For most of your working life, your portfolio has one job: grow. Then one day it gets a second job: pay you. Those two jobs call for different tools, so we manage them with different portfolios.
The building years
When you're adding to your savings and won't need the money for a decade or more, short-term swings matter less. A down year is uncomfortable, but you aren't selling, and new contributions buy in at lower prices.
In this stage we focus on total return. Dividends get reinvested. We look for chances to harvest tax losses when markets drop, and we rebalance to keep risk where you want it.
The living-on-it years
Once your savings start covering the bills, the math changes. Selling investments during a downturn to pay for groceries locks in losses that a growing portfolio would simply ride out. Researchers call this sequence-of-returns risk. We call it the thing worth planning around.
So the distribution portfolio is built differently:
- A cash flow reserve. Near-term spending is set aside in steadier holdings, so a rough market doesn't force a sale.
- Lower volatility. The rest of the portfolio still grows, but with a smoother ride.
- Tax-aware withdrawals. We decide which accounts to draw from, and when, to keep more of what you've saved.
The handoff
The move from one to the other usually isn't a single day. It often starts five to ten years before retirement, as we gradually build the reserve and shift the mix. Your plan tells us when, and we review it with you each year.
“You can't predict. You can prepare.”
Howard Marks
What this means for you
If you're within ten years of retirement, or already retired and still invested like you were at forty, it's worth a conversation. Ben and William lead most of these reviews.
This article is for general education and is not individualized investment, tax or legal advice. Diversification and rebalancing do not ensure a profit or protect against loss.
