Passive sell vs HYP income

[dealtn]

Your alternative investor who is looking to sell assets to get an income should be buying growth shares to maximise his share valuation before he sells and therefore your suggestion that the two investors with different cash requirements buying the same sort of high yield share is a fallacious one, or if not, the one who sells to realise income has been badly advised to buy this stock. Therefore your 2 different investors are unlikely to be adopting the same strategy which undermines your argument, because you have not taken into account the way a financial instrument is valued by the market.

The argument I try to demonstrate has nothing to do with different types of shares, or groups of them. It is first important to understand the theory with identical shares. Investors have different cash needs for whatever reasons, and the Directors of the company invested in will be ignorant of that need, and will have hundreds, perhaps thousands, of investors all with individual cash needs. They won't be considering individual investors in their dividend decisions. Individual investors in those specific companies are able to "manufacture" (with some frictional cost) the exact optimal cash/equity outcome they want.

That's it. They aren't beholden to a group of (largely middle aged white men) Directors deciding their cash or income for them. Many times here we read of wonderful "income" stocks, and of individual investors so happy with all the dividends they receive they have excess cash for their current requirements with which they then reinvest (usually in more or the same shares). Rarely do we see any income investor arguing those Directors should pay out lessor sums to save the bother of that recycling activity. Those Directors should rightly ignore them if they do, of course. Those same posters have a vociferous opposition however to anyone suggesting, when cash dividend income falls short, that it can be satisfied by selling capital. There is an incomprehensible opposition when it is simply the other side of the same coin. It really is as simple as that.

Once it is understood that an investors cash/equity or "income" can be different to that of the company (or its Directors) then the whole issue of capital allocation, and the vastly larger universe of potential investments should be considered (which is the line of argument you appear to be taking). Why limit yourself (in one famous and popular strategy around these parts) to a small niche of large, UK, relatively high dividend paying, shares - and the risks associated with any form of niche investing, when the same income can be available (bar the frictional costs and time/work in portfolio management) from the entire universe of shares?

The market values shares on the basis of discounting, at the appropriate risk adjusted rate, all future cashflows. That can be at the corporate level, or the investor level through all future dividends. Some here prefer a model on the next dividend, or this years dividends, not all future dividends as the method of choice between potential share investments. Some have even argued the market does its valuation looking backwards "rewarding" past dividend policy. You won't find me among the population "not taking into account the way a financial instrument is valued by the market".

[CliffEdge]

Your alternative investor who is looking to sell assets to get an income should be buying growth shares to maximise his share valuation before he sells and therefore your suggestion that the two investors with different cash requirements buying the same sort of high yield share is a fallacious one, or if not, the one who sells to realise income has been badly advised to buy this stock. Therefore your 2 different investors are unlikely to be adopting the same strategy which undermines your argument, because you have not taken into account the way a financial instrument is valued by the market.

The argument I try to demonstrate has nothing to do with different types of shares, or groups of them. It is first important to understand the theory with identical shares. Investors have different cash needs for whatever reasons, and the Directors of the company invested in will be ignorant of that need, and will have hundreds, perhaps thousands, of investors all with individual cash needs. They won't be considering individual investors in their dividend decisions. Individual investors in those specific companies are able to "manufacture" (with some frictional cost) the exact optimal cash/equity outcome they want.

That's it. They aren't beholden to a group of (largely middle aged white men) Directors deciding their cash or income for them. Many times here we read of wonderful "income" stocks, and of individual investors so happy with all the dividends they receive they have excess cash for their current requirements with which they then reinvest (usually in more or the same shares). Rarely do we see any income investor arguing those Directors should pay out lessor sums to save the bother of that recycling activity. Those Directors should rightly ignore them if they do, of course. Those same posters have a vociferous opposition however to anyone suggesting, when cash dividend income falls short, that it can be satisfied by selling capital. There is an incomprehensible opposition when it is simply the other side of the same coin. It really is as simple as that.

