Vanguard’s approach to Total Return Investing
Key points
- Many retirees focus on the income return from their investment portfolios as the foundation for what they have available to spend. As the yields for most investments are historically low and forecast to remain low for the next several years, retirees need to rethink how to earn enough income to meet their spending goals.
- As a result, retirees and other income sensitive investors may be tempted to reallocate to higher-yielding investments, such as high yield bonds or equity-income strategies. This can increase the portfolio’s risk profile and may not be in the investor’s long-term best interest.
- Constructing a portfolio based on total return, as opposed to only its income, has several advantages, including maintaining alignment with the investor’s goals and risk tolerance, appropriate portfolio diversification and control over the size and timing of withdrawals. This approach can also help control unintended factor and credit exposures and can increase the portfolio’s longevity.
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