Step 4 – Why Selling Assets Shouldn’t Be Your Income Plan
When a portfolio needs to fund a lifestyle, many investors fall into a quiet trap: generating cash by selling off assets. On the surface, it seems harmless. And, it might even align with “total return investing”. But over time, drawing on your capital base can seriously erode long-term wealth (and future income generation potential). The goal should instead be to create income that’s built to last as this post will explain.
Plus, psychologically, living within your means (only spending the income you’re generating and not encroaching on your capital base) creates a more sustainable path for the future.
For example, let’s say a family’s portfolio was generating approximately $600,000 per year in pre-tax income, and $400,000 of that makes it into their hands after tax. Their actual draw requirement is $600,000 annually, which meant their advisors had been bridging the gap by selling investments each year.
Each sale triggered capital gains, which pushed the tax bill even higher. Over time, this pattern of funding spending by liquidation weakened the portfolio’s sustainability quietly, but steadily. If nothing changed, the risk wasn’t just market volatility it was running out of capital.
Engineer the Portfolio for Yield
Our goal was clear: generate $600,000+ in after-tax income from inside the portfolio, without needing to liquidate assets to meet spending needs.
To do that, we restructured the portfolio from the ground up. Not by taking on more risk, but by rethinking the role of each investment in the context of tax, yield, and liquidity.
We worked with investment advisors to develop updated investment policies. Here’s what we changed and what it delivered:
| Fix | Outcome |
|---|---|
| Introduced preferred shares into the fixed income sleeve | Increased income and reduced tax drag thanks to favorable dividend treatment |
| Tilted Canadian equity exposure toward dividend payers | Took advantage of the Canadian dividend tax credit, improving after-tax yield |
| Shifted U.S. equities toward long-term growth | Deferred capital gains, reduced taxable distributions, improved total return efficiency |
| Replaced underperforming private real estate funds with public REITs | Boosted liquidity and yield without increasing volatility |
| Consolidated cash into high-yield, no-fee vehicles at the best rates | Captured more income by eliminating unnecessary fragmentation and fees |
Before vs After: The Income Picture
| Metric | Before | After |
|---|---|---|
| Pre-Tax Yield | $600,000 (portfolio yield 2%) | $1,000,000 (portfolio yield 3.33%) |
| After-Tax Income | $400,000 | $600,000+ |
| Annual Shortfall? | Yes | No |
| Selling Assets Required? | Yes | No |
A Sustainable Solution
Now, the portfolio comfortably meets the family’s spending needs without selling a single asset. Better yet, it does so in a more tax-efficient way, while remaining aligned with their long-term investment policy statement (IPS).
This isn’t about chasing yield or taking outsized risks. It’s about using the full toolbox available, tax strategy, asset allocation, security selection, and fee awareness to deliver the outcomes families need to live well today and stay secure tomorrow.
Plus, now that the portfolio is generating more than than the family’s spending needs, the excess cash can be re-invested into the portfolio to increase their cushion even further. Or, give them the flexibility to make more strategic charitable gifts and capital gifts to children.
The Takeaway
A reliable income stream doesn’t have to come at the cost of future wealth. It doesn’t require a riskier portfolio it requires a smarter one.
By designing for yield instead of defaulting to drawdowns, families can enjoy their lifestyle with confidence, knowing their capital is positioned to support them for decades to come.
Is your income plan designed for longevity, or just built to patch gaps?
Let’s talk about how to build income that’s made to last.
For a full look at the transformation, see our case study: When Diversification Backfires, Streamlined Stewardship Steps In
