Income-generating investment specialists speaking at Jim Cramer's Boot Camp on October 13 touted municipal bonds, while challenging conventional approaches to retirement planning.
"Those short term cookie cutter solutions that we grew up with really don't serve you very well," said panelist Tony Davidow, asset allocation strategist for the Schwab Center for Financial Research. "The more that you spend thinking through what are the real expenses, what are the real thing that I need to think about, and the biggest one being that longevity risk, I think you're gonna have a much more realistic approach to that."
Bob Dannhauser, head of private wealth management with CFA Institute, said investors may need to "revisit some of the truisms" of financial planning to match more modern goals.
Some of the traditional givens in retirement planning may need to be rethought, such as never touching the principal. This rule may not always work given the market fluctuations and the desired lifestyles by retirees nowadays. Assuming that the S&P 500 may always deliver a growth rate of 7% or more a year may also be something to reconsider.
"There's all sorts of helpful rules of thumb that maybe at the end of the day aren't all that helpful," Dannhauser said. "Withdrawal rates from your pool of capital, the amount of money that you're going to have to spend, 70%, 80% of pre-retirement income seems to be tossed around a lot. It turns out that we end up spending in retirement 100%, 110%, 120% of what we were spending pre-retirement 'cause we're having more fun, I hope, but healthcare costs are certainly going up and up, and that's driving a lot of our budgets."
Dannhauser said municipal bonds may be worth a look despite concerns as communities receive new income streams from sports betting and legal cannabis sales, as well as a Supreme Court decision on public employee unionization that may may give municipalities and states more flexibility in negotiating their way out of some pension obligations.
"[I'm] not offering any value judgments about the equity for that or the fairness of that to public employees but just strictly from a fiscal standpoint, that could create a little glimmer of good news," Dannhauser said. "It might tend to boost the muni market a little bit."
Robert Norton, chief investment officer for Wealth Advisory Group, said he sees some interesting supply and demand issues happening in the muni market. Overall, municipal bonds offer incredible diversity but require a fair amount of research.
"You can find opportunities there and we think that's actually an interesting place for active management as opposed to just sort of buying an ETF," Norton said. "There are definitely opportunities there. We've seen some very good results in the high yield muni area. Again, a lot of undiscovered sort of small issuers, full good credits, hospitals, this, that, and the other thing. But just are off the radar screen and you can get some really good opportunities there in terms of good yield and they've performed well over the last number of years."
None of the panelists named a muni bond or any specific investment that attendees should consider buying.
While income-seeking investors seeking better yield may not have a lot of control over interest rates or reliable ways to boost yield, they can push their own buttons to conserve assets.
"Your first shock absorber in thinking about your plan for retirement really ought to be around spending and what you can trim in lean years to keep yourself on track." Dannhauser said.
Davidow and Dannhayser said investors have been searching for yield without always studying potential pitfalls.
"We looked at things like dividend paying stocks and REITs and [master limited partnerships] and things that generated a lot of income, but we need to be mindful of the fact that you're also taking out more corresponding risk," Davidow said. "And then marry that together with the very sobering discussion... I think it's a more sobering backdrop today than what we had. 2019, 2020, we could see some concerns on the horizon, so let's think about the risks that we're taking as we search for that yield."
Norton said he supports diversified portfolios that contain a variety of income streams.
"There's no reason why you can't have some guaranteed income and then some income that's a little higher but not as guaranteed, and then reach for some other sources that have a higher income," Norton said. "You're...not relying on any one thing. You have some base, some foundation that's going to keep the lights on, so to speak, but overtime having those diversified sources of income, you're not going to take an inordinate amount of risk to try to reach for that yield, but you're diversifying that income stream."
Norton said his firm has been using ETF portfolios that mimic target date bond funds.
"In an environment where we've seen the [yield on the U.S.] 10 year [bond] go from 150 [basis points] to over 300 in the last two years, those type of things have been able to generate a positive return then also return cash to our clients so they can reinvest at the higher rate," he said.
Davidow praised exchange traded funds as valuable tools to get exposure to various sectors. He voiced caution about any exposure to high yield corporate debt, however.
"High yield I think has been very attractive but I'd argue now high yield is something I would be very mindful of just because I think so many people chase the yield without thinking the fact there is corresponding risk there," Davidow said.
Robert Powell, the columnist of Retirement Daily, hosted the panel at the event, which drew about 200 investors at Convene, an event space in New York City.