Corporate Bonds vs Equity Income Funds - any thoughts?

Lokolo

Yes if you want. You could spread the risk even further by putting it into 3 different corporate bond funds. So £1200 in each.

Just so you know, S&S ISAs still have tax, the dividends are always taxed 10%, theres no way around this. However you won't pay the higher dividend rate if you are/become a higher tax payer and you don't pay Capital Gains Tax.

dunstonh

I wouldnt discard them. However, making it a smaller part of your portfolio is still valid. In very simple terms you could do 80/20 with 80% in fixed interest funds and 20% in equity income or the Sch Inc Maximiser (which isnt in equity income but does aim for 7% yield and is slightly more defensive than Eq income).

Just so you know, S&S ISAs still have tax, the dividends are always taxed 10%, theres no way around this. However you won't pay the higher dividend rate if you are/become a higher tax payer and you don't pay Capital Gains Tax.

Thats with equity funds. With fixed interest funds that would not be the case. They can get the tax back.

Lokolo

dunstonh wrote: »

Thats with equity funds. With fixed interest funds that would not be the case. They can get the tax back.

What do you mean 'they can get the tax back'? i.e. is it always taken and you can reclaim? or is this done automatically (you don't see it but it is done)?

I'm assuming its the latter...

cheerfulcat

Lokolo wrote: »

Just so you know, S&S ISAs still have tax, the dividends are always taxed 10%, theres no way around this.

Just to be clear - they are not taxed, they are treated as though they had been. That's why the 10% can't be reclaimed in an ISA ( unlike the previous situation where dividends were actually taxed at 25% with the tax reclaimable within tax-free vehicles ).

Margaretclare, it has been said that the greatest returns from equity investment have come from re-investing dividends so from that point of view an equity income fund should do well. I'd agree with the others on going for a spread of funds - and be prepared for some shorter term losses.

margaretclare

Thanks very much to everyone for the thoughts. The beauty of a site like this is that it enables us to think through different options.

Margaretclare, it has been said that the greatest returns from equity investment have come from re-investing dividends so from that point of view an equity income fund should do well. I'd agree with the others on going for a spread of funds - and be prepared for some shorter term losses.

Thank you for this. I've been thinking along these lines myself. I've actually made money, lost money, but all in all it has balanced out pretty well. I haven't actually been scared off these type of investments, not yet anyway! I do still want my capital - hard-earned as it has been - to 'grow'. Nothing is without risk.

jamesd

margaretclare, as dunstonh explained, you can adjust the percentages to get the overall risk where you want it to be while still having a mixture of some higher risk and some lower risk.

For example, you might consider something like:

5% emerging markets
10% global growth
30% UK equity income (and/or the income maximiser fund)
55% bonds of several types

The idea is that the first two provide some greater potential for capital growth to try to keep up with inflation but even if they were to lose 50% they still couldn't reduce the total value by more than 7.5% because they only make up 15% of the total.