Should Cash Distributions Drive Investment Decisions?
It is not at all uncommon for those in retirement and near retirement to be concerned about the amount of cash distributions their investment portfolio is paying. Often, their objective is to be able to live off this cash and, thereby, keep their initial capital intact. Typically, such investors understand they need to be concerned about the long term safety of their portfolio. But, at the same time they require some scope for capital growth to avoid the possibility that they will run out of money. Therefore, they tend to go towards a balanced/growth type portfolio, allocating 40-50% to what they consider “defensive” assets and 50-60% to “growth” assets. Provided their asset allocation has been determined appropriately, this sounds eminently sensible. However, their focus on cash heavily influences the types of “defensive” and “growth” assets they choose. These choices may, in fact, totally undermine their asset allocation decision. When selecting “defensive” assets, they are attracted
