Marvin Appel, the author of "Higher Returns from Safe Investments Using Bonds, Stocks, and Options to Generate Lifetime Income,” said there are two ways to profit in the financial markets. One is to generate capital gains, by buying low and selling high. The other is to “own investments that pay you a stream of income in return for just holding them in your account, regardless of which direction the markets are moving.”
Appel began his professional life by training to be an anesthesiologist, while at the same time earning a Ph.D. in biomedical engineering. But, in 1996, he joined his father Gerald and his investment management firm. When he published this book in 2010, he was the CEO of Appel Asset Management of Great Neck, New York. Appel is also the author of “Investing with Exchange-Traded Funds Made Easy” and co-wrote, with his father, “Beating the Market, Three Months at a Time.”
In "Higher Returns from Safe Investments Using Bonds, Stocks, and Options to Generate Lifetime Income,” he explored wealth generated using income streams -- streams such as bond income, bond mutual funds, dividends from stocks, Treasury Inflation-Protected Securities (TIPS), municipal bonds, preferred stocks, equity ETFs and stock options.
Chapter one began with a reflection on the 2008 financial crisis, which was recent history for this book, published in 2010. Appel noted that many investors were wondering how they could deal with the dilemma of getting attractive returns while still sleeping at night.
The capital-gains route promises attractive returns, but is not so likely to foster sleep. In addition, if you do profit, you cannot know in advance how much you will earn, nor when you can collect those earnings.
On the other hand, income investments allow you to know how much you will make, and when you will collect the proceeds. The only problem is that returns have been very low since the financial crisis, a far cry from the highly inflationary days of the 1970s and '80s.
As a result, many safe investments no longer cover the cost of inflation, let alone taxes levied by governments. However, Appel wrote, “The goal of this book is to show you that this is not necessarily true. The pursuit of greater safety than you might find in the stock market or in real estate, for example, need not limit your returns to the meager rates now available from the average bond or bank CD.”
He pointed out that not all bonds are created equal, and there are some areas of the bond market that have above-average profit potential. Part of the promise of his book is to teach us to mitigate the risks when we buy better-yielding bonds. Whether we buy bond mutual funds or individual bonds, he said he can make us more informed investors.
He positioned his advice this way:
“The income-generating strategies you will learn from this book are those that have been safer than the typical investment in the stock market and have the potential to return more than the average investment in the bond market. Although the future performance of any investment strategy cannot be predicted or guaranteed, you will see how much risk has been associated with different income investments and you will learn how to manage that risk in the future. Even without a guarantee, you should be able to sleep at night.”
In the second section of chapter one, Appel turned to the question of how much money we need to retire. He has recommended to his clients that they take a maximum of 5% per year out of their savings accounts; taking more could leave those savings depleted in the final years of their lives.
If you agree that 5% is an appropriate amount, then you can calculate how much you need in your retirement savings before you retire. If you have a nest egg of $250,000, then you can take out $12,500 a year, slightly more than $1,000 a month. If you’d like to take out $50,000 a year, then you would divide that $50,000 by 5%, and that works out to $1 million in total retirement savings.
In developing a retirement budget, you will also need to account for Social Security and perhaps a workplace pension.
Appel also suggested that retirement planning should include the number of years that you can be expected to live. In 2010, he cited IRS longevity tables to forecast that one or both spouses will live for another 26 years, and pointed out that a lot can happen in 26 years, including inflation, recessions and much more.
Obviously, this means being prudent in your retirement planning and spending prudently during your retirement years.
In subsequent chapters, Appel will address how and when to use these safer investments he has discussed.
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