Because the DRS has historically been limited to single-digit losses in its worst years and has had meaningful participation in up markets, one could make the case it fulfills the role of a distribution vehicle in a portfolio.
To be clear, the DRS does not generate yield like a traditional bond fund with a monthly distribution. Instead, the DRS can be used within a systematic withdrawal plan.
Historically, one could have safely liquidated a percentage of their DRS holdings to generate cash and yet not endanger principal. In fact, if someone implemented a systematic withdrawal plan with the DRS at its inception, the principal value of a DRS investment still grew.
Setting the Scene
Let us walk through a simple, hypothetical scenario:
- Our initial investment of $10 million dollars invested is made on January 1st, 1998.
- We considered three investment options: the DRS, the S&P 500 Total Return, and the Barclays US Aggregate.
- We take out $500,000 in the first year, an initial annual withdrawal rate of 5%
- We compound the withdrawals by an annual inflation rate of 2%.
After 21 years of withdrawals, on December 31st, 2018, an aggregate $12,148,685 had been withdrawn from each option. However, the ending values were quite different:
Source: Zephyr StyleADVISOR and Swan Global Investments, LLC