1nvest wrote:Alaric wrote:Faced with cancelled dividends, what should an investor looking for drawdown income do?
Options would seem to include doing nothing, sitting on cash waiting for more normal circumstances to return.
Otherwise shares with cancelled dividends could be ruled out entirely, or should they be bought anyway as a speculation on recovery?
Buying ITs or overseas shares is also an option.
Some may hold cash reserves specifically for such times. Saved 25x spending before having entered drawdown/retirement (anticipate a 4% withdrawal rate), mindful that dividends could halve for perhaps a handful of years, so drop 10% into cash, rest into stock (90/10 stock/cash asset allocation) and call upon those cash reserves during such dividends down years to supplement (reduced) dividends (replenish cash reserves in later/better years). Others sell down capital during such times - which others might say is selling low, but you have the choice to reduce either the best performer(s) (which is a form of rebalancing the individuals partially back towards equal weightings); Or sell (reduce) losers, let winners run philosophy. Selling down losers, running winner has the tendency to increase tilt (even more final portfolio value being weighted into the asset that performed the best). Selling down winners tends to keep the portfolio more towards equal weightings (less concentration risk). Holding some cash acts as a drag factor. There are pros and cons to each choice (I did try to discuss such over on the HYP-P board/section, but had my post pulled, and have no intent to re-type the details).
All of the above is true 1nvest which is why with my pension I hold a good 4 to 5 years of cash, thanks to Arborbridge's good work.
Not so in my ISA which is 95% invested.
Yes cash is an investment drag but you are never a distressed seller. If I was pulling on my pension these last few months it would have hurt a good deal more. Since I had other distractions I didn't sell the exposed investments in the lead-up to the sell off where, like many others, I probably would have.
Answering Alaric's question, I am holding onto cash & dividends until I feel sure the other risks of second (and further) waves of coronavirus are understood, with containment strategies in place, and also the other brexit deals are understood - unless an opportunity slaps me across the face
Sounds like I am holding cash for the forseeable
midgesgalore