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Income strategy for accumulation

General discussions about equity high-yield income strategies
1nvest
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Re: Income strategy for accumulation

#461776

Postby 1nvest » November 29th, 2021, 10:51 am

HYP is a different style/strategy to others. Diversifying across strategies/style, assets and currencies is reasonable/appropriate diversification, sometimes described as being a free-lunch, reduces concentration risk that can be a major risk. In that context variations in HYP dividends might be insignificant/irrelevant.

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Re: Income strategy for accumulation

#461995

Postby 1nvest » November 30th, 2021, 9:12 am

Alaric wrote:
Arborbridge wrote:HYP is an income provider, that's all. If you want to build a pot, go for ideas around high growth: not HYP.

It's odd though that some or many of the more vociferous defenders of the HYP strategy are in fact pot builders, as evidenced by the frequent discussions of top ups. Surely their benchmark should be size of pot whether driven by accumulated and reinvested dividends or by growth. They can also be indifferent to dividend cuts and cancellations where someone relying on dividends for living expenses would not be,

There is clear resistance/hostility to considering HYP as anything other than for direct income production. As a growth option however there is distinct potential as indicated in viewtopic.php?p=461948#p461948 but the nature of the board is that such discussions are prohibited both here and in HYP-P sections.

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Re: Income strategy for accumulation

#462014

Postby dealtn » November 30th, 2021, 9:54 am

1nvest wrote:
Alaric wrote:
Arborbridge wrote:HYP is an income provider, that's all. If you want to build a pot, go for ideas around high growth: not HYP.

It's odd though that some or many of the more vociferous defenders of the HYP strategy are in fact pot builders, as evidenced by the frequent discussions of top ups. Surely their benchmark should be size of pot whether driven by accumulated and reinvested dividends or by growth. They can also be indifferent to dividend cuts and cancellations where someone relying on dividends for living expenses would not be,

There is clear resistance/hostility to considering HYP as anything other than for direct income production. As a growth option however there is distinct potential as indicated in viewtopic.php?p=461948#p461948 but the nature of the board is that such discussions are prohibited both here and in HYP-P sections.


And yet discussions proliferate on reinvestment, growing the pot in size beyond what it would be if the strategy was indeed as you suggest for direct income production only. It doesn't seem consistent, but to be fair, if you aren't a member of a club (or ever likely to apply to be one) it is somewhat churlish to criticise its rules and activities. So I don't, and (mainly) never post "there". That's probably the best policy for other non-members too rather than unnecessarily antagonise others.

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Re: Income strategy for accumulation

#462056

Postby CryptoPlankton » November 30th, 2021, 12:24 pm

dealtn wrote:
1nvest wrote:
Alaric wrote:It's odd though that some or many of the more vociferous defenders of the HYP strategy are in fact pot builders, as evidenced by the frequent discussions of top ups. Surely their benchmark should be size of pot whether driven by accumulated and reinvested dividends or by growth. They can also be indifferent to dividend cuts and cancellations where someone relying on dividends for living expenses would not be,

There is clear resistance/hostility to considering HYP as anything other than for direct income production. As a growth option however there is distinct potentiajl as indicated in viewtopic.php?p=461948#p461948 but the nature of the board is that such discussions are prohibited both here and in HYP-P sections.


And yet discussions proliferate on reinvestment, growing the pot in size beyond what it would be if the strategy was indeed as you suggest for direct income production only. It doesn't seem consistent, but to be fair, if you aren't a member of a club (or ever likely to apply to be one) it is somewhat churlish to criticise its rules and activities. So I don't, and (mainly) never post "there". That's probably the best policy for other non-members too rather than unnecessarily antagonise others.

Curious, I think of you as a regular poster there - certainly more so than many who actually profess to follow the strategy. At a glance, you've posted about 70 times this year (granted though, only 4 this month). Funnily enough, it appears to be my "most active forum" and I've only managed 137 posts in five years - about 27 a year. I guess one person's "(mainly) never" is another's "quite frequently"... ;)

Anyway, I'm not sure why 1nvest thinks such discussion is prohibited here - it is, in part, why this board exists...

