Originally Posted by
Snoopy
My own fixed interest portfolio, consisting entirely of bank term deposits, is staggered exactly as you suggest. I currently have six term deposits all invested for six monthly terms, but staggered in maturity date so that only one matures each month. These deposits have become my ‘emergency capital’, should something unexpected happen. In six months I could unwind the whole lot into cash without foregoing any interest due. So far, touch wood, I have not needed to do so. But I would certainly touch this term deposit capital first rather than having to sell shares at the bottom of the market.
Of course this strategy (investing in term deposits for relatively short periods) has worked well because of the inverse yield curve effect of shorter term interest rates (3-6 months) being higher than longer term (2-5 years) for as long as I can remember.
It could be that an emergency arises with the market near a peak. In that instance I think there is a fair chance that I could sell one of my eight shareholdings for a good return, while maintaining portfolio diversification with the other seven.
I have carefully avoided directly answering your question Lizard, about making up income. I am not sure I accept your question as something that should be faced. Is it reasonable to expect a constant income in an environment where interest rates drop from 8.6% to 4.5%? I suppose my answer is, you will just have to spend less if you want to retain your capital!
I guess if I had to draw on capital to boost ‘income’, I would probably leave the shares part of my portfolio alone and take the extra out of my fixed interest capital. Fixed interest capital could then be restored with capital profits from a sharemarket recovery. That seems preferable to the double whammy effect of taking share capital out of the sharemarket at the bottom.
SNOOPY