Dashboard Dissected: Part 4- Distributions/Contributions

Tuesday, July 6th, 2010 by Charles Mayfield, CFP®


From time to time, our clients come to us with plans to make a big recreational purchase or inheritance checks that they want to deposit into their accounts. Understanding the impact that distributions/contributions can have on a portfolio’s overall performance is critical. Most statements that investors get in the mail only detail recent transactions. By contrast, our Chappell Mayfield Investment Dashboard provides a complete historical account of all money flowing in and out of all accounts.

In all likelihood, contributions will occur almost exclusively during the ‘accumulation’ phase of a client’s financial history. This is the period leading up to retirement when money is being poured into the portfolio to accumulate and grow. At Chappell Mayfield, we encourage our clients to systematically contribute money into their accounts on a regular basis (monthly, quarterly, annually). This concept, referred to as Dollar Cost Averaging, tends to spread out risk and reduce the emotional trauma of investing in volatile markets. Doing so allows investors to buy more of an investment when prices are down, and less when prices are high. This investment technique holds investors feet to the proverbial fire and also forces them to save, which consumers tend NOT to do very well.

Occasionally though, large chunks of money come pouring into a client’s portfolio as a result of a bonus, inheritance or rollover, etc.  Wary investors wrack their brains about when the exact right time to invest this money may be. We see things differently. We know that time in the market tends to overrule timing the market. We will almost always encourage our clients to immediately allocate extra money toward their portfolio.

Consider the stark difference between the performance of money invested in March 2009 versus the same funds deployed in March 2010.  I touched on the ‘cost of waiting’ in an earlier blog.  For this particular time period, by getting the money invested early rather than anxiously waiting, an investor would have participated in a huge market run-up.  Having an accurate record for when money was deployed can provide much needed perspective when it comes time to view performance.

Distributions, almost exclusively reserved for retirement, must be tracked with even greater vigor. The importance of tracking not just the timing, but also the total amount taken from your portfolio, is of the utmost importance. Clients tend to look at the balance on their statement and forget about any/all funds that were withdrawn for spending. For example:

John’s portfolio started at $1,000,000 three years ago.  His balance today is $1,000,500.  On the surface, it is easy to see why he might be a bit disappointed if the market has been up for those years. However, the fact that he has withdrawn $250,000 adds much needed perspective to the numbers and overall performance of his account.

Tracking withdrawals carefully also helps clients to keep a lid on what might be unnecessary spending and ensures that they are carefully watching their portfolio to make certain that they can maintain their usual quality of life in retirement.

Additionally, Chappell Mayfield’s approach to sustainable withdrawals means that withdrawals are taken each year despite upward or downward fluctuations in the market.  Holding true to a withdrawal pattern in good markets and in bad is critical.




Table is for illustrative purposes only

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