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Re: Income strategy for accumulation

#462062

Postby 1nvest » November 30th, 2021, 12:59 pm

CryptoPlankton wrote:
dealtn wrote:
1nvest wrote:There is clear resistance/hostility to considering HYP as anything other than for direct income production. As a growth option however there is distinct potentiajl as indicated in viewtopic.php?p=461948#p461948 but the nature of the board is that such discussions are prohibited both here and in HYP-P sections.


And yet discussions proliferate on reinvestment, growing the pot in size beyond what it would be if the strategy was indeed as you suggest for direct income production only. It doesn't seem consistent, but to be fair, if you aren't a member of a club (or ever likely to apply to be one) it is somewhat churlish to criticise its rules and activities. So I don't, and (mainly) never post "there". That's probably the best policy for other non-members too rather than unnecessarily antagonise others.

Curious, I think of you as a regular poster there - certainly more so than many who actually profess to follow the strategy. At a glance, you've posted about 70 times this year (granted though, only 4 this month). Funnily enough, it appears to be my "most active forum" and I've only managed 137 posts in five years - about 27 a year. I guess one person's "(mainly) never" is another's "quite frequently"... ;)

Anyway, I'm not sure why 1nvest thinks such discussion is prohibited here - it is, in part, why this board exists...


viewtopic.php?f=31&t=8652
It is emphasised that value strategies and total return strategies are NOT the remit of this board, which is intended for discussions of higher-yielding equities for the purposes of generating an income through such equities' natural yield.

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Re: Income strategy for accumulation

#462069

Postby moorfield » November 30th, 2021, 1:57 pm

Alaric wrote:That's not really what I'm saying. I'm pointing out the apparent eccentricity for a pot builder (someone NOT taking any income) of ranking potential dividends above potential capital growth in their share selection when the effect on their aggregate wealth is the same.



I regard myself as an income builder, rather than a pot builder. I rank potential dividends above capital growth and reinvest those dividends regularly. I use income size, rather than pot size, as my benchmark because I think that is easier to extrapolate into the future.

As things stand currently if my portfolio income grows ~6.5% p/a through the combined effect of dividend increases, cuts and reinvestment (and without further capital contributions) it should be exceeding the higher rate tax threshold by 2031, and I will be still younger than 60. I have no idea nor do I care what the pot size will be then provided that its overall yield remains "high". (ie. higher than City of London IT)

I don't regard that approach as eccentric, at all.

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Re: Income strategy for accumulation

#462075

Postby CryptoPlankton » November 30th, 2021, 2:12 pm

1nvest wrote:
CryptoPlankton wrote:...
Anyway, I'm not sure why 1nvest thinks such discussion is prohibited here - it is, in part, why this board exists...


viewtopic.php?f=31&t=8652
It is emphasised that value strategies and total return strategies are NOT the remit of this board, which is intended for discussions of higher-yielding equities for the purposes of generating an income through such equities' natural yield.

Apologies, I stand corrected. I can see why some people may get a little frustrated, but there's always the Investment Strategies board - it's no biggie, really, is it?

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Re: Income strategy for accumulation

#462078

Postby dealtn » November 30th, 2021, 2:20 pm

moorfield wrote: I have no idea nor do I care what the pot size will be then provided that its overall yield remains "high". (ie. higher than City of London IT)

I don't regard that approach as eccentric, at all.


That's pretty eccentric in my universe. Guess we are different.

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Re: Income strategy for accumulation

#462085

Postby moorfield » November 30th, 2021, 2:42 pm

dealtn wrote:
moorfield wrote: I have no idea nor do I care what the pot size will be then provided that its overall yield remains "high". (ie. higher than City of London IT)

I don't regard that approach as eccentric, at all.


That's pretty eccentric in my universe. Guess we are different.



Not really, if you think about my endgame (ie. an income). I am aiming for a future income of ~£50k (today's money) on a yield of 5%, or a pot of £1m. Equally that could be a pot of £850k yielding 5.9%, or a pot of £1.25m yielding 4%. That's quite a variation in pot size (£400k) but my focus is on growing (a sustainable and diversified) income size. Much easier to track and make selling/retinkering decisions accordingly.

