Retirees need to focus on total investment returns

Targeting yield rather than total return breeds investing myths that will adversely affect retiree wealth creation, according to Colonial First State senior portfolio manager, Rudi Minbatiwala.

Traditional approaches that focus on high yielding stocks often forget about capital growth and encourage sector concentration, thereby forfeiting the benefits of diversification, Minbatiwala said.

A common myth about high yield stocks and their relative safety was false, he said, and chasing yield breeds short-termism and risk assessments that are not in tune with retiree objectives.

"A dividend yield is a one-year, short-term reference," Minbatiwala said.

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The focus on generating income for retirees is also a wrong assumption, according to Minbatiwala, who said capital preservation and longevity round out a retiree's investment concerns.

Chasing franking credits is not a great strategy for retiree wealth generation, he said.

Colonial's research showed lower levels of franking credits produced the greatest profit ratio and higher franking levels lead to higher price adjustments.

High dividend yields do not create more wealth over time - only a focus on total return and utilising options would drive income in the long-term, Minbatiwala said.