CONTRIBUTORS
Reece Birtles, CFA, GAICD
Head of Australian Equities
Key Takeaways
- Income investors face very different risks than accumulation investors, and portfolios must be purpose-built for stable, growing income—rather than total return—to withstand shocks and protect spending needs in retirement.
- Danger ratings shift when viewed through an income lens: many ‘Goldilocks’ return assets offer poor income stability, while high-quality, dividend-sustainable Australian equities—with strong franking benefits—provide more resilient and inflation-aligned income.
- A customised, actively managed approach to Australian equities—focussed on sustainable dividends, quality, diversification, and franking—can significantly improve income preparedness and reduce the risk of capital or income impairment when conditions change.
Applying Bushfire Planning to Income Safety
Australians know all too well about the impact of natural disasters such as bushfires. Every summer, we prepare our properties and discuss bushfire survival plans with our loved ones ahead of a potential threat.
In the current market environment, we think the analogy of a bushfire survival plan and danger ratings assessment can also apply to various asset classes and your portfolios.
Just as during bushfire season, there are important risks that income-focussed investors such as retirees should consider planning for in their portfolios, well before ever changing market conditions could turn them into a potential disaster for your income stream.
Income Investments Need a Different Survival Plan to Accumulation
A bushfire survival plan should be customised to consider factors such as your location, the conditions and your desire to leave early or stay and defend. In a similar vein, we believe that your ‘portfolio survival plan’ should be customised differently for income and accumulation purposes.
- When an investor is in accumulation phase, their primary focus is typically on maximising the dollar value of their balance. There are normally no set income requirements, and no specific inflation concerns, just a certain level of risk tolerance.
- When it is time to turn into this into an income stream, such as at or leading into retirement, the objectives change and the focus needs to be on generating an income to support spending needs.
Important Information
Franklin Templeton Australia Limited (ABN 76 004 835 849) is part of Franklin Resources, Inc., and holds an Australian Financial Services Licence (AFSL No. 240827) issued pursuant to the Corporations Act 2001. The ClearBridge Australian equities investment team, a division of Franklin Templeton Australia Limited, is operationally integrated under the “ClearBridge Investments” global brand, alongside ClearBridge Investments, LLC (“CBI”), and other ClearBridge entities indirectly wholly owned by Franklin Resources, Inc. Distribution of this material is issued and approved in Australia by Franklin Templeton Australia Limited.
This publication is issued for information purposes only and does not constitute investment or financial product advice. It expresses no views as to the suitability of the services or other matters described in this document as to the individual circumstances, objectives, financial situation, or needs of any recipient. You should assess whether the information is appropriate for you and consider obtaining independent taxation, legal, financial or other professional advice before making an investment decision.
Neither ClearBridge Investments, Franklin Templeton Australia, nor any other company within the Franklin Templeton group guarantees the performance of any Fund, nor do they provide any guarantee in respect of the repayment of your capital.
The document does not form the basis of, nor should it be relied upon in connection with, any subsequent contract or agreement. It does not constitute, and may not be used for the purpose of, an offer or invitation to subscribe for or otherwise acquire shares in any of the products mentioned.
Past performance is not a guide to future returns.
The distribution of specific products is restricted in certain jurisdictions, investors should be aware of these restrictions before requesting further specific information.
The views expressed are opinions of the portfolio managers as of the date of this document and are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. These opinions are not intended to be a forecast of future events, research, a guarantee of future results or investment advice.
Some of the information provided in this document has been compiled using data from a representative account. This account has been chosen on the basis it is an existing account managed by the investment team , within the strategy referred to in this document. Representative accounts for each strategy have been chosen on the basis that they are the longest running account for the strategy. This data has been provided as an illustration only, the figures should not be relied upon as an indication of future performance. The data provided for this account may be different to other accounts following the same strategy. The information should not be considered as comprehensive and additional information and disclosure should be sought.
The information provided should not be considered a recommendation to purchase or sell any particular strategy / fund / security. It should not be assumed that any of the securities discussed here were or will prove to be profitable. It is not known whether the stocks mentioned will feature in any future portfolios managed by the investment team. Any stock examples will represent a small part of a portfolio and are used purely to demonstrate our investment style.
Risk warnings – Investors should also be aware of the following risk factors which may be applicable to the strategy shown in this document.
- Investing in foreign markets introduces a risk where adverse movements in currency exchange rates could result in a decrease in the value of your investment.
- This strategy may hold a limited number of investments. If one of these investments falls in value this can have a greater impact on the strategy’s value than if it held a larger number of investments.
- Smaller companies may be riskier and their shares may be less liquid than larger companies, meaning that their share price may be more volatile.
- Income strategy charges are deducted from capital. Because of this, the level of income may be higher but the growth potential of the capital value of the investment may be reduced.
Risk warnings – Investors should also be aware of the following back-test risks.
- The back-test results presented in this document are based on simulated performance results. Please be aware these have certain limitations.
- Back-tested performance returns do not represent the impact of trading. The trades in the back testing have not been executed and may not fully reflect the impact of market factors such as liquidity.
- The investment team makes no representation that any account will or is likely to achieve returns similar to those illustrated as a result of the back testing presented.
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