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Re: Income strategy for accumulation

#462099

Postby dealtn » November 30th, 2021, 4:05 pm

moorfield wrote:
dealtn wrote:
moorfield wrote: I have no idea nor do I care what the pot size will be then provided that its overall yield remains "high". (ie. higher than City of London IT)

I don't regard that approach as eccentric, at all.


That's pretty eccentric in my universe. Guess we are different.



Not really, if you think about my endgame (ie. an income). I am aiming for a future income of ~£50k (today's money) on a yield of 5%, or a pot of £1m. Equally that could be a pot of £850k yielding 5.9%, or a pot of £1.25m yielding 4%. That's quite a variation in pot size (£400k) but my focus is on growing (a sustainable and diversified) income size. Much easier to track and make selling/retinkering decisions accordingly.


If you had the choice of a bank account with a £200k balance earning 1% pa. and one with £100k balance earning 2.5% which would you rather, and why?

I would prefer the former. I can redeploy (or spend) the capital at any time. I can't envisage a scenario where I would prefer the lower capital option. That's my universe, which may be different to yours and others. As I say, in my universe an alternative is eccentric. I guess I am different to others.

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Re: Income strategy for accumulation

#462108

Postby Alaric » November 30th, 2021, 4:44 pm

dealtn wrote:As I say, in my universe an alternative is eccentric. I guess I am different to others.


In most universes, a total return over a year of 6% would be considered preferable to one of 4%. That's even if the 6% return consisted of 2% dividend and 4% capital gain, whilst the 4% return consisted of 8% dividend and 4% capital loss.

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Re: Income strategy for accumulation

#462118

Postby 1nvest » November 30th, 2021, 4:56 pm

CryptoPlankton wrote:
1nvest wrote:
CryptoPlankton wrote:...
Anyway, I'm not sure why 1nvest thinks such discussion is prohibited here - it is, in part, why this board exists...


viewtopic.php?f=31&t=8652
It is emphasised that value strategies and total return strategies are NOT the remit of this board, which is intended for discussions of higher-yielding equities for the purposes of generating an income through such equities' natural yield.

Apologies, I stand corrected. I can see why some people may get a little frustrated, but there's always the Investment Strategies board - it's no biggie, really, is it?

Except for those who might consider/follow a HYP for growth/accumulation purposes have their postings separated out and diluted amongst many other strategies/posts.

To reiterate https://lemonfool.co.uk/viewtopic.php?p=461948#p461948
...We also find that dividend yield as a measure of value produces strikingly similar results. The time-series of return spreads between portfolios sorted according to dividend yields closely matches the results obtained from sorts on book-to-market.... — Dimson, Elroy, Nagel, Stefan and Quigley, Garrett

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Re: Income strategy for accumulation

#462153

Postby moorfield » November 30th, 2021, 7:05 pm

dealtn wrote:If you had the choice of a bank account with a £200k balance earning 1% pa. and one with £100k balance earning 2.5% which would you rather, and why?


Well this being a High Yield strategy I would opt for the highest yield my pot could buy - 2.5% - and if that pot happened to yield 1% than it would be reinvested to ratchet that up to 2.5%.

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Re: Income strategy for accumulation

#462160

Postby Gengulphus » November 30th, 2021, 7:35 pm

dealtn wrote:
moorfield wrote:Not really, if you think about my endgame (ie. an income). I am aiming for a future income of ~£50k (today's money) on a yield of 5%, or a pot of £1m. Equally that could be a pot of £850k yielding 5.9%, or a pot of £1.25m yielding 4%. That's quite a variation in pot size (£400k) but my focus is on growing (a sustainable and diversified) income size. Much easier to track and make selling/retinkering decisions accordingly.

IF you had the choice of a bank account with a £200k balance earning 1% pa. and one with £100k balance earning 2.5% which would you rather, and why?

I would prefer the former. I can redeploy (or spend) the capital at any time. I can't envisage a scenario where I would prefer the lower capital option. That's my universe, which may be different to yours and others.

But we're talking about equity portfolios (or at least we should be on this board), not about bank accounts! And the "IF" I've capitalised and emboldened is a very big one...

If I had a choice of the two bank accounts you mention, then yes, I'd very likely (*) also go for the £200k bank account earning 1%. And since I already have entirely adequate cash reserves, I would withdraw the cash from the bank account asap and invest it in something more productive than cash. So the interest rates would be unlikely to be relevant for all that long, and so capital considerations easily outweigh interest rate considerations.

