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Equity Income

There are good reasons why equity income may be a more suitable choice for retirees and conservative investors  

Equity investing designed for retirees

An equity income strategy has the potential to reduce this risk and become an integral part of a balanced retirement investment portfolio.

Equity income funds aim to generate income by investing in shares in a risk-controlled way. Exposure to equities allows retirees to access the inherent income-producing abilities of companies coupled with their potential to deliver higher returns, and importantly for eligible investors, the benefit of franking credits.


At the same time a strong emphasis on managing downside risk aims to reduce the risk of capital loss.

The Vertium Equity Income Fund is designed to address the needs and satisfy the risk appetite of retirees by providing an attractive mix of income, reduced volatility and capital growth.

Why retirees need a different investment approach

Accumulating wealth through superior investment returns is usually an investor’s primary focus during their working life. As a result, investment portfolios become skewed towards growth assets, such as equities, with generally a secondary focus on the risks associated with generating higher returns.

However, as investors move from accumulating to preserving wealth, their investment needs and risk profiles change. Chasing higher returns decreases in importance. Instead receiving income and preserving, and even growing, capital become critical. Reducing risk is paramount.

But are retirement investment portfolios changing accordingly?

Retirees have different investment needs


Unlike investors accumulating wealth, retirees broadly need:

  • Regular income – to cover living expenses and to keep pace with inflation

  • lower investment risk – to preserve capital and reduce the impact of market downturns

  • Capital growth – to ensure their savings can adequately sustain them over the long term.

Regular income

As investors move permanently out of the workforce their focus shifts from building assets to drawing down on their capital.

Without a regular wage or salary, retirees are more reliant on deriving income from their investments to cover expenses and over the longer term, to adjust for the rising cost of living.

Capital preservation

Compounding retirees’ need for income however, is often a desire to reduce investment risk to ensure their money lasts.

While volatility can play a positive role in a wealth accumulator’s portfolio, that is, they may benefit from purchasing growth assets when markets are weak, during retirement, retirees have limited time and capital available to tolerate, or take advantage of, adverse market movements.

Investment growth

Thinking longer term during retirement can be overshadowed by the emphasis placed on meeting shorter-term living expenses. However, with inflation and market movements inevitable over the long term, achieving some capital growth during retirement can provide a buffer to market changes while reducing the risk retirees may outlive their savings.

Rethinking investing in retirement


Retiree investment portfolios have traditionally favoured defensive assets, such as fixed income and cash. Although this strategy may deliver regular income and reduced volatility, low prevailing interest rates may not generate sufficient returns to adequately sustain retirees over the long term.

There is a belief that blending defensive and growth assets can smooth returns and reduce investment risk. However, these portfolios generally cannot absorb the occasional extreme shocks equities can experience. If a portfolio suffers a loss, to recover, investors can take on more risk by chasing higher returns, or increase their time in the market. Retirees however, have limited time and capital available.

Making your capital last longer


Minimising the amount retirees draw down is one way to preserve capital.

However, if a retiree’s portfolio comprises only growth assets, selling investments to generate income when markets are down means when markets improve, the capital value is unlikely to recover. Repeating this pattern when markets suffer negative shocks can irrevocably damage a retiree’s savings. Being cautious rather than increasing risk by chasing higher returns however, can improve a retiree’s ability to protect capital and make it last longer.

Attractive income 

Australian shares have the potential to deliver an income stream well above term deposits, even if interest rates fall. And while shares have higher capital volatility, the income stream itself it likely to be more stable than the term deposit rate over long periods.  

Lower risk

Generally, equity income is designed to deliver returns with less variability (or risk) than other equity strategies that aim for capital growth. Equity income provides an avenue to enjoy the benefits that equity exposure can provide, in a much more risk controlled manner.  

Capital growth 

A key benefit of including low-risk equity exposure in a retirement portfolio is the potential for capital growth over the long term, despite short term fluctuations. Growth in the capital base can help prolong a retirement nest egg and make the income drawdowns last longer. 

Increased longevity

The combined characteristics of equity income are generally not available in other investment asset classes, such as annuities, bonds and term deposits. The combination of income, low risk and capital growth potential, are designed to help make a retirement portfolio last longer.   

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