The Ultimate Goal of Financial Independence Sure, it is possible to achieve a higher rate of growth some of the time, but we are talking in terms of the long-term average annual growth without taking high risks. It can vary based on your personal expectations and factors like the rate of inflation. So, how much is reasonable growth? Assuming an average long-term rate of inflation < 3%, in our view, a 10% overall annual growth of the capital (including the income withdrawals) would be reasonable. In order to preserve capital, it's important that our overall portfolio is able to achieve low volatility and smaller drawdowns while not compromising on growth during the good times. Preservation of capital is probably one of the most important factors for retirees and conservative investors, or anyone who wants to be or stay financially independent. If not, you should modify your strategy appropriately. An event or correction of that magnitude can act as a real eye-opener to review and judge if your portfolio is meeting its defined goals, especially risk tolerance. We can have all the talk about capital preservation, but the real test comes when the market takes a huge dive in real-time, something akin to what we saw in 2020 due to the coronavirus pandemic and then more recently during the year 2022. Any excess income (over 5% or 6%) should be reinvested back into the portfolio for it to sustain long-term growth. So, what is a good balance? In our view, no more than 5% to 6% of income should be withdrawn from a portfolio, even if it were to generate higher income. The higher the income withdrawn from a portfolio, the greater will be the chances of depleting the portfolio over time. There is a limit that an investment portfolio can generate in income that is relatively safe and sustainable. There is no one definition of "sufficiently high income." It is highly subjective based on many individual factors, for example, spending needs and size of the assets of the investor, access to other fixed income sources like pensions, social security, or rental income. Provide reasonably high growth for long-term wealth preservation and meeting retirement goals.Produce sufficiently high income, roughly 5% or higher.Whether you are a retiree or you just want to be financially independent, you need a strategy that should meet the following goals: We describe one such strategy that we think can help you achieve financial freedom with low stress and relative ease. The only way to avoid the stress of a roller-coaster ride is to have a well-planned, low-volatility strategy and stick to it in good times and bad. There is no point in stressing about the market on a day-to-day or even a year-to-year basis. No one knows exactly where the markets will be in six months or a year from now that's why it is important to have a strategy that can deal with good times and bad with relative ease. These two views of the market are at loggerheads with each other. The corporate earnings are on a decline, and we can't rule out a hard landing and a recession later this year.
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On the other hand, there is a fear of a looming recession, as the full impact of all the rate increases has not manifested in the economy yet. The job market is still very strong, and unemployment is at historic lows.
On one side, the economy appears to be chugging along just fine in spite of the high inflation and high-interest rates. The financial markets are at a crossroads.
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