mc2fool wrote:Actually I suggest to you that it's the dividends per year that will then become very important to you, not the yield. The yield is in part a derivative of the capital values and will go up and down with them, and so become similarly less important.
Yield per year need not be expressed as a percentage, while dividends per year MUST come from equities.
Newroad wrote:One of your statements below is at the crux of the discussion. You write
"In a couple of years it will be run as a income fund, as it will provide the money that I need to live on. The yield per year will become very important and the growth/decline in the capital less so."
This is the bit I (and some others) don't understand - and I'm trying to figure out if I'm missing something, other than, as we've discussed today, methodologic preference etc. To take the example of some, do those with wholly or predominantly (say) UK High Yield portfolios have them predominantly because
1. Of methodologic preference, or
2. They believe they'll outperform (in total return terms) the main alternative options, e.g. Lifestyle 60/40 or 100% global equity or 100% UK equity or whatever?
Regards, Newroad
I think that the problem is differing mindsets, ages and experiences.
HYP in particular is from another time. Many who follow the method were introduced to it in 2000. The "Pension Freedom" legislation wasn't introduced until 2015. Before then if you had a "personal pension" (a DC Scheme) you were normally REQUIRED to buy an annuety. Negative total returns!
Piad (S Bland), argued that a collection of high yielding, blue chip firms (usually UK listed) would outperform an annuety with no more effort.
UK listing had the advantage that it was easier to buy such firms than the likes of Nestle.
I'm not going to debate the merits of the methology save to say that I once followed it and now desire a significant growth component to my own portfolio. The difference in life expectance of a man retireing at state retirment age in 2000 to 2030 is marked. I feel that the increase in retirement years means that a growth rate that at least keeps pace with inflation is required. I refuse to speculate why others have not changed their minds.
The 60/40 portfolio also dates from a different time. Modern porfolio theory dates to the 50's and was developed in the USA. Historically it has worked quite well for decades, but there are serious questions about if it is working well now or will do so in the future.
Should we all be 100% in equities? Well it depends upon what you mean by "equities" doesn't it. I have shares in companies that produce almost everything under the sun and others that offer services hard to do without. I'm almost 100% equities, but both my income and capital value was seriously impacted by Covid. I can understand those who argue the benefits of the 60/40 portfolio, or others who argue that it should be levened with gold or cryptocurrency.
As for adopting a method that has reduced total returns. People need to eat. If the income falls below a certain point cash must be realised by sacrificing capital. It's quite likely that this may happen when the price of the underlying asset is heavily discounted. Many companies have restored the dividends that they cut in the early stages of the pandemic, but if you needed that income back then, well their share prices were cheap. I was luck to be on the buying side at that point. The "reduced returns" method could be cash in the bank, 40/60 split, equity + gold, or more dividends than you can spend it really doesn't matter does it. The point is to reduce the risk of being a forced seller.