Once it is understood that an investors cash/equity or "income" can be different to that of the company (or its Directors) then the whole issue of capital allocation, and the vastly larger universe of potential investments should be considered (which is the line of argument you appear to be taking). Why limit yourself (in one famous and popular strategy around these parts) to a small niche of large, UK, relatively high dividend paying, shares - and the risks associated with any form of niche investing, when the same income can be available (bar the frictional costs and time/work in portfolio management) from the entire universe of shares?

The market values shares on the basis of discounting, at the appropriate risk adjusted rate, all future cashflows. That can be at the corporate level, or the investor level through all future dividends. Some here prefer a model on the next dividend, or this years dividends, not all future dividends as the method of choice between potential share investments. Some have even argued the market does its valuation looking backwards "rewarding" past dividend policy. You won't find me among the population "not taking into account the way a financial instrument is valued by the market".

A far more pragmatic argument.

[xxd09]

Itsallguess
Well put -you pays your money and takes your choice which is personal to everybody’s own circumstances
I think all of us would prefer to have a mound of capital-funds or shares of whatever type-that we could leave alone and just spend the income
Unfortunately very few of us reach that happy place and therefore need to make our small pot of money work harder in order to have enough to live on
That opens up a can of worms -total return,high yield shares etc etc-all of which work in their own particular way
Personally after have had some years of fun trying to get a quart out of a pint pot I just settled for one global index tracker fund -for bonds and equities- and just sold some units once a year to top up the living expenses cash fund
Simple cheap and easy to understand-especially as I get older
It would have been terrific to have run my whole investment policy this way from the get go-probably would have had a simpler life and made more money!
Youngsters take note!
xxd09

[NearlyThere]

Well, thanks everyone for an interesting discussion. Some is far to technical for me to respond to individuals in a meaningful way.

My situation is that I already have ~70% of my equity investments in world tracker index funds. These are in my SIPP and ISA accounts.

The other 30% of my shares are in a single company and are not sheltered. I know this is a risk. I'm gradually moving this into the ISA's, and my plan was to convert to index funds as I do so.

Reading IanTHughes post about HYP income drawdown made me pause to consider if it was worth building some sort of "HYPish" portfolio inside the ISA, or maybe just buying a few IT's.

I don't hold any bonds, but have a small DB pension in payment and have a few years cash buffer. I only "need" about a 2% drawdown to live reasonably well, but more would of course be nice!

Thanks again for everyones comments. TLF is a great community, I feel like I've learnt a lot in the time I've been lurking!

NearlyThere

[DrFfybes]

I'd 've thought the important thing is to have a strategy.

Just the one? I have several, often in the 30 mins i'm logged into II

Actually, like many on here, we have a mix.

Cash/Premium bonds for a prolonged crash.
There is mrsF's DB Pension.
I have an account with a 30/70 bond fund that automatically sells a certain amount and sends a few hundred quid to my bank each month. This tends to cover my daily needs.
I have a "trading" account that has a number of ITs of varying yield that the divis go into the bank, varying each month. These little extras top up and are a buffer for extravagancies.
And we have a passive' account currrently 20% BRKb 80% VEVE which is intended to be sold monthly to cover MrsF's part time salary when she requires.

So I'm a Paincome investor, hopefully without the pain

None of these are wrappered, but held and shuffled between us to make (I hope) best use of allowances. They are transferred to sheltered accounts when possible.

Plus ISAs, which we we will delve into in a similar manner when we run out of unsheltered assets, and SIPPs and my work DB schemes which we're leaving untouched unless we really need them, as currently they'll reduce IHT bills.

Paul

[hiriskpaul]

I have a concern that I might be drawing my annual lump sum from a sale just at the wrong moment (like the spring of 2020 or 2008)

But a sale is the same as a dividend paid by the company - cash is fungible - so cash paid out by the company as a dividend at "the wrong moment" is just the same.