What about the question e.g. of having a £200k equity portfolio with a 5% dividend yield or a £250k equity portfolio with a 3.5% dividend yield? There's an unrealistic version of that question and a realistic version of it.

The unrealistic version goes: your fairy godmother appears one night and says she'll give you one of the two portfolios - you get to choose which, and she lets you do a quick inspection of the two to check that there's nothing dreadfully wrong with either of them. I would unhesitatingly choose the £250k portfolio with the 3.5% yield - even if I liked the prospects for the £200k portfolio with the 5% yield better, because if that were the case, I could easily sell the £250k portfolio and buy the £200k portfolio as soon as the markets opened the next morning, and end up with my preferred £200k portfolio plus maybe £48k cash (allowing for stamp duty on £200k worth of purchases, broker commission on say 50 trades, and a bit of bid/offer spread).

The realistic version might go something like: you currently have a £150k equity portfolio with a 4% dividend yield, and you're contemplating how you're going to run it. By going for dividend-led portfolio growth (high yields, lots of dividends reinvested, but quite possibly somewhat poor growth of the dividend-per-share figures of the individual holdings) you think it plausible (but by no means guaranteed) that your portfolio will grow to a £200k equity portfolio with a 5% dividend yield. Alternatively, by going more for good growth of the individual holdings, at the cost of their yields being somewhat lower (**) you think it plausible (but also by no means guaranteed) that your portfolio will grow to a £250k equity portfolio with a 3.5% dividend yield over the same period. Which approach do you go for?

Whichever you go for, you're probably going to overshoot or undershoot the portfolio you're aiming for rather than hitting it precisely, and it doesn't take much looking at past market performance to tell you that you might end up undershooting or overshooting by quite a lot. So when deciding on your approach, you're going to be making judgement calls about questions like "just how plausible?", "what happens if things go less well than expected?", etc, rather than clear-cut numerical decisions. And personal factors like "just how good am I at making this sort of judgement call?" are likely to come into it - e.g. judging whether a CEO's remarks on the company outlook display confidence or arrogance requires rather different skills than judging how strong a company's balance sheet is.

The point of all of this is: once you've decided how much of your wealth you want in equities (***) you don't get to make significant "an equity portfolio worth £X or an equity portfolio worth £Y?" investment decisions. Any question asking which of them you prefer (other than with X and Y only slightly different e.g. due to trading costs) is not actually an investment decision you'll face in practice. The decision you will face in practice is which equity portfolio you want to aim to achieve - and due to differences of personal skills, circumstances, levels of confidence, etc, I find it entirely unsurprising that different people come to different decisions about that.

dealtn wrote:As I say, in my universe an alternative is eccentric. I guess I am different to others.

If your universe offers you a free choice (****) of a bank account with a £200k balance earning 1% pa. and one with a £100k balance earning 2.5%, I can see where the eccentricity comes from! ;-)

(*) Extreme terms & conditions could alter that. For instance, if the bank accounts earned compound interest and matured in 50 years' time with absolutely no withdrawals (either of capital or of interest) permitted before maturity, even on the death of the holder, the £100k bank account would be mildly preferable - though it might be arguable that both should be declined on the basis of too much potential complexity in testamentary matters! ;-)

(**) Though given we're on this board with its requirement about natural yields being high, just "somewhat lower" and not "low".

(***) Which is a question for the Investment Strategies board, not this one.

(****) To be clear, that means a "free choice" both in terms of being completely at liberty to choose either account and in terms of not paying anything to acquire either account.

Gengulphus

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Re: Income strategy for accumulation

#462250

Postby dealtn » December 1st, 2021, 9:07 am

Gengulphus wrote:...


Yes.

The bank account example was merely a simple and easy way to understand as an illustration. The world of equities, for many, is more complicated. For some, and I include myself in that, though it is straightforward.

I was only pointing out that there appear to be multiple universes out there, and we should be comfortable in the one we inhabit.

Mine has no overlap with a comment (close to)"I do not care what the pot size will be". Regardless of the strategy chosen.
Last edited by dealtn on December 1st, 2021, 9:10 am, edited 1 time in total.

