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Income strategy for accumulation

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

#462656

Postby funduffer » December 2nd, 2021, 3:14 pm

Coming back to the title of this thread, then I have to say I agree with dealtn, in that it is the pot size at retirement that matters.

If one chooses to take a 'pure' HYP approach, investing in UK high yielding shares and re-investing dividends in the accumulation phase, then I think this is not the optimal way to build a retirement pot. This is simply because the shares being selected are too narrow, by excluding growth shares, and overseas shares. Certainly in the last decade you would have built a far larger pot investing in overseas shares (eg a world tracker), rather than the FTSE.

As one approaches retirement, then of course one would want to start building a portfolio aimed at providing income (unless one is willing to consider regular selling down of the portfolio to provide income). It is likely that one would want to switch to a different portfolio that is high yielding. How high depends on how big a pot has been accumulated, and how much risk you want to take.

It may be possible to invest a £1M pot in shares yielding 4% on average, which would provide an annual income of £40K. This could be a 'pure' HYP or a portfolio of higher-yielding investment trusts, or may include fixed interest investments.

For accumulation over a decade or more however, I would keep it simple and buy a world tracker.

FD

moorfield
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Re: Income strategy for accumulation

#462774

Postby moorfield » December 2nd, 2021, 10:27 pm

funduffer wrote:If one chooses to take a 'pure' HYP approach, investing in UK high yielding shares and re-investing dividends in the accumulation phase, then I think this is not the optimal way to build a retirement pot. This is simply because the shares being selected are too narrow, by excluding growth shares, and overseas shares.

Granted the FTSE listings limit what is on offer to buy, but there is no lack of exposure to overseas markets in there. The usual counter argument here is that most FTSE listed companies operate globally (ie. overseas). And, occasionally, they do spin off foreign listed shares. Let's look quickly at the some of their websites:

Diageo - 180 countries
HSBC - 64 countries
Unilever - >100 countries
Shell - >70 countries
GSK - >150 countries

And so on. What's not optimal about re-investing dividend into UK high yielding shares ?

funduffer wrote: Certainly in the last decade you would have built a far larger pot investing in overseas shares (eg a world tracker), rather than the FTSE

Rear view mirror. Out of interest, how big a pot size do you think you can build in the next decade by investing in overseas shares? What do you think is a realistic annualized growth rate you can use to track progress towards your accumulation goal (and make any changes accordingly)? Do you even have an accumulation goal, or would you just "hit and hope", and see where your pot is in a decade?

funduffer
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Re: Income strategy for accumulation

#463123

Postby funduffer » December 4th, 2021, 4:30 pm

moorfield wrote:
funduffer wrote:If one chooses to take a 'pure' HYP approach, investing in UK high yielding shares and re-investing dividends in the accumulation phase, then I think this is not the optimal way to build a retirement pot. This is simply because the shares being selected are too narrow, by excluding growth shares, and overseas shares.

Granted the FTSE listings limit what is on offer to buy, but there is no lack of exposure to overseas markets in there. The usual counter argument here is that most FTSE listed companies operate globally (ie. overseas). And, occasionally, they do spin off foreign listed shares. Let's look quickly at the some of their websites:

Diageo - 180 countries
HSBC - 64 countries
Unilever - >100 countries
Shell - >70 countries
GSK - >150 countries

And so on. What's not optimal about re-investing dividend into UK high yielding shares ?

funduffer wrote: Certainly in the last decade you would have built a far larger pot investing in overseas shares (eg a world tracker), rather than the FTSE

Rear view mirror. Out of interest, how big a pot size do you think you can build in the next decade by investing in overseas shares? What do you think is a realistic annualized growth rate you can use to track progress towards your accumulation goal (and make any changes accordingly)? Do you even have an accumulation goal, or would you just "hit and hope", and see where your pot is in a decade?


I don't have an accumulation goal, as I have retired (early) and stopped accumulating. I used broad-based global equities to accumulate my pot, and re-invested (most, but not all) in high yielding IT's and HYP shares to generate income after retirement 7 years ago.

I would agree with you that the US stock market has had a long bull run, which I benefitted from, and the S&P looks very over-valued at the moment. If I was building a pot now for retirement in 10+ years, I would have a home bias (as the FTSE is more sensibly valued), but I would still cast my net wide looking for growth - Far East, China, US & Canada, Europe. Somewhere like Vanguard is where I would look. Nothing wrong with the global UK-listed companies you mention, but there aren't many of them, and nothing in sectors such as Tech, where you have to look overseas.

My point is really that the universe of UK high-yielding shares is too narrow for building a retirement pot.

FD

FD

1nvest
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Re: Income strategy for accumulation

#465286

Postby 1nvest » December 12th, 2021, 4:06 pm

funduffer wrote:
moorfield wrote:Granted the FTSE listings limit what is on offer to buy, but there is no lack of exposure to overseas markets in there. The usual counter argument here is that most FTSE listed companies operate globally (ie. overseas). And, occasionally, they do spin off foreign listed shares. Let's look quickly at the some of their websites:

Diageo - 180 countries
HSBC - 64 countries
Unilever - >100 countries
Shell - >70 countries
GSK - >150 countries

And so on.
funduffer wrote:My point is really that the universe of UK high-yielding shares is too narrow for building a retirement pot.

The FT100 sources 70%+ of earnings from foreign, even the FT250 sources 50%+

HYP has small and value tilt factors and broadly aligns according to such, as in many respects does the FT250 that is small in US scale


The above table reflects yearly total returns in £ adjusted terms, is slightly misaligned as TJH HYP is fiscal years (5th April) whilst VISVX and FT250 values are end of March years.

Image

Holding either US Small Cap Value (SCV such as US VISVX ETF), FT250, or a HYP in many respects is the same, where HYP is more a case of a 'sampled' index rather than 'full replication'.

The issue is more a case of whether you would prefer to continue with full exposure to high volatility in retirement, that can be a significant risk factor when also drawing a income, or whether you reduce the left (downside) tails risk by shifting into something like 30/70 SCV/bonds along the lines as advocated by Larry Swedroe. US data comparing 30/70 SCV/10 year treasury to that of 100% stock indicates that you can achieve most of the rewards with considerably less risk with 30/70 small and value tilted stocks/treasury bonds

Whether actual exposure to that is held via VISVX, FT250 or a HYP for the 30% would tend to broadly wash. More a case of whatever was the more preferred/simpler/cost/tax efficient.


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