Jeff’s Big Dilemma — And How It Relates to Your Nest Egg
Meet Jeff, a friend of mine from Starbucks that I see a couple times each week.
Jeff is a young professional with a strong work ethic, an engaging personality, and a high-commission sales job. He’s also in the National Guard and I have a deep respect for his service to our country.
A couple of weeks ago, Jeff told me about a big decision he needed to make. The kind of decision that could alter his career — and his family’s finances — forever!
He didn’t know which way to go!
Today, I wanted to share Jeff’s conundrum — and his ultimate decision — with you. Because it’s very similar to a decision you probably find yourself struggling with every day when it comes to your wealth.
Let’s take a look…
The Age Old Battle Between Steady Income and Growth
“Zach, I’ve been killing it this year!” Jeff told me with a smile on his face.
“You know how I hate knocking on doors and doing cold sales calls. But each week, I still get out there and do it, and I’ve brought on some great new clients!”
“My business is thriving and I’m well ahead of the goals the company set for me. They’re even planning to give me my own regional office if I keep this up!”
I was excited to hear about Jeff’s success. There’s just something inspiring about a hard working young professional putting the effort in and getting paid for the effort. Jeff took a risk by accepting a position with no salary and only commission pay. But because he worked to be good at his job, his income was now growing quickly.
“There’s just one problem…”
And now I could see the concern in Jeff’s eyes.
“One of our competitors called me the other day and offered me a job. This would be a desk job and I wouldn’t have to go knock on doors anymore.”
“The salary is much more than I’m making now. But not nearly what I could make if I kept growing my business the way I’m growing right now.”
Jeff was torn between the secure salary that would allow him to relax a bit more and earn a middle class income for life… and a competitive sales job that took a lot more work (for a few more years at least), but could lead to life-changing wealth.
One choice was secure and “just fine.” And one choice had more risk with the potential for an amazing future for Jeff and his fiancé.
Which would you choose?
Investing for Income? Or for Growth?
Ironically, you may face the same conundrum with the nest egg you’re saving for retirement.
Should you put this money into a “safe” investment category that pays you interest?
This approach typically gives you a conservative amount of income for retirement, similar to the salaried job that Jeff was offered — If you spend the income that this investment approach generates, it’s unlikely your nest egg will grow much at all.
But the good news is that you can be relatively confident that your income will continue throughout your retirement. And that can give you peace of mind as you plan your day-to-day expenses and determine what you can afford.
On the other hand, there are some investment strategies you can use which are more aggressive. They have the potential to give you much higher returns, leaving you with a much bigger retirement account and funds to travel the world!
This choice is similar to the commission business that Jeff has been building. More work and higher risk, but huge benefits if done right.
So which should you choose?
Well, the good news is that unlike my friend Jeff, you don’t have to choose entirely between one or the other.
In fact, many very smart retirees have their investments divided among two (or sometimes several more) strategies.
A Balanced Allocation Gives You the Best of Both Worlds!
For example, let’s consider a retirement account worth $1 million.
(I’m just using that round number because it’s easy to work with. You could do the same thing with a $10,000 account — or $10 million!)
If you put 80% of your funds into a handful of carefully-chosen dividend-paying companies or corporate bonds, you should be able to generate something north of 4% in annual income. (That number could be higher or lower depending on which stocks or bonds you choose.)
A 4% yield on $800,000 would give you an annual income of $32,000.
Of course, that’s not going to cover everything you want it to, but it helps to supplement social security payments and any other retirement income that you’re entitled to. And remember, the $32,000 can grow over time as companies raise their dividends and stock prices increase.
The other 20% of your capital could be invested in more aggressive opportunities.
You could buy option contracts on stocks that are likely to be bought out — like the names we cover in my Buyout Millionaires Club trading service.
Periodically, you’ll hit a home run with the investments in your more aggressive strategies. We’re talking about gains anywhere from several thousand dollars — to tens of thousands of dollars — depending on the opportunity and your position size.
When these gains occur, you have a fun decision to make…
Do you spend those gains on something special? Why not? You earned it!!
Or do you move that money into the “safe” side of your account? This would help to boost that $32,000 in income, giving you bigger paychecks for years to come.
Or do you put your gains into a new aggressive play, hoping to parlay your winnings into life-changing wealth for your family?
The choice is yours. And the great thing about this situation is that you can even put some money into each of these choices.
I’m sure you can see why a balanced approach to investing can be so helpful. It gives you the opportunity to enjoy the stability of regular income, while still investing in some of the hottest opportunities that can generate huge returns.
And you can always change how much you want to allocate to income or more aggressive strategies.
So Which Option Did Jeff Choose?
I saw my friend Jeff yesterday at Starbucks and asked him what route he decided to go.
He told me that he was comfortable accepting the extra risk by sticking with his current sales job.
“I have so much potential, I would hate it if I didn’t follow through on this opportunity!”
It’s a decision I’m glad my new friend made. And it’s one that hopefully works out big time down the line. Sometimes stepping outside of our comfort zones, learning new skills, and putting a bit more effort in really pays off!
I’m sure it will for Jeff. And I’m sure using this example while managing your nest egg will pay off for you too.
And the best news is — in your situation it doesn’t need to be a zero-sum game!
Here’s to growing and protecting your wealth!