The document discusses the importance of lower volatility investments for those drawing down income from their portfolios. It notes that the trade-off between risk and return is crucial, as investments need to provide adequate income without depleting capital too quickly or experiencing severe losses during market declines. Lower volatility protects portfolios more during downturns, as illustrated by an example where a 20% decline requires a smaller 25% recovery than a 50% decline needing a 100% bounce back to break even. Overall, the document advocates for lower risk investments to safeguard against large losses for those relying on portfolio withdrawals for income.

1. The importance of lower volatility
investments for income
The trade-off between risk and return is one of the most important aspects of investing, especially
for those drawing down income. The expected return must be adequate for creating enough income
without draining too much capital and offer less volatility to ensure that investments aren’t being sold
at a severe discount during a market decline.
For example if you lost 50% in the market, you would require a market gain of 100% to recover while
a lower decline of 20% requires far less of a recovery with 25% bringing you back to the breakeven point.
Lower volatility levels protect portfolios during an income phase
Using the examples below and assuming that $10,000 was sold after the decline to provide income, the investor in scenario A
that experienced a 20% fall would redeem $10,000 and still have $87,500 invested after the 25% market recovery. In contrast, the
investor in scenario B that saw a 50% decline and a 100% market bounce back would have redeemed the same $10,000 but only
have $80,000 invested as a result of the market recovery.
20% decline in Value
Scenario A
50% decline in Value
Scenario B
$100,000
$80,000
$60,000
$40,000
$20,000
$0
Source: Investors Group Strategic Investment Planning
25% recovery
required
100% recovery
required
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© Investors Group Inc. 2013 MP1841 (12/2013)
RICHARD SHEPPARD CFP
Senior Financial Consultant
Investors Group Financial Services Inc.
Tel: (403) 226-5531
Richard.Sheppard@investorsgroup.com