Arborbridge wrote:1nvest's comparisons are really interesting, but are they a little beside the point?
What I mean is that TJH's drive is for income, as is mine, whereas 1nvest seems more concerned with TR, which TJH's portfolio was never about - or at least AIUI, that is a secondary issue.
Nevertheless, it is interesting to have such a series to help people if the are "pot building" - to see what can be done by TJH's method.
Arb.
Most people will ultimately be looking for income generation (retirement). Take the same 'dividend' (withdrawal amount) from total return as another receives in actual dividends and for income they're identical. Yes of the two I prefer to define my own dividend amount and timing by selling down some of total return rather than having dividend amounts and timing dictated to me. In order to compare such portfolios you can either compare the capital growth of the remainder after the same amount of dividends were drawn, or simply compare the total returns. That is the fairer measure. In practice I use a SWR for income, as that provides a consistent/stable inflation adjusted income year after year. In contrast spending dividends can see considerable swings in those dividends.
A feature of SWR is that you can supplement it with top slicing additional real gains as and when they are apparent into a cash account, and use discretion to draw down that cash account. A SWR to cover basic expenses, supplemented with spending on niceties sourced out of top slicing when the portfolio had performed relatively well. Which is a form of cutting dividends when prices are down, paying out enhanced dividends when prices have risen. In contrast when others define the amount and timing of dividends paid, they'll still look to pay out even when prices are down. For me that's a element of 'sell-low' which I personally look to avoid.
Yet another factor is that I diversify more broadly, including for example some US stock exposure (S&P500 index fund). Inside a ISA dividends paid in $ would be converted to £, and if I were reinvesting some/all of those dividends it would be reconverted back from £ to $ again. With a accumulation S&P500 fund only the amount of actual 'self defined' dividends drawn are currency converted - and more often I look to keep that low and instead draw 'dividends' from non-ISA holdings as I'd rather my ISA expanded in value. With own-dividends you're less confined as to the universe of assets you might hold, less concerned about what dividends might be paid by assets.
Fundamentally however the objective is the same, to see rising 'dividends' (income) over time.
Here's a crude US example,
https://tinyurl.com/y9hzh7m3 50/50 Berkshire Hathaway and Gold, neither of which pays any dividends. A 300K investment amount at the start of 2005 (furthest the history goes back), with a inflation adjusted 4% of start date portfolio amount drawn each year (12K/year inflation adjusted SWR). The indications from that being that the remainder of the portfolio grew at a 4.47% annualised real rate of return.
Some (or even all) of those real gains might have been top sliced into a cash account for additional drawdown/spending. i.e. the combined SWR and real gain withdrawals could have combined to nearly 8.5% whilst the remainder portfolio value increased with inflation. That was for a US investor ($ and US inflation rate). As a UK investor holding US$ over that period also saw nearly a 50% gain (46.7%) in currency benefit due to the Pound declining (additional 2.6% annualised benefit). Comparing that however such as with Terry's portfolio is more easily achieved by converting to Pounds and comparing total returns, or by drawing the same amount of dividends and comparing the remainder capital valuations. Without doing that however, but instead just simply looking at the above image that indicates 300K grew to 780K after the 4% SWR was drawn, and factoring in that the $/£ currency element added a further 1.467 gain factor to that = $780K final value = 1144 which relative to the 300 start date amount = 3.8 times more. Which is around the same or more than what TJH Accum increased by from April 2005 to April 2019. Or simply, from a income perspective, it looked like that provided around 4%/year more potential income than the TJH portfolio.
Thanks to Terry posting his results as that opens up running such comparisons which can be useful, for me for instance it is suggestive that recent comparisons are indicating it may be a good time to reduce US $ stock/gold and add to UK stock (£). Ultimately however the objective is the same, to achieve sufficient/reasonable amounts of income in whatever manner you best prefer.