Drawing down from your investment portfolio is all well and good until someone starts a war

Tuesday, 21 April 2026

Market volatility triggered by the war in the Middle East has proved something of a rug-pull for Martin Hawes’ plan to start “decumulating” his investments by drawing down on them to fund his lifestyle.

Martin Hawes is a financial writer and presenter, and has written 25 personal finance books. He writes a weekly column.

OPINION: About 18 months ago I became a decumulator. Instead of continuing to add money to my portfolio (accumulating), I started to draw money from my portfolio to live on (decumulating).

Although I worked then (as I do now) I was (and am) not working enough to maintain my accustomed lifestyle. And so I started to take funds from my portfolio each fortnight.

For a while this drawdown went swimmingly. I had one of the few periods in my life with a steady, predictable amount of income. Although my portfolio value was no longer growing like it had been, investment returns at the time were pretty good and, with a fairly conservative drawdown rate, I felt pretty good about things.

But then the missiles started to fly and the bombs drop in the Middle East. From an investment point of view, the price of oil rose overnight, and the prospect of inflation reared its ugly head. Markets fell.

Things went from swimmingly to sinking; there were dire warnings of recession and stagflation.

This was not good for a decumulator. When you draw on a portfolio, the fund managers often have to sell some small part of your investments ( you are usually not simply spending the investment returns but drawing a little capital as well). Selling when markets are down is to break one of my cardinal rules of investment: buy in gloom, sell in boom.

Things had become quite gloomy on the markets and here I was selling.

Martin Hawes likens his cash reserves management to maintaining a “lake of cash”, which can provide a steady outflow when it’s not a good time to be cashing in investments.

With share markets down and still falling, drawing down meant to sell into weakness. Effectively, I was selling when shares were cheap, exactly what I did not want to do. However, continuing to draw on the portfolio was important to me if I wanted to live well.

My advice to retired people who are drawing on their portfolios for income was always that they should have a lake of cash the equivalent of one to two years of drawdown. In this respect, I had taken my own advice and had cash on hand.

I call this a “lake of cash” because the idea is that this lake of cash should buffer your cashflow. This is in the same way that a real lake buffers the flow of a river. When you think of a large catchment that has a lake in the middle, the rivers which flow into the lake may be at full spate (when it rains) or be a trickle (during drought).

However, the rivers which drain the lake at the outlet are much more consistent – the lake level would need to fall significantly before the outlet river starts to fall.

When investment returns are good (a flood) you can top up your lake of cash. When returns are poor (a drought) you can use the lake of cash like a reservoir and keep the cash flowing - the lake buffers your drawdown.

Drawing on your lake of cash means that you can continue to enjoy the same lifestyle and it avoids selling shares and listed property when times are bad.

This is what I did a few weeks ago. Share prices were down sharply and it hurt to sell at such a time – especially when prices could continue their slump for some months. And so, I called my fund managers and had them stop my payments. I then started to draw cash from the bank (this money was in on-call savings accounts and is easy to withdraw).

It does not really matter so much whether having this lake of cash dampens down the volatility of a portfolio, nor whether it increases returns by not being a seller of cheap shares. It may do a little of both, but that is not the most important thing.

Instead, the lake of cash gives confidence to decumulators. After all, they often have to watch their portfolios decline, and there is always the worry about whether the money is going to last as long as they do. A lake of cash gives confidence that you will get through at least a year or two without having to sell. That’s a good feeling; it’s a comfort to have some of the readies regardless of what happens.

Martin Hawes is not a financial adviser and the information and opinions here should not be taken as financial advice.