It is not at all the same. A dividend paid to me is hard spendable cash which arrives at my bank with no cost to me and the amount will arrive no matter the state of the market. If I am a forced seller when a share price might be say 20% below its average for the last three months (it happens!) then I have to sell 25% more shares for the same realisation. I know what you are saying about cash being fungible but I would rather have the dividend then rely on selling at a time that I may judge to be not ideal.

Dod

Any 2 identical investments, bar the company's dividend policy, will provide identical value outcomes to their owners.

Any 2 owners with different cash requirements have that same value and can manufacture their desired cash position. That could be an owner that "needs" a high cash position who sells more of the stock. It could be a low cash requirer who buys back stock with the "too much cash" paid as an unrequired dividend. it could be anything in between. It is true of all stocks be they non-dividend, low-dividend, or high-dividend payers.

The share price at that "wrong moment" would be the same for all holders. All cash is fungible and doesn't matter whether it sits in the company or outside having been paid as a dividend.

If the stock has fallen such that it is "20% below its average price for the last three months" then any dividend paid out by it drops the share price by a larger percentage than if it was at the "average price of the last 3 months". Conversely for a recipient that doesn't require (all of) that dividend he will be buying it back at a much better price! Similarly, but opposite, if prices are 20% higher than the average.

The same logic works if a company doesn't pay a dividend, or doesn't pay enough of a dividend in cash, such that the owner who "needs" cash has to sell some of the stock. And again if the share price at the time is 20% higher than the average price.

You are really looking at the wrong thing by thinking you are an income investor but have bought a non-income paying stock and are "forced" to sell at an inopportune time. That simply isn't the case. You are, and always are, at any moment in time able to manufacture any amount of "income" or "cash" that is required in your portfolio by buying, or selling at market prices. Cash is fungible.

The only considerations for the investor are the frictional costs of trading and matters such as taxation.

I guess this conversation could be had dozens of times and still wouldn't be accepted by some but it is the cornerstone of any qualification or study in financial instruments.

You really do not need to go to the trouble of writing all that out. I understand well your arguments and could have written it myself but the fact is that you will not change my view. You know as well as anyone that just because a share goes ex div does not mean that the share price automatically drops by the amount of the dividend. There is market noise all the time.

'Nuff said.

Dod

Yes there is market noise, but the expected drop in share price on xd date is the dividend per share and on average this is demonstrable viewtopic.php?f=8&t=32861

[hiriskpaul]

The primary issue I've often got with these types of discussions is that they often feel so entrenched and 'binary' that they simply dismiss the fact that there's a massive amount of 'middle ground' on the growth-or-income spectrum that, from an investment perspective makes much more sense to me personally, but where investors may not feel able to pitch themselves for fear of being assumed to be in the 'wrong camp'...

Having been a 'HIGH yield' income-investor for many years in the past, I would firmly agree with anyone who might look to suggest that this is an area of the market that carries a level of investment risk, and certainly at single-share level, that is unlikely to be rewarded over the long term. No arguments from me there - I've got the scars to prove it, and I've changed my income-investment approach since acquiring them...

But the primary issue I've got is that having learnt that lesson, I've still chosen to stick with income-investment, but have broadened out my sectoral and geographical scope and lowered my yield-expectations to actively reduce some of that 'HIGH yield' risk, and I've been very happy with the results of that shift in approach for many years now...

I'm still an 'income-investor' (the hands-off strategy absolutely suits me), but I certainly wouldn't class myself as a 'HIGH yield' investor - I'm in that middle-ground that I mentioned earlier, which it almost seems that people aren't allowed to occupy. It certainly always feels like, as far as these discussion boards are concerned, if you label yourself as an 'income-investor', then you're automatically thrown into the same 'criticism bag' as investors chasing those 'HIGH (risk) yields'....

So a simple but exaggerated example of this problem then -

An 'income investor', who simply wants to live off incoming dividends rather than ever have to think about selling anything, chooses to invest £1m into Foreign & Colonial Investment Trust (FCIT). It's currently yielding around 1.5%, and he's happy that he can live off the £15,000 dividends that FCIT pays out. He's an income-investor - he doesn't ever need to sell any shares to fulfil his investment needs...

