TRANSCRIPT
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#82 - Investing in Retirement - Part 3: The Building Blocks of Your Retirement Portfolio
This episode focuses on two major components of a retirement portfolio: understanding the role of stocks and the power of dividend growth investing. Eric Blake and Wendy McConnell explore how these strategies support long-term income, stability, and confidence throughout retirement.
Introduction
Eric Blake: On today's show, we are going to talk about two of the most important building blocks of your retirement portfolio: understanding the role of stocks in retirement, and why dividend growth investing can be such a powerful strategy as part of your retirement income plan.
Welcome to another episode of the Simply Retirement Podcast, where we want to empower and educate women to live your retirement on your terms. I am your host, Eric Blake, practicing retirement planner with over 25 years of experience, founder of Blake Wealth Management, and I would not be the man I am today without the women in my life.
This is episode three of our four-part series, Seven Essential Strategies to Successful Investing in Retirement.
In episode one, we laid the foundation by talking about the importance of having a plan—one that begins with your values, what is most important to you, and then identifies your financial resources. From there, it helps you answer the big questions: What do I need in retirement to live comfortably? What do I want to do to make it meaningful?
In episode two, we talked about two of the most impactful strategies from a behavioral perspective by defining the true objective of a retirement portfolio: growth of income, not just trying to protect your principal. And we discussed how to reframe how you think about risk in retirement—away from thinking in terms of percentages, such as the percentage of my portfolio that I have in stocks or bonds, or the percentage that my portfolio went down in any particular time period—to thinking more in terms of years of income. What I refer to as our war chest. How many years of income do you need in your war chest? Because this is key to protecting your income—and your sanity—during difficult markets.
So please go back and check out those episodes.
Today, we are going to move forward to the key building blocks when constructing your retirement portfolio. Once we have determined how big your war chest should be, what is next?
Joining me again on this episode is Wendy McConnell. Wendy, how are you?
Wendy McConnell: I am good. How are you?
Eric Blake: I am doing very well. Doing very well. We got a little cooler weather. As we are recording this, we are at the end of September, so it is no longer, you know, 105, so we are good.
Wendy McConnell: Hopefully.
Eric Blake: Right. We will see how it goes. You never know, but we are all good.
Wendy McConnell: Good, good. Glad to hear it.
Eric Blake: Absolutely. So, are you ready to talk about the key building blocks of your retirement portfolio? Does that sound like fun?
Wendy McConnell: Am I ever.
Eric Blake: You have just been waiting for this one, right?
Wendy McConnell: Oh, I cannot wait.
Eric Blake: Just as a reminder: for all the links and resources, go to SimplyRetirementPodcast.com. And do not forget—if you have a question, a topic idea, or a specific retirement challenge you would like covered in an upcoming episode, you can visit SimplyRetirementPodcast.com/AskEric.
Strategy Four: Understanding the Role of Stocks in Retirement
Eric Blake: Strategy number four in our Seven Strategies for Successful Investing in Retirement is understanding the role of stocks in retirement. Now, I completely understand that for many people, when they hear the word “stocks,” it brings about the same feeling as pulling the handle on a slot machine—like going to Vegas. You stick your money in, and you hope for the best.
And that is one of the biggest challenges for investors today: we have this constant stream of news. We live in this 24/7 news cycle where every market drop makes the headlines.
I always think it is so funny—CNBC is the worst at this—where you see the same people, the same individuals on the trading floor with big smiles, or they look like someone killed their dog or something.
Wendy McConnell: Oh no.
Eric Blake: I do not understand. How did they find the same guy? Do they just ask, “Hey, are you ready to take your picture for the day?” It is crazy.
But the long-term history of the market tells a completely different story. While all the daily noise can be unsettling, the story over decades has been one of growth, income, and ultimately compounding. And that is what we want to focus on today.
I have an example I want to walk through.
Suppose you had a million dollars back in January of 1993. And we said, “Okay, we are going to put 75%—$750,000—into the S&P 500.” So that is the stock part of our mix.
Wendy McConnell: Okay.
Eric Blake: Then we put the other 25% into fixed income—bonds, safer stuff. Now, just to be clear, you cannot actually invest directly in the S&P 500, but you can invest in mutual funds or ETFs that track that index. We will get into more detail about what the S&P 500 is in just a bit.
In this example, we are not taking withdrawals. This is just to give you an idea of the long-term reality of what stocks have done over a 30-year time period—something similar to what you could face in retirement.
So here is what happened:
The annual dividend income grew nearly fivefold.
In 1993, you would have earned about $21,000 on that $750,000 investment.
By the end of 2022, that income increased to $115,000 per year—just from dividends.