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Re: Income strategy for accumulation

#462251

Postby dealtn » December 1st, 2021, 9:09 am

Alaric wrote:
dealtn wrote:As I say, in my universe an alternative is eccentric. I guess I am different to others.


In most universes, a total return over a year of 6% would be considered preferable to one of 4%. That's even if the 6% return consisted of 2% dividend and 4% capital gain, whilst the 4% return consisted of 8% dividend and 4% capital loss.


Agreed (although it should also take into account risk, not just return). Total return is the appropriate measure.

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Re: Income strategy for accumulation

#462288

Postby Gengulphus » December 1st, 2021, 11:07 am

dealtn wrote:
Gengulphus wrote:...

Yes.

The bank account example was merely a simple and easy way to understand as an illustration. The world of equities, for many, is more complicated. For some, and I include myself in that, though it is straightforward.

I was only pointing out that there appear to be multiple universes out there, and we should be comfortable in the one we inhabit.

Sorry, but I fail to understand how an illustration of a fantasy universe that we do not inhabit, in which we're given free choices between bank accounts / portfolios / whatever of significantly different capital values, helps us understand the universe we do inhabit, in which we get to choose what we're aiming to achieve and how we'll attempt to achieve it. And making the illustration simple and easy makes no difference to that - however simple and easy it is, it remains an illustration of a fantasy universe, not of the real universe.

Looking back to where you brought up the bank account example, it was in:

dealtn wrote:
moorfield wrote:
dealtn wrote:That's pretty eccentric in my universe. Guess we are different.

Not really, if you think about my endgame (ie. an income). I am aiming for a future income of ~£50k (today's money) on a yield of 5%, or a pot of £1m. Equally that could be a pot of £850k yielding 5.9%, or a pot of £1.25m yielding 4%. That's quite a variation in pot size (£400k) but my focus is on growing (a sustainable and diversified) income size. Much easier to track and make selling/retinkering decisions accordingly.

If you had the choice of a bank account with a £200k balance earning 1% pa. and one with £100k balance earning 2.5% which would you rather, and why?

It seems to me that moorfield is living in the real universe. He's aiming for a future income of ~£50k, and he visualises it as possibly coming from an equity portfolio worth £1m with a yield of 5%. But he's quite aware of the fact that if markets are low at the time, it might actually be coming from an equity portfolio worth £850k and yielding 5.9%, or if markets are high at the time, it might actually be coming from an equity portfolio worth £1.25m and yielding 4%. He doesn't get to choose between those various combinations of portfolio value and yield (he gets whatever combination the market gives him when his portfolio income reaches £50k, whenever that turns out to be), so the question of which portfolio value he prefers doesn't enter into his decision-making. And so however simple and easy the bank account example is, it's departing into the realms of fantasy, by offering him a choice of a type he's not actually going to get...

Gengulphus

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Re: Income strategy for accumulation

#462334

Postby dealtn » December 1st, 2021, 1:41 pm

Gengulphus wrote:It seems to me that moorfield is living in the real universe. He's aiming for a future income of ~£50k, and he visualises it as possibly coming from an equity portfolio worth £1m with a yield of 5%. But he's quite aware of the fact that if markets are low at the time, it might actually be coming from an equity portfolio worth £850k and yielding 5.9%, or if markets are high at the time, it might actually be coming from an equity portfolio worth £1.25m and yielding 4%. He doesn't get to choose between those various combinations of portfolio value and yield (he gets whatever combination the market gives him when his portfolio income reaches £50k, whenever that turns out to be), so the question of which portfolio value he prefers doesn't enter into his decision-making. And so however simple and easy the bank account example is, it's departing into the realms of fantasy, by offering him a choice of a type he's not actually going to get...

Gengulphus


He can of course answer for himself. It seems to me he is looking for an opportune time to retire, when he can with a future income of £x - lets say £50k. We/He doesn't know what future market yields are going to be, and won't until we get there (or at least a best guess becomes easier the closer you get to that point). We do know that it is possible to have strategies, or portfolios with different yields though.

You might get to a point where a yield is available of 5%, in which case a "pot" of £1mio is sufficient to retire. It might be that only 4% yields are on offer, in which case it requires £1.25mio to retire, or alternatively 6% in which case £833,333 is required. At the point of retiring and enjoying that £50k income the size of the pot matters. It determines whether you can retire. Or not. You "care" about it.