He's not a 'high yield' income investor though, is he?

Four of the current top-ten holdings in FCIT are Microsoft, Amazon, Apple, and Alphabet...

Hopefully we might agree that he's not a 'high yield' income investor - he's simply an income-investor from a personal investment-strategy point of view, but one that I hope we might agree is invested in some level of growth-related markets....

And that's to highlight the 'spectrum' that I was talking about - that spectrum is likely to have high-growth but no-income investments at one end of it, and there's likely to be low or no-growth but high-income investments at the other end of it, but there's also a simply massive spectrum of opportunity between those two extremes, where investment-strategy choices can be validly made which might clearly satisfy an individual investors personal investment requirements, but where there never seems to be any scope in accepting this fact within these 'binary', two-camp debates, and I think that's a terrible shame that inevitably leads to much of the regular and entrenched arguments we see around this subject...

Cheers,

Itsallaguess (moderate-yield, hands-off income investor exposed to some growth areas of the market...)

Agreed. VWRL is very close approximation of the World market in exchange tradeable ordinary shares and had a historic dividend yield of 1.60% at the end of February. Anyone with a portfolio yielding more than that is tilting to value, anyone with less tilting to growth. ITs such as FCIT are of course totally at liberty to pay dividends from the disposal of revenue reserve shares or from capital gains, as some ITs do, or to take some/all of their fees from capital. ITs are essentially doing what many people with the idea that one must not sell one's shares to generate and income are, beneath the bonnet, doing.

[hiriskpaul]

Well, thanks everyone for an interesting discussion. Some is far to technical for me to respond to individuals in a meaningful way.

My situation is that I already have ~70% of my equity investments in world tracker index funds. These are in my SIPP and ISA accounts.

The other 30% of my shares are in a single company and are not sheltered. I know this is a risk. I'm gradually moving this into the ISA's, and my plan was to convert to index funds as I do so.

Reading IanTHughes post about HYP income drawdown made me pause to consider if it was worth building some sort of "HYPish" portfolio inside the ISA, or maybe just buying a few IT's.

I don't hold any bonds, but have a small DB pension in payment and have a few years cash buffer. I only "need" about a 2% drawdown to live reasonably well, but more would of course be nice!

Thanks again for everyones comments. TLF is a great community, I feel like I've learnt a lot in the time I've been lurking!

NearlyThere

There is a fallacious argument that says it is more risky to generate an income from capital than from dividends. As dealtn has explained, this argument makes no sense. If you have a portfolio/fund of shares then when a dividend is paid by a share in the portfolio, the value of the share drops by the value of the dividend (on average), so the value of the portfolio drops by the value of the dividend (again, on average). OTOH, if you sell some shares in the protfolio, the value of the portfolio drops by the value of the shares sold. The only differences between the 2 approaches are the costs involved, zero if the dividend is univested vs trading costs (fees + spread) if shares are sold, and potentially different taxes. I would not dismiss the frictional costs of selling as the spreads on some securities can be very wide, but in the case of index funds the overhead is not going to be material.

xxd09's simple approach of investing in accumulating funds and selling once per year is admirable as it means he stays fully invested. Accumulating funds can increase tax calculation complexity though for investments held outside tax shelters.

[DrFfybes]

Personally after have had some years of fun trying to get a quart out of a pint pot I just settled for one global index tracker fund -for bonds and equities- and just sold some units once a year to top up the living expenses cash fund

xxd09

Ive just noticed the subtlety here, you only sell once per year??

Do you choose a fixed date, try and time the market, or something else?

I ask as over the last couple of months VWRL has fluctuated massivley, losing 10% between early Jan and early March, then recovering in a 3 week period. Additionally the cash you withdraw will (probably, on average) gain more spending 6 months more in equities.