Wendy McConnell: Wow.
Eric Blake: Right. And we will talk more about dividends in a moment because that is also part of today’s conversation.
But again, that is a five-times increase. With inflation historically around 3%, that is a significant difference. This highlights the power of dividends in your portfolio.
Here is the other key point—something people worry about most in retirement: losing principal or seeing their account value go down.
That original $750,000 invested in stocks grew to about $6.7 million.
Wendy McConnell: Wow.
Eric Blake: And again, we are not taking money out—this is purely the growth. But it shows the reality of what has historically happened, compared to what you hear in the news.
Wendy McConnell: Okay, so I used to hear—and correct me if I am wrong, because what you are saying blows this out of the water—traditionally, what you have invested doubles per decade.
Eric Blake: So, there is something called the Rule of 72. That is typically what people think about. And again, that is just a mathematical rule—not a real rule.
Historically, the market has returned between 9% and 10%. Using the Rule of 72, you divide 72 by that return to estimate how long it should take for money to double.
Now, the reality is we know that does not always work out perfectly because—and this is key—this 30-year time period I mentioned, from 1993 to 2022, included four bear markets.
Wendy McConnell: Okay?
Eric Blake: Two of which were the second and third worst declines in U.S. market history.
Wendy McConnell: Yeah.
Eric Blake: And the data I am talking about here stops in 2022—right in the middle of that fourth bear market. It does not even include the last couple of years, where the market basically continued to increase.
Still, the long-term numbers are powerful.
Here is another important point: over the past 30 years, we experienced only four true bear markets. A bear market is defined as a 20% decline from all-time highs.
Wendy McConnell: We have had four of those ever?
Eric Blake: Four in the last 30 years—1993 to 2022. Four true bear markets.
Wendy McConnell: Okay.
Eric Blake: But if you watch the news, you would think we had four every single year.
Wendy McConnell: Yeah. Especially when you look at those guys with the sour look on their faces on CNBC.
Eric Blake: Exactly.
Wendy McConnell: The only time I was very, very concerned was during COVID, when they actually shut the market down—twice, I think.
Eric Blake: Yes, and that is one of those four. So the four are:
The Y2K/9-11 period
The 2008 financial crisis
The 2020 pandemic
And 2022
Now, here is something else interesting: if we look at every rolling 30-year period going back to 1926—which is roughly the starting point of the S&P 500—the worst average annual return over any 30-year period was from 1929 to 1959:7.8% average per year.
Wendy McConnell: That was the time between ’29 and ’59, and it still gave out 7%?
Eric Blake: 7.8% average annual return—even during that time period.
Wendy McConnell: Per year?
Eric Blake: Per year. On average.
Wendy McConnell: I will take it.
Eric Blake: That is where the gambling analogy breaks down. If you look at a single day—which is, unfortunately, how the news reports things—yes, it is about a 50/50 chance you are up or down.
But the longer you go in time, the less risk you actually have.
The worst 30-year period still averaged 7.8% a year.
Wendy McConnell: Did you sit down and figure all this out, or is it in a study or something? I want to see how nerdy you really are.
Eric Blake: Oh, I am pretty nerdy. I know the information, but for compliance reasons, I also have to prove it.
Wendy McConnell: Good to know.
Eric Blake: That is why I said we are going to share links to research so people can see it for themselves.
Wendy McConnell: I could see you just saying, “Well, let’s figure this out.”
Eric Blake: No, no, no. I am not that nerdy. I know where the data is. And again, these are conversations we have with clients all the time.
When you are preparing for retirement and worried about scary market declines—especially when the news and social media emphasize fear—people often feel pressured to do something. But almost every time, doing nothing is better than reacting emotionally.
In most cases, when people act during a bear market, it is:
Emotional
Fear-based
Often irrational
And usually the wrong thing to do
People will even do things they know are not right because they fear:“What if this is the first time in history the market actually declines permanently?”
Historically, there has never been a permanent market decline. They have all been temporary.
Compliance forces me to say: nothing is guaranteed.
Wendy McConnell: I know.
Eric Blake: But historically, there has never been a permanent decline.
Ultimately, if—as we discussed in strategy two—the primary goal of a retirement portfolio is to provide growing income that keeps up with or exceeds inflation, and ideally grows your principal as well, then:
A portfolio consisting of stocks
Including dividend-paying stocks
Combined with a sufficient war chest
…is one of the best ways to accomplish that over a 30-year retirement, where we know prices will keep increasing.
Wendy McConnell: Okay, so this is based on the fact that we may have a 30-year retirement?
