Total Return based portfolio for income

[Itsallaguess]

...

But that's completely irrelevant to the discussion at hand - the OP isn't talking about a single-share HYP being one of his two options, he's talking about a collection of income-related Investment Trusts, which have generally been shown to provide much lower volatility in terms of delivered income, as can be seen by this chart from someone who's been running long-term comparisons for some years.

The income-IT line is the pink one -

<snip>

I hold the FT250 which holds getting on for 50 IT's that presumably also include those 'exceptionals'. The reality is however that FT250 excluding IT's was more rewarding that FT250 including IT's. That selective set you're promoting isn't reflective of the general case. I suspect yet again you're looking to 'report' one of my posts that have no ulterior motive in order to promote your own ulterior motive.

<Sigh>

Why not actually address the point that was made....you were so keen to introduce your views regarding single-stock HYP income-volatility that you completely missed the point that the OP was actually talking about income-related Investment Trusts, that mitigate much of that specific issue due to the way they usually operate income-smoothing processes as part of their underlying operations.

Instead of always rushing to think how you might yet again inject one of your stream-of-conciousness discussions into a thread that doesn't warrant it, and often spoils many threads where such regular irrelevance isn't warranted, why not actually read what people are discussing first....

[Edit] - I see on a later post that you've now managed yet again to inject your well-worn 'historic gold performance' discussion into the thread - Bravo - that's nearly all your 'thread-irrelevance' boxes ticked.....

As a extreme for instance, from 1972 to 1980 if you'd invested just in cash deposits, and then in 1980 upon seeing high interest rates/inflation and a low Dow/Gold ratio rotated into Long Dated Treasury bonds and held since, then the rewards were close to that of all stock total 1972 to 2020 inclusive annualised returns. More so if you'd held some gold along with cash in the 1970's in reflection of the $ ending the pegging to gold (at 67/33 cash/gold perhaps in reflection of a mindset that if 67 $ cash value halved and 33 gold doubled you'd still be at break-even).

You know, I often wonder if there's some sort of 'Talmud posting process' -

One third mis-reading the actual discussion at hand, one third obfuscate the whole discussion, and one third rinse-and-repeat no matter what the opportunity...

Cheers,

Itsallaguess

[dealtn]

As time goes on, I am more and more tempted by a Vanguard Targeted Retirement fund. This moves progressively into bonds, thus preserving capital.

How does it achieve this preservation of capital if bonds fall in price?

[TUK020]

As a extreme for instance, from 1972 to 1980 if you'd invested just in cash deposits, and then in 1980 upon seeing high interest rates/inflation and a low Dow/Gold ratio rotated into Long Dated Treasury bonds and held since, then the rewards were close to that of all stock total 1972 to 2020 inclusive annualised returns. More so if you'd held some gold along with cash in the 1970's in reflection of the $ ending the pegging to gold (at 67/33 cash/gold perhaps in reflection of a mindset that if 67 $ cash value halved and 33 gold doubled you'd still be at break-even).

You know, I often wonder if there's some sort of 'Talmud posting process' -

One third mis-reading the actual discussion at hand, one third obfuscate the whole discussion, and one third rinse-and-repeat no matter what the opportunity...

Cheers,

Itsallaguess

Have you looked at "Musk Endeavours" over on Global/Macro topics?

[TopOfDaMornin]

As time goes on, I am more and more tempted by a Vanguard Targeted Retirement fund. This moves progressively into bonds, thus preserving capital.

How does it achieve this preservation of capital if bonds fall in price?

If both equities and bonds fall, then it won't.

I should have used the word "could" or "usually".

Bonds tend to soften the equlity fall which would be much appreciated at retirement time.

A Targeted Retirement fund might interest the OP.

TDM

[1nvest]

Why not actually address the point that was made

I did. Given the section is a IT/Trusts thread then its all too obvious. And my opening paragraph (where 'It' is total returns) ...

It simply has a broader universe of potential candidate holdings, isn't restricted to certain stocks simply because of their dividend policies. Generally, take the same income out of total return from a portfolio of a diverse range of stocks as provided by for instance a HYP portfolio and the two might be expected to result in similar total return outcomes (on average).

Clearly is directed at the OP's question regarding total returns. And corrects their (OP's) perception of differentials in total returns as per their example

Using a simplified example, is the general idea that instead of a high yield IT portfolio that returns, say, a 5% income plus 2% capital growth, you would invest in a portfolio of growth-based ITs with 0% yield but grew at 9% so you could sell 5% each year and have 4% 'profit' instead of 2%?

