RT Journal Article SR Electronic T1 Building Efficient Income Portfolios JF The Journal of Portfolio Management FD Institutional Investor Journals SP 117 OP 125 DO 10.3905/jpm.2015.41.3.117 VO 41 IS 3 A1 David Blanchett A1 Hal Ratner YR 2015 UL https://pm-research.com/content/41/3/117.abstract AB Total return is an incomplete perspective on risk for an investor who is focused on income and not liquidating principal, such as a retiree. In this article, the autors introduce a new utility function to determine the optimal portfolio allocation for an income-focused investor which incorporates downside risk. We discuss the implications of taxes, since investments have varying tax rates, which can change the relative attractiveness of different asset classes. We find that income-focused portfolios are generally less diversified than portfolios focused on total return. Efficient income portfolios have lower allocations to equities and asset classes such as REITs and government bonds, but tend to have higher allocations to asset classes such as emerging-market debt and corporate bonds. Overall, these findings suggest that income-optimized portfolios may be an attractive alternative to total-return strategies for investors focused on current consumption.TOPICS: Wealth management, risk management