As I'm with ii I get a free trade each month, so that is the route I intend to follow.

Paul

[Dod101]

Personally after have had some years of fun trying to get a quart out of a pint pot I just settled for one global index tracker fund -for bonds and equities- and just sold some units once a year to top up the living expenses cash fund

xxd09

Ive just noticed the subtlety here, you only sell once per year??

Do you choose a fixed date, try and time the market, or something else?

I ask as over the last couple of months VWRL has fluctuated massivley, losing 10% between early Jan and early March, then recovering in a 3 week period. Additionally the cash you withdraw will (probably, on average) gain more spending 6 months more in equities.

As I'm with ii I get a free trade each month, so that is the route I intend to follow.

Paul

And that of course is one of the flaws in the argument of those converting capital to income by selling. When do you sell? Furthermore many of them will have some dividends accumulating in the course of any year. What do they do with them? If they leave them to accumulate, they are out of the market (and are thus partly living off their dividends anyway) If on the other hand they reinvest the dividends, they could be buying one month and selling the next.

The problem with those theoreticians is that they are just that. If you are dependent on investments and nothing else to live off then you have to be very practical and throw the theory book out of the window and discover what actually works.

Dod

[hiriskpaul]

Personally after have had some years of fun trying to get a quart out of a pint pot I just settled for one global index tracker fund -for bonds and equities- and just sold some units once a year to top up the living expenses cash fund

xxd09

Ive just noticed the subtlety here, you only sell once per year??

Do you choose a fixed date, try and time the market, or something else?

I ask as over the last couple of months VWRL has fluctuated massivley, losing 10% between early Jan and early March, then recovering in a 3 week period. Additionally the cash you withdraw will (probably, on average) gain more spending 6 months more in equities.

As I'm with ii I get a free trade each month, so that is the route I intend to follow.

Paul

And that of course is one of the flaws in the argument of those converting capital to income by selling. When do you sell? Furthermore many of them will have some dividends accumulating in the course of any year. What do they do with them? If they leave them to accumulate, they are out of the market (and are thus partly living off their dividends anyway) If on the other hand they reinvest the dividends, they could be buying one month and selling the next.

The problem with those theoreticians is that they are just that. If you are dependent on investments and nothing else to live off then you have to be very practical and throw the theory book out of the window and discover what actually works.

Dod

I am solely dependent on investments and nothing else to live off and I recognise nonsense when I see it.

As I understand it xxd09 holds accumulating funds, which means the dividends get reinvested. When does he sell? I am putting words in his mouth here, but from what he has written, I would infer somewhere around the first couple of weeks of March, in time to draw the precise amount he estimates he needs from his SIPP for the next year. Doing that simplifies the PAYE of the SIPP - he does not have to contact the tax office or do self assessment due to overpaid income tax from his SIPP, as the correct amount of tax is deducted if one withdrawal is made in month 12. I have stopped drawing from my SIPP, but if/when I restart I would likely do something very similar. Another advantage in drawing later in the financial year is that you have a better idea about what other taxed income and gains you will make for the year, so can tune the SIPP withdrawal for tax efficiency.

How does he know when to sell? He doesn't, so he doesn't attempt to time the markets, just sells when it suits him. Yes VWRL has fluctuated massively, but so what? Why should taking the dividends at inopportune times work out better than selling at inopportune times?

Clearly taking the dividends from an income fund compared with selling accumulating units of the same fund would likely produce different outcomes due to market movements, but which is better on average? The never sell your shares crowd would have you believe that taking the dividends would be better. Total nonsense is what I say.

[Itsallaguess]

Clearly taking the dividends from an income fund compared with selling accumulating units of the same fund would likely produce different outcomes due to market movements, but which is better on average?

The never sell your shares crowd would have you believe that taking the dividends would be better.

Total nonsense is what I say.

These types of discussions always come down to this point, and I'm sorry to say that it's a straw-man argument.

All I can see is income-investors who might be saying that taking dividends might be better for them, personally, and I can't see anyone at all suggesting that doing so always produces improved financial outcomes...

