The importance of lower volatility investments for income
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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 Insurance products and services distributed through I.G. Insurance Services Inc. Insurance license sponsored by The Great-West Life Assurance Company. Written and published by Investors Group as a general source of information only. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on your specific circumstances from an Investors Group Consultant. Trademarks, including Investors Group, are owned by IGM Financial Inc. and licensed to its subsidiary corporations. © Investors Group Inc. 2013 MP1841 (12/2013) RICHARD SHEPPARD CFP Senior Financial Consultant Investors Group Financial Services Inc. Tel: (403) 226-5531 [email protected]
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Transcript of The importance of lower volatility investments for income
The importance of lower volatility investments for incomeThe 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 VaLueScenario a
50% decLine in VaLueScenario B
$ 1 0 0 , 0 0 0
$ 8 0 , 0 0 0
$ 6 0 , 0 0 0
$ 4 0 , 0 0 0
$ 2 0 , 0 0 0
$ 0
Source: Investors Group Strategic Investment Planning
2 5 % r e c o v e r y r e q u i r e d
1 0 0 % r e c o v e r y r e q u i r e d
Insurance products and services distributed through I.G. Insurance Services Inc. Insurance license sponsored by The Great-West Life Assurance Company. Written and published by Investors Group as a general source of information only. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on your specific circumstances from an Investors Group Consultant. Trademarks, including Investors Group, are owned by IGM Financial Inc. and licensed to its subsidiary corporations.© Investors Group Inc. 2013 MP1841 (12/2013)
RICHARD SHEPPARD CFP
Senior Financial ConsultantInvestors Group Financial Services Inc.
Tel: (403) 226-5531 [email protected]
