| One of the asset classes that most retired | | | | otherwise like. This means that they have to shift |
| investors will overlook is the growth asset class, | | | | their way of thinking; either take less income or |
| which consists primarily of equities and other | | | | take more risk. |
| specialized assets that offer potential for capital | | | | Equities need not incorporate a whole bunch of |
| growth. Turning a blind eye on the growth asset | | | | risk. In fact, many of the lower risk equities will |
| class makes a bit of sense; in retirement, | | | | pay a dividend that, while low compared to some |
| investment goals shift from "making" the money | | | | of the below-investment grade corporate debt, |
| to "spending" the money. And if investors have | | | | provides income that might be comparable to |
| been able to achieve their financial goal, why take | | | | government debt (again depending on the stage |
| on the additional risk associated with such assets? | | | | of the economic and business cycles and so on). |
| The reality is that equities offer protection in way | | | | More importantly, however, is that equities will |
| a lot of fixed income assets will not. In fact, many | | | | grow given the right amount of time and offset |
| fixed income assets will actually pay interest (the | | | | higher rates through greater capital growth. This |
| income) based on a rate that will shift up and | | | | process makes simple sense: when rates are low, |
| down depending on the interest-rate environment | | | | companies can invest in their growth and when |
| at the time, the economic and business cycles as | | | | rates are high, companies are enjoying greater |
| well as a host of other time-specific factors. | | | | growth and profits, allowing them to strengthen |
| So when an income-hungry investor decides to | | | | their balance sheets and/or increase dividends |
| lock in their rates at x% for the next so-many | | | | thereby boosting their share price. |
| years, they are not just accepting the level of | | | | Even income-focused investors need to carry |
| income that investment will provide. They are | | | | equities. Even a small percentage, such as 30% of |
| agreeing that this level of income will actually | | | | their portfolio, should be allocated to the growth |
| manage to keep up with the cost of living including | | | | asset class. Assets held in this higher risk portion |
| inflation, that it will allow for unexpected and | | | | of the portfolio need not carry a whole bunch |
| emergency expenses and that it will allow them, | | | | more risk. Depending on the investor's risk profile, |
| come maturity, to have a sufficient capital base | | | | even the most highly capitalized, high dividend |
| to allow for a continued retirement at the level | | | | paying securities will do the trick and still offer |
| they have grown to enjoy. | | | | stability in terms of income and growth. |
| In most cases, fixed income assets do not satisfy | | | | Of course, investors are encouraged to speak |
| all of the above concerns. In many cases, | | | | with their individual advisors to see what options |
| investors are finding themselves digging more | | | | work best for their portfolio and needs. |
| aggressively into their principal than they would | | | | |