The days of comfortably living off one’s retirement portfolio income without touching the principal capital are long gone.

Where once a portfolio could offer risk-free high returns in the vicinity of five per cent through term deposits and fixed-interest assets, dampened yields and interest rates at an all-time low mean these same assets are now struggling to offer two per cent.

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As such, some investors are chasing opportunities to generate sufficient income to fund their lifestyle and expenditure commitments by taking on further risk but as a result, exposing their portfolio to potentially unanticipated risks.

“Chasing income on a standalone basis often leads to many portfolios coming unstuck,” says Balaji Gopal, head of product strategy for Vanguard Australia.

“Higher yields are typically found in riskier assets, which leave the client exposed to fluctuations in the market and undermines the ability of the portfolio to ultimately generate income at an important time in the client’s life.”

Returning to a truly diversified strategy, where the focus is on the total return rather than just preserving capital and generating yield, will offer clients peace of mind in this low rate world, says Gopal. Vanguard’s low-cost diversified funds and ETFs provide both income and growth whilst diversifying across asset classes, sectors, geographies and individual securities.


In income only strategy can be damaging to the overall health of a portfolio, Gopal says. Instead, Gopal says experts have found that total return investing – or investing for cash flow and capital appreciation – offers an alternative way for financial advisors to manage retired clients.

A total return strategy includes money earned from interest, capital gains, dividends and distributions realised over a given period of time. In other words, the total return on an investment or a portfolio includes both income and capital appreciation.

“Rather than switching around holdings to generate yield and in turn introduce more risk, this approach periodically rebalances portfolio assets automatically which could supplement income for retirees,” Gopal explains. “It means clients do sometimes dip into their capital, but they are able to live the life they want by spending the total return from the overall portfolio. When it comes to financial advice, it’s the outcome and the goal that needs to stay front of mind.”

Andrew Tratt, senior financial advisor at Australian Wealth Advisors, has never sought out investments for their income potential, and instead always offered his clients a total-return strategy.

“If clients need some money for a holiday, we just sell down some assets to generate that,” Tratt says. “We work hard to be as diversified as possible, and when it comes to the latter stages of someone’s investing life, it’s not about the return, it’s about the protection, so we spread them across a really wide variety of assets.”

Ashley Tindall, director at IVX Financial Planning, says the lower-for longer environment has changed the investing game.

“This environment is redefining what wealthy is in Australia,” Tindall says. “If your objective is to preserve capital and up your yield, to sustain that income using term deposits and cash is beyond most Australians. They need a lot more capital at the get-go.”