Generating an income from large lump sum

gadgetmind

TCA wrote: »

Would a decent lump sum invested in a mix of half a dozen or more ITs (as mentioned above), be sufficient in their own right to produce an annual income and a final lump sum with good growth (for ultimately a pension purchase) or would it be necessary to use other financial instruments for investment? I would always keep a stash of cash, but other than that?

I really do suggest you invest in a copy of Smarter Investing by Tim Hale. The key lessons to