Eric Blake: Absolutely. If a couple retires together at age 62, there is a 50/50 chance one of them will live to 92 or longer.
Here is another way to think about it:
Using the Rule of 72 with 3% inflation, your cost of living will double every 20 years.
Wendy McConnell: Okay.
Eric Blake: So if you retire at 62, your living expenses at age 82 could be double what they were at 62—simply due to inflation.
Stocks historically have provided the best hedge against this erosion of purchasing power.
It is not about “inflation” as a number—it is about maintaining your lifestyle.
Wendy McConnell: Gotcha.
Strategy Five: The Value of Dividend Growth Investing
Eric Blake: So now that we have discussed the role of stocks, we want to move into Strategy Five: the value of dividend growth investing as part of your stock strategy.
First, let me give you a simple definition of a dividend:
When you buy a stock—whether in a brokerage account, through your company’s stock plan, or inside your 401(k)—you become an owner of that company.
And I really want people to think of it that way. When you look at your statement, most people only look at the value—did it go up or down? But if you own a stock or stock fund, you own a piece of the companies inside it.
For example, if you buy Apple stock—even a single share—you are an owner of Apple.
Wendy McConnell: I want Apple stock.
Eric Blake: Apple stock has been pretty good.
Wendy McConnell: I want to say I own part of that company.
Eric Blake: I want to go back and buy Apple stock 30 years ago.
Wendy McConnell: Oh, I know.
Eric Blake: When Apple—or any company—makes money, they may pay a dividend to shareholders. If Apple is profitable, they share a portion of those profits with you.
So dividends are another way of making money from your portfolio.
Wendy McConnell: But that stays in the portfolio, right? It is not like you are getting a cash payout?
Eric Blake: It depends.
Wendy McConnell: Oh.
Eric Blake: You can choose. If Apple pays a dividend, you can:
Reinvest it and buy more shares, or
Take it as cash—literally get a check or deposit
Either way, that dividend is your portion of Apple’s profits.
Wendy McConnell: Okay.
Eric Blake: So if you think about that, bear markets are never fun—but if you put things in perspective and think, “Okay, I own the S&P 500,” that means I own companies like:
Apple
Nvidia
Amazon
Microsoft
And hundreds of others
If you own an S&P 500 index fund, you own a small piece of the largest 500 companies in the U.S. economy.
If you think about owning those companies, how many of them are likely to go to zero?
Wendy McConnell: Well, not all of them. That would be the hope.
Eric Blake: Exactly. And that is diversification.
And if we see a decline in the market tomorrow—but I know I own Amazon, Apple, Nvidia, these great companies—it helps keep things in perspective. Just because the market is down does not mean the companies you own suddenly became terrible companies.
If people can maintain that mindset, it goes a long way toward maintaining your sanity when the news is telling you to buy, sell, panic, or do something dramatic.
Wendy McConnell: And now that I know I own part of Amazon, I can call customer service and be like, “Why is my package late?”
Eric Blake: They will push you right to the front of the line.
Wendy McConnell: I own part of this company—I want my package now!
Eric Blake: We do not have any problem with Amazon packages arriving. We get at least two a day, I think. So I do not have complaints with Amazon. My complaint is not with Amazon—it is with the initiator of the requests.
Wendy McConnell: Gotcha.
Eric Blake: And I am a big part of that too, so I am not passing blame.
Now, let’s talk about the dividend piece.
We defined what a dividend is. Now let’s talk about the power behind dividend growth.
If we go back to 1960—remember inflation has risen by about 3% per year on average—but over that same time period, from 1960 through 2022, dividends of the S&P 500 grew by 5.8% per year, almost twice the rate of inflation.
Wendy McConnell: Okay.
Eric Blake: So, the more profitable companies are, and the more consistently they maintain that profitability, the more they tend to increase their dividends.
And that is exactly what has happened historically.
So again, the S&P 500 represents the largest companies in the U.S. Those companies have changed over time—new ones come in, old ones drop out—but investing in that index means the collective dividend has increased by 5.8% per year since 1960.
Wendy McConnell: I am not a numbers girl, so I am trying to wrap my head around this. So is this 5.8%—these dividends—is that on top of the value that the stocks are increasing?
Eric Blake: Yes. And that is what makes this so powerful.
When people think about stocks, they often think only about the ups and downs of stock prices—because that is what the news talks about.
But with a diversified stock portfolio, you have two components of growth:
Price appreciation (the stocks going up in value), and
Dividend income, which has historically grown over time
The 5.8% dividend growth does not include the price appreciation.
Wendy McConnell: I like that.
Eric Blake: Absolutely. This is why stocks have historically been such an effective way to grow income over time—especially in retirement.