Just because an investor might be personally concerned that they might regularly make the wrong selling decision if they were to have to generate income from selling shares, doesn't necessarily mean that they think they're always going to make 'more money' by relying on passively-generated dividends instead, and the conflation of that situation into the above straw-man argument is, sadly, a regular and unnecessary aspect of this otherwise interesting debate.

Cheers,

Itsallaguess

[hiriskpaul]

Clearly taking the dividends from an income fund compared with selling accumulating units of the same fund would likely produce different outcomes due to market movements, but which is better on average?

The never sell your shares crowd would have you believe that taking the dividends would be better.

Total nonsense is what I say.

These types of discussions always come down to this point, and I'm sorry to say that it's a straw-man argument.

All I can see is income-investors who might be saying that taking dividends might be better for them, personally, and I can't see anyone at all suggesting that doing so always produces improved financial outcomes...

Just because an investor might be personally concerned that they might regularly make the wrong selling decision if they were to have to generate income from selling shares, doesn't necessarily mean that they think they're always going to make 'more money' by relying on passively-generated dividends instead, and the conflation of that situation into the above straw-man argument is, sadly, a regular and unnecessary aspect of this otherwise interesting debate.

Cheers,

Itsallaguess

I respect that you are not claiming that taking the dividends is financially superior, but I disagree that it is a straw man argument as it is the implication of what many people claim, possibly without fully thinking it through. Taking dividends, irrespective of the state of the market fine, reinvesting dividends and selling irrespective of the state of the market, not fine.

There are reasonable arguments in support of skimming off the dividends for income instead of reinvesting, but the idea that it is financially superior other than through lower trading frictions is false.

[Itsallaguess]

There are reasonable arguments in support of skimming off the dividends for income instead of reinvesting, but the idea that it is financially superior other than through lower trading frictions is false.

And where are these people that are saying that it's 'financially superior' please?

If any finger-pointing is 'by implication', then it's a straw-man argument, as I said, because you'll be finger-pointing 'by implication' at people who are simply saying it's better for them, rather than always 'financially superior'...

But please, if I've missed someone who's actually stated that taking passively generated dividends always produces a 'financially superior' outcome, compared to generating funds through selling down holdings, then I'm happy to be wrong on this....

Cheers,

Itsallaguess

[dealtn]

Personally after have had some years of fun trying to get a quart out of a pint pot I just settled for one global index tracker fund -for bonds and equities- and just sold some units once a year to top up the living expenses cash fund

xxd09

Ive just noticed the subtlety here, you only sell once per year??

Do you choose a fixed date, try and time the market, or something else?

I ask as over the last couple of months VWRL has fluctuated massivley, losing 10% between early Jan and early March, then recovering in a 3 week period. Additionally the cash you withdraw will (probably, on average) gain more spending 6 months more in equities.

As I'm with ii I get a free trade each month, so that is the route I intend to follow.

Paul

And that of course is one of the flaws in the argument of those converting capital to income by selling. When do you sell? Furthermore many of them will have some dividends accumulating in the course of any year. What do they do with them? If they leave them to accumulate, they are out of the market (and are thus partly living off their dividends anyway) If on the other hand they reinvest the dividends, they could be buying one month and selling the next.

The problem with those theoreticians is that they are just that. If you are dependent on investments and nothing else to live off then you have to be very practical and throw the theory book out of the window and discover what actually works.

Dod

And the same problems exist when the Directors of the company are the ones deciding how much "income" you get, and when.

You are still faced with the potential situation of getting too much, or too little, or at the wrong time, and then having to decide what to do about it. For many that are in the accumulating phase of investing you need to consider dividends paid as cash and being, as you describe, "out of the market". No doubt it could be annoying when any surplus income arises when the markets are at all time highs, and some may feel angst about market timing issues associated with that reinvestment.

