With interest rates at all-time lows, investors are desperately seeking yield wherever they can. Dan Bortolotti’s The Income Illusion in the September/October 2012 issue of MoneySense argues that focusing only on income can often lead to a bad outcomes. The article looks at the poor decisions investors often make when they fail to look at total return.
Steve Lowrie was interviewed and quoted in the article. Here’s an excerpt:
Portfolio manager Steve Lowrie sets aside a cash reserve covering three years’ worth of expenses, and clients use this account for their regular cash flow. The rest of the portfolio is invested in a globally diversified blend of stocks and bonds. When it’s gone up in value, he takes some profits and replenishes the cash reserve. The three-year buffer usually gives him enough time to ride out market volatility. “This was really helpful during 2008–09,” he says, “because my clients could meet their cash flow needs and ignore the rest of the portfolio. Then when things rebounded, I rebalanced by selling stocks. It gives you a lot of flexibility.”