These pieces fit together. And remember: we are not cherry-picking stocks. We are talking about the entire S&P 500.
Wendy McConnell: That is a large cap?
Eric Blake: Yes. Those are the largest companies out there—the top 500.
Wendy McConnell: Does “large cap” mean the same thing as the S&P 500? Are they interchangeable?
Eric Blake: Not exactly.
The S&P 500 is specifically the 500 largest companies. “Large cap” means any company above a certain size. So:
All S&P 500 companies are large caps
But not all large caps are in the S&P 500
There are also:
Mid caps (medium-sized companies)
Small caps (smaller companies)
A diversified portfolio may include all of these.
Wendy McConnell: Okay.
Eric Blake: Now, remember: these companies have done something right to get into the S&P 500—they are strong, profitable companies. And when you own that index fund, you are receiving a piece of their profits through dividends plus any appreciation.
In our earlier example, that $750,000 invested in the S&P 500:
Produced dividends that increased fivefold, and
Grew in value to $6.7 million
Both pieces matter.
Dividend Growth Reduces Stress
Eric Blake: Another major benefit of dividend growth investing is that it can reduce stress when it comes to generating income.
If you are receiving dividends, you may not need to sell shares to generate income. Those dividends can:
Be sent to you as cash, or
Be reinvested to buy more shares
Reinvested dividends create compounding growth.
You mentioned earlier: “Is the benefit of reinvesting dividends the compounding?”
Wendy McConnell: Yes.
Eric Blake: Exactly. You buy more shares, and if those shares increase in value, the compounding effect accelerates.
Plus, companies with a history of growing their dividends also tend to be less volatile than non-dividend-paying stocks.
You get:
Ongoing income
More stability
Less of a roller-coaster ride
Wendy McConnell: Okay. And you could change that up in case of an emergency?
Eric Blake: Absolutely. This flexibility is part of the strategy.
Connecting the Pieces: War Chest + Stocks + Dividends
Eric Blake: When we talk about putting all these pieces together, we look at:
Your War Chest (low-risk assets covering ~5 years of income)
Your Stock Portfolio (long-term growth)
Your Dividend-Paying Stocks (income + stability)
This combination protects you from volatility. In the last episode, we talked about how long it took to recover from the 2007 peak to break-even again—about 5.5 years.
If you have a five-year War Chest, you can avoid selling during downturns and let your stocks recover.
Dividend-paying stocks continue to produce income—even in volatile markets—often without needing to sell anything.
Wendy McConnell: Okay.
Eric Blake: All of this works together to provide income over what could be a 30-year retirement.
Wendy McConnell: You are making me a happy girl. I am loving what I am hearing.
Eric Blake: So with your War Chest protecting your short-term needs, and your stocks—including your dividend-paying stocks—working for the long term, what we want is a strategy built to last over a 30-year retirement. And that is what these last couple of episodes have been about.
Next episode, we are going to get into the nuts and bolts of taxes—and Strategy Six—which is managing your portfolio’s tax burden in retirement. We are also going to help you answer the question: Should I work with an advisor? Someone who can tie all this together into a confident, effective plan.
As always, thank you for tuning in. A big thank you to Wendy for chiming in and helping me narrow this down and hopefully share some value that people can use in their own retirement situation.
If you have questions about investing in retirement, you can email me directly at eric@blakewealthmanagement.com. I will read and respond to every email personally.
But if you are looking for a personalized retirement plan that helps you make smart decisions around income, investments, and taxes, visit GetMySimplyRetirementRoadmap.com to schedule a call with our team.
That is it for today’s episode. As a reminder, for all the links and resources mentioned today, visit SimplyRetirementPodcast.com. We will also share links to the historical data we discussed so you can review it for yourself.
Do not forget to like, follow, and share our show.
Until next time, please remember: Retirement is not the end of the road. It is the start of a new journey.
Content here is for illustrative purposes and general information only. It is not legal, tax, or individualized financial advice; nor is it a recommendation to buy, sell, or hold any specific security, or engage in any specific trading strategy.
All investing involves risk including loss of principal. Results will vary. Past performance is no indication of future results or success. Market conditions change continuously.
Information here is provided, in part, by third-party sources. These sources are generally deemed to be reliable; however, neither Blake Wealth Management nor RFG Advisory guarantee the accuracy of third-party sources. The views expressed here are those of Blake Wealth Management. They do not necessarily represent those of RFG Advisory, their employees, or their clients.
This commentary should not be regarded as a description of advisory services provided by Blake Wealth Management or RFG Advisory, or performance returns of any client. The views reflected in the commentary are subject to change at any time without notice.