Spending Total Return

The Wall Street Journal has an informative article titled ‘Income’ Isn’t Everything

It makes the point that many people only think of income as cash flow—such as the money generated by bond interest payments or stock dividends.  But with interest rates low and bond yields falling, there is a serious risk that people who equate spendable income only with interest  and dividends will begin to take risks that may cause problems later.  One of the most common problems when people reach for yield in a low yield environment is to either buy high risk “junk” bonds or extend maturities out to the ozone.  The latter can trap them into low interest rate bonds when interest rates are rising.  Most investors should focus on a total-return strategy, or investing for cash flow and capital appreciation.

Total-return strategies focus on income and appreciation to generate enough growth and income from a portfolio to make the money last a long time. Success depend on how much money has been saved and how quickly it is being withdrawn

One important advantage of a total-return strategy is that it makes it easier to spread risk. If you don’t require all your holdings to pay out significant current income, you can add many types of stocks and other securities to the mix.

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