... whist is a incorrect assumption (there is no 2% lag/lead (broadly)).

It is you that blindly promotes IT and there 'smooth income'. Smoothing income can be achieved as simply by using a personal SWR taken from total returns, instead you promote income IT's where others define the amounts/timing/smoothness often in return for high fees that overall detract rather than enhance investor rewards.

Instead of always rushing to think how you might yet again inject one of your stream-of-conciousness discussions into a thread that doesn't warrant it, and often spoils many threads where such regular irrelevance isn't warranted, why not actually read what people are discussing first....

You need to look in a mirror

One third mis-reading the actual discussion at hand, one third obfuscate the whole discussion, and one third rinse-and-repeat no matter what the opportunity...

Oh the irony, once again, you need a mirror. Your opening/first post was literally your own preconceived thoughts that would have been best kept to yourself rather than misdirecting and flaming on the perception that you (incorrectly) think you know what the OP's thoughts are, let alone seemingly not even having read/understood their question.

[TopOfDaMornin]

.

my somewhat biased and subjective view is that there has been a substantial trend here away from "HYP" towards a more "total returns" method , making some use of IT's .

Indeed, that certainly seems to be the way, either through trackers or ITs.


TDM

[Alaric]

Using a simplified example, is the general idea that instead of a high yield IT portfolio that returns, say, a 5% income plus 2% capital growth, you would invest in a portfolio of growth-based ITs with 0% yield but grew at 9% so you could sell 5% each year and have 4% 'profit' instead of 2%?

5% income with 2% capital growth is a total return of 7% whilst 0% yield with 9% growth is a total return of 9%. Capital growth is usually less reliable than income, so you increase the reward by increasing the risk.

With more flexible methods of taking money out of pension funds now available, there's less merit in switching to fixed interest as retirement age approaches. If it isn't desired to immediately withdraw the whole 25% TFLS, all that needs to happen is a switch from reinvesting dividends to withdrawing them. The experience of 2020 showed up the risk of relying for income on individual company dividend payments or even doing the same but with whole market Index funds.

[xeny]

The experience of 2020 showed up the risk of relying for income on individual company dividend payments or even doing the same but with whole market Index funds.

What are you suggesting as an alternative then?

[AshleyW]

TopOfDaMornin wrote:

As time goes on, I am more and more tempted by a Vanguard Targeted Retirement fund. This moves progressively into bonds, thus preserving capital.

The problem with Vanguard’s Target Date Retirement Funds for UK investors is they have a glidepath to 70% bonds - this may be OK for US investors where drawdown portfolios historically could sustain a reasonable withdrawal rate with a high bond content but UK investors need 50%+ equity content during drawdown. An alternative approach using Vanguard would be to start the accumulation phase with LifeStrategy 100% or 80% equity then switch to Target date and when the glidepath arrives at 40% bond content switch back into Lifestrategy 60% equity. It is likely you could also skip the initial LifeStrategy stage by choosing a Target Date fund with a date a long way off from the actual desired retirement date.

[Wuffle]

When is your retirement plan so complicated it becomes simpler to just stay at work?

W (only partly sarcastic).

[Hariseldon58]

A very broad set of responses….I suspect that most of the approaches suggested would work just fine.

When I started investing seriously in the late 80’s early 90’s the Equity Income Investment Trusts actually outperformed the growth investments but have not done so well lately in comparison. It has been mentioned that some Investment Trusts are providing a high level of reliable income through a mixture of income and realised capital, this seems a perfectly valid approach alongside the likes of City Of London etc.

One point not touched upon is how much you NEED the income, if you need, say , £30,000 a year to maintain your lifestyle and have £750,000 then reliable income trusts paying 4% are very reassuring. On the other hand if you have, say ,£2,500,000 and still require £30,000 then you might set aside £300,000 in cash/bonds/etc and invest £2,200,000 uncontrained, in equities, without regard to the income produced. Your cash/bonds etc provide plenty of income reserves to cover living expenses, protection in the event of market falls etc.

If you have little headroom then why take the more volatile approach ?

I started out in the first category NEEDING 4% and evolved into the second.

Volatility of income orientated Investment Trusts is low, the capital value does have not low volatility, but often less than a growth orientated investment.

