorrelated to Wall Street. So while investors who held growth portfolios during the dot-com crash or Great Recession saw their portfolios drop more than 50%, those with income portfolios uncorrelated to Wall Street were able to ride out the storm.

Many with growth portfolios who lost their jobs during these financial crises were forced to tap their portfolios just to get by. In the process, they incurred significant penalties while draining their retirements.

How do you build an income portfolio to avoid the fates of those with growth portfolios who suffer during economic downturns:  Build your portfolio with income-generating assets uncorrelated to Wall Street.

Cash flow from alternative assets such as commercial real estate and income-generating businesses can be reinvested to compound growth in an income portfolio. Real assets uncorrelated to Wall Street avoid the volatility experienced by growth portfolios.

Invest for Demand in Real Assets. 

Invest in hard asset classes with sustained demand – even during a recession.

Investments centered around essential goods and services such as housing, food, transportation, and healthcare are ideal for surviving recessions because people will never stop needing these life-sustaining commodities.

In addition to their recession-proofing advantages, hard assets appreciate over time. This growth coupled with income builds wealth much more effectively than a growth fund that is susceptible to volatility and market crashes.

Create Multiple Streams of Income.

Multiple streams of income not only compensate for lost income from a job but by investing across a variety of market sectors, and geographic locations, investors can achieve diversification that will ensure consistent and reliable income.

When the next recession hits, will you be prepared?

The answer to that question might very well depend on whether you have an income or growth portfolio. Only one of these portfolios can replace the income from losing your job while continuing to grow because of the underlying tangible asset.

The choice is clear on the type of portfolio you should have. If you don’t have an income portfolio, it’s never too late to start.