What you seem to be missing when you criticise "theoreticians" is that some are actually practicing such. It isn't just theory. Furthermore those who rely solely on the decisions of companies and their directors are just as exposed as those that choose to take control themselves. Arguably more so.

It isn't for everyone. There isn't a fanatical crusade to convert "non-believers" to do something they don't do, or are uncomfortable doing. But many seem content to criticise others, and push falsehoods, yet find it uncomfortable when these are challenged.

[hiriskpaul]

There are reasonable arguments in support of skimming off the dividends for income instead of reinvesting, but the idea that it is financially superior other than through lower trading frictions is false.

And where are these people that are saying that it's 'financially superior' please?

If any finger-pointing is 'by implication', then it's a straw-man argument, as I said, because you'll be finger-pointing 'by implication' at people who are simply saying it's better for them, rather than always 'financially superior'...

But please, if I've missed someone who's actually stated that taking passively generated dividends always produces a 'financially superior' outcome, compared to generating funds through selling down holdings, then I'm happy to be wrong on this....

Cheers,

Itsallaguess

Ok, I accept I may have jumped the gun in this thread. Let's see if someone does try to make the case that the dividend route is financially superior to selling accumulation shares.

[Dod101]

Personally after have had some years of fun trying to get a quart out of a pint pot I just settled for one global index tracker fund -for bonds and equities- and just sold some units once a year to top up the living expenses cash fund

xxd09

Ive just noticed the subtlety here, you only sell once per year??

Do you choose a fixed date, try and time the market, or something else?

I ask as over the last couple of months VWRL has fluctuated massivley, losing 10% between early Jan and early March, then recovering in a 3 week period. Additionally the cash you withdraw will (probably, on average) gain more spending 6 months more in equities.

As I'm with ii I get a free trade each month, so that is the route I intend to follow.

Paul

And that of course is one of the flaws in the argument of those converting capital to income by selling. When do you sell? Furthermore many of them will have some dividends accumulating in the course of any year. What do they do with them? If they leave them to accumulate, they are out of the market (and are thus partly living off their dividends anyway) If on the other hand they reinvest the dividends, they could be buying one month and selling the next.

The problem with those theoreticians is that they are just that. If you are dependent on investments and nothing else to live off then you have to be very practical and throw the theory book out of the window and discover what actually works.

Dod

And the same problems exist when the Directors of the company are the ones deciding how much "income" you get, and when.

You are still faced with the potential situation of getting too much, or too little, or at the wrong time, and then having to decide what to do about it. For many that are in the accumulating phase of investing you need to consider dividends paid as cash and being, as you describe, "out of the market". No doubt it could be annoying when any surplus income arises when the markets are at all time highs, and some may feel angst about market timing issues associated with that reinvestment.

What you seem to be missing when you criticise "theoreticians" is that some are actually practicing such. It isn't just theory. Furthermore those who rely solely on the decisions of companies and their directors are just as exposed as those that choose to take control themselves. Arguably more so.

It isn't for everyone. There isn't a fanatical crusade to convert "non-believers" to do something they don't do, or are uncomfortable doing. But many seem content to criticise others, and push falsehoods, yet find it uncomfortable when these are challenged.

I am not in the least uncomfortable when challenged and am not trying to prove anything. I am not criticising others, just saying that for me it just feels wrong and I would hate to be dependent on the market . I am in the fortunate position that my portfolio generates more dividend income than I need so why on earth would I try to 'improve' on that?

There is more to life than worrying about investments.

Dod

[Itsallaguess]

There are reasonable arguments in support of skimming off the dividends for income instead of reinvesting, but the idea that it is financially superior other than through lower trading frictions is false.

And where are these people that are saying that it's 'financially superior' please?

If any finger-pointing is 'by implication', then it's a straw-man argument, as I said, because you'll be finger-pointing 'by implication' at people who are simply saying it's better for them, rather than always 'financially superior'...

But please, if I've missed someone who's actually stated that taking passively generated dividends always produces a 'financially superior' outcome, compared to generating funds through selling down holdings, then I'm happy to be wrong on this....