Either approach is perfectly valid, one has to ascertain your personal tolerance of Risk, ability to withstand risk and your NEED for a risk taking approach.

[Newroad]

Hi All.

On bonds (and glidepaths etc to holding them in substantial quantities) I was watching CNBC's "Half Time" (I think it was on Thursday) Kevin O'Leary and Josh Brown were going at it at one point.

Kevin O'Leary was suggesting something like those in bonds were going to get "slaughtered" to which Josh Brown retorted that over some time period (e.g. post WWII) there had been something like twelve down years for bonds, the worst of which was -3%, hence he took exception to Kevin O'Leary's characterisation. Of course, this is likely to be US-centric and probably referred to US Government Bonds.

Clearly, I haven't remembered the above in perfect detail and I can't say or not whether John Brown's figures are accurate, but if they are even roughly so, it covers not only the post Viet Nam war era (high nominal interest rates, high inflation etc later crushed by Volcker et al) but also earlier lower interest rate period(s). If so, bonds may yet a proven a reasonable hedge in different interest rate environments.

Regards, Newroad

[Wuffle]

Newroad,

FYI, Josh Brown and some of his colleagues at Ritholtz have a media presence in their own right, if you like his work.
I watch 'The Compound' on YouTube and find it informative and entertaining.

W.

[Newroad]

Thanks, Wuffle.

Yes, I do like listening to Josh Brown, so will check it out.

Regards, Newroad

[1nvest]

Kevin O'Leary was suggesting something like those in bonds were going to get "slaughtered" to which Josh Brown retorted that over some time period (e.g. post WWII) there had been something like twelve down years for bonds, the worst of which was -3%

In nominal terms. Revise to include inflation and its inflation that has at times hit bonds harshly.

[1nvest]

On the other hand if you have, say £2,500,000 and still require £30,000 then you might set aside £300,000 in cash/bonds/etc and invest £2,200,000 uncontrained, in equities, without regard to the income produced. Your cash/bonds etc provide plenty of income reserves to cover living expenses, protection in the event of market falls etc.

At a 1.2% SWR (£30,000 from a £2.5M portfolio value where the £30K is increased by inflation each year), that's massively into safe territory. Load the £2.5M into a major stock index accumulation fund and each month sell enough shares for your income needs. At SWR % of 3% or below you would have got through the likes of the Wall Street Crash ...etc. type periods with a consistent inflation adjusted/regular income, in effect a PWR (Perpetual withdrawal rate). The likes of ii include a free trade each month as part offset for their £10/month brokerage account fee, so monthly withdrawals (selling some shares) is in effect free, and just involves a T+3 (3 day) 'notice' period.

[xeny]

SP 500 yield is apparently 1.38%. You could pick an income tracker, leave a small cash float to smooth the dividend rate, and reinvest any surplus at the end of the year. Do that with iWeb and you could run the whole thing for £5 in fees per annum.

[Newroad]

Hi 1nvest.

That's a fair point.

Do you know where it's possible to get historic (say) 10 year Treasury prices vs (or perhaps inclusive of) official inflation rates?

Regards, Newroad

[funduffer]

I am new to this thread.

I just did a model over 5 years - May 2016 to May 2021.just as an illustration to myself.

I compare a global equity (accumulation) tracker, Scottish Mortgage IT (SMT) and City of London IT (CTY) as vehicles for generating income.

I assume £100K is invested in May 2016, and each May income is withdrawn equal to that yielded by CTY in the previous year.

So for CTY, no shares are sold, and the income comes purely from dividends
For SMT, some income comes from dividends, and the rest is generated by selling down enough shares each year to generate the same income as CTY.
For the tracker, I assume units are sold each May to generate the same income as CTY,

Results after 5 years:

CTY: £24005 total dividend income generated, Capital value = £103359
SMT: £24005 income (£5853 dividends + £18152 from capital), Capital value = £422076
Tracker: £24005 income (all from capital), Capital Value = £171922

Interesting, but I am not sure how it would look in a bear market, although there has been a pandemic in the last 5 years!

FD

[Dumbo]

Funduffer,

Surely a better comparison to City of London or Scottish Mortgage would have been the Average returns of the sectors they are in. Comparing a closet index tracker with the top performing Global IT is bit of a waste of time in my opinion.

Best wishes,

eddie