[ DRAWDOWN ]
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FIVE POINTS TO CONSIDER FOR A DRAWDOWN STRATEGY
By Peter Finnigan , Sanlam ’ s head of private clients in the South West
What is the value of overall assets available to draw on ?
How much money do you require each year ? For example , will you need to access a large one-off lump sum over the next five years ?
What are your plans over the longterm ? For example , do you plan to downsize or make any gifts to children ?
Is there a shortfall between the income that is being generated from your assets and the income you require to fulfil your plans ?
How long would your assets last if they saw no growth or fell in value during the early years ?
having to sell assets at depressed prices . However , the downside is that the cash buffer needs to be replenished continually and can be eroded by inflation over time . Wealth manager Mattioli Woods typically holds what equates to between one year and 18 months ’ worth of income for the client in lowrisk , cash-like investments .
This comprises cash deposits , investments with short maturities where the minimum maturity value is known , as well as income-generating assets such as property .
Recovery time Ryan points out this cash buffer can provide the portfolio with some time to recover from a market fall . Another pot is then invested with a two- to five-year timeframe , while the remainder of the portfolio is allocated to higher risk assets such as equities and is invested for the longer term . In theory , this pot should be less vulnerable to short-term market falls . “ One of the major issues when you are in drawdown is if the cash is not planned for properly ,” Ryan adds . However , Thesis Asset Management believes there is one major pitfall with the “ cash buffer ” approach . The group says holding too much in defensive assets for too long can limit the portfolio ’ s ability to generate the returns needed to sustain itself over the long term . With this in mind , the firm has launched a managed income service . This comprises a wealth-preservation portfolio of lower-risk incomegenerating assets , alongside a wealthaccumulation portfolio of assets with the potential to deliver growth and income over the long term . During
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