What it is
For clients whose policy puts spending and capital preservation ahead of growth: a retiree drawing on the portfolio, a foundation with an annual distribution, a family funding a purchase in the next few years. The job is to produce the income the plan needs and to keep the principal that produces it, with as little drama as possible.
How we express it
A ladder of Treasury and high-quality corporate bonds maturing into the years the money is needed, so that spending never depends on selling anything at a bad price; short-term instruments for the nearest years; and, where the policy allows, dividend-paying equities for the part of the income that must grow with the cost of living. We do not reach for yield: a bond that pays more than its neighbours is telling you something about its risk.
How it is sized
From the spending plan backwards. The policy sets how many years of withdrawals are held in the ladder and the reserve, and the rest of the portfolio is sized around that. For some clients this sleeve is most of the portfolio; for a client still earning, it is a few months of cash and nothing more.
What would make it wrong
Inflation running well ahead of what the ladder earns for a sustained period, which erodes the purchasing power of fixed payments; or a policy that sets the spending rate too high for the capital behind it. The second is the common failure, and it is a planning conversation, not an investment one.
Who it is for
Clients in or near the spending phase, institutions with a distribution requirement, and anyone with a known large expense inside five years.
This material is for informational purposes only and is not a recommendation to buy or sell any security. All investing involves risk, including loss of principal.