Ok, I accept I may have jumped the gun in this thread.

Let's see if someone does try to make the case that the dividend route is financially superior to selling accumulation shares.

Thanks for that.

It's a surprisingly regular straw-man aspect of these types of discussions, and I can almost (I have to squint quite a bit, mind...) see how it's an easy trap for people to fall into, because we *do* regularly see income-investor posters who are quite happy to use the word 'better' in many of their posts on the subject, but *to a man* they are only ever saying that the strategy is 'better' *for them*, at a personal level, and I've honestly yet to see an income-investor actually try to make the argument that 'financial outcomes' are always actually improved by taking passively-generated dividend income...

If you see one though - please do let me know and I'll stop calling it a straw-man argument, and would probably then join you in challenging them too!

Cheers,

Itsallaguess

[dealtn]

Personally after have had some years of fun trying to get a quart out of a pint pot I just settled for one global index tracker fund -for bonds and equities- and just sold some units once a year to top up the living expenses cash fund

xxd09

Ive just noticed the subtlety here, you only sell once per year??

Do you choose a fixed date, try and time the market, or something else?

I ask as over the last couple of months VWRL has fluctuated massivley, losing 10% between early Jan and early March, then recovering in a 3 week period. Additionally the cash you withdraw will (probably, on average) gain more spending 6 months more in equities.

As I'm with ii I get a free trade each month, so that is the route I intend to follow.

Paul

And that of course is one of the flaws in the argument of those converting capital to income by selling. When do you sell? Furthermore many of them will have some dividends accumulating in the course of any year. What do they do with them? If they leave them to accumulate, they are out of the market (and are thus partly living off their dividends anyway) If on the other hand they reinvest the dividends, they could be buying one month and selling the next.

The problem with those theoreticians is that they are just that. If you are dependent on investments and nothing else to live off then you have to be very practical and throw the theory book out of the window and discover what actually works.

Dod

And the same problems exist when the Directors of the company are the ones deciding how much "income" you get, and when.

You are still faced with the potential situation of getting too much, or too little, or at the wrong time, and then having to decide what to do about it. For many that are in the accumulating phase of investing you need to consider dividends paid as cash and being, as you describe, "out of the market". No doubt it could be annoying when any surplus income arises when the markets are at all time highs, and some may feel angst about market timing issues associated with that reinvestment.

What you seem to be missing when you criticise "theoreticians" is that some are actually practicing such. It isn't just theory. Furthermore those who rely solely on the decisions of companies and their directors are just as exposed as those that choose to take control themselves. Arguably more so.

It isn't for everyone. There isn't a fanatical crusade to convert "non-believers" to do something they don't do, or are uncomfortable doing. But many seem content to criticise others, and push falsehoods, yet find it uncomfortable when these are challenged.

I am not in the least uncomfortable when challenged and am not trying to prove anything.

Fine.

So why use sentences such as "And that of course is one of the flaws in the argument of those converting capital to income by selling."?

Simply say, as others do and believe should be done, that it is "better" or preferable to do it the way you choose to, for you. For others it might be different. and even for those who don't invest, who might be described as "theoreticians" don't be so dismissive of well researched, and long taught, finance theory.

[tjh290633]

Ok, I accept I may have jumped the gun in this thread. Let's see if someone does try to make the case that the dividend route is financially superior to selling accumulation shares.

One thing that occurs to me is that selling shares incurs a cost, while receiving dividends is essentially cost free. Not only is there brokerage to pay, there is also the spread between buying and selling shares. If you pay £10 to sell a block of shares, then if you want £1,000 that is a 1% deduction. If you want to do it in bigger chunks, then eventually you run into the PTM levy which is a minor increase. If your broker charges a percentage fee, then the cost will be higher as the amount increases.

The selling route also runs the inherent risk in market fluctuation. You may sell more of the Goose that lays your Golden Dividends than you wanted to.

TJH