If you "care" about it on retirement day, is it reasonable to suggest, or not, you care about it the day before? The day before that?

In my universe, and perhaps other peoples, I am running the experiment of "When can i retire?" answered with "When I have a sufficiently large pot that will yield the required income to do so". One of (in fact probably the most important thing) I care about is the size of the pot.

In particular, on a thread about reinvesting and accumulating, other than the strategy determining which investments to choose from - in this case only high yield ones - the actual yield, and delivered dividend income from it, is very much secondary. Almost the opposite of a well discussed strategy in these parts.

The main concern is what the current pot size is, and how soon until that potentially delivers the requisite quantity of income to allow me to retire. If I am offered a "windfall" of £100k, or £200k, I will always take the larger (regardless of what it currently is invested in, be that bank accounts or shares) assuming there are non-existent costs of realising that portfolio and investing it myself in whatever form I choose (be that bank accounts or equities, be that in high yield, no yield, or something else investments). In the real world I take into account those frictional costs. which won't be zero, including potential taxes and buying/selling costs.

In an example of a universe with only bank accounts, of differing interest rates. If the only way to derive the income is from paid interest I don't let the interest rate determine which 2 "pots" I prefer. I prefer the largest, and then have it invested at the best rate. I think most people see that, and would do the same, You appear to concede as much in your earlier reply. I contend, despite its higher complexity, an equity based portfolio is the same. In a world where I have a choice over portfolio yield, or portfolio size, and the ability (perhaps more difficult in practice to deliver than a single bank account switch) to readjust the portfolio, I "care" about the size in my choice of which portfolio I prefer.

In my real universe, the one I live in that isn't a fantasy, that is how I view things. I care about the size of the pot, both now and in the future. I can't imagine a scenario in which I don't care about it. I am quite prepared to accept other people are different to me, and some don't care about the size of a portfolio.

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Re: Income strategy for accumulation

#462402

Postby Gengulphus » December 1st, 2021, 6:13 pm

dealtn wrote:You might get to a point where a yield is available of 5%, in which case a "pot" of £1mio is sufficient to retire. It might be that only 4% yields are on offer, in which case it requires £1.25mio to retire, or alternatively 6% in which case £833,333 is required. At the point of retiring and enjoying that £50k income the size of the pot matters. It determines whether you can retire. Or not. You "care" about it.

If you "care" about it on retirement day, is it reasonable to suggest, or not, you care about it the day before? The day before that?

In my universe, and perhaps other peoples, I am running the experiment of "When can i retire?" answered with "When I have a sufficiently large pot that will yield the required income to do so". One of (in fact probably the most important thing) I care about is the size of the pot.

In the context of dividend-yielding equities (i.e. the context of this board), the usual situation is that if the capital value of the equity rises by 1%, its dividend yield drops by 1% (or to be precise, by 0.99009900990...%) - and the income generated by the holding remains unchanged. The exceptions are when the company declares a dividend rise or cut.

In the context of wanting £50k income, the thing to care about is the income-generating capability of the holding, and that's essentially a combination of the size of the pot and the reasonably-safely-available yield, with the two parts of that combination being equally important.

dealtn wrote:In an example of a universe with only bank accounts, of differing interest rates. ...

Sorry, but I am not going to follow you into that fantasy universe of yours. We're dealing with equities here, and they have yields that mainly vary inversely with their capital values (with occasional jumps up or down from that pattern), not interest rates set by banks. Please deal with that reality, rather than trying to 'illustrate' it with fantastical examples.

Gengulphus

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Re: Income strategy for accumulation

#462413

Postby dealtn » December 1st, 2021, 6:41 pm

Gengulphus wrote:
In the context of wanting £50k income, the thing to care about is the income-generating capability of the holding, and that's essentially a combination of the size of the pot and the reasonably-safely-available yield, with the two parts of that combination being equally important.



Exactly. The size of the pot is something that is important and worth caring about!

That was what I was saying. I can't imagine ever not caring about it, and find it strange there are people that don't. But that's for them. It's not my concern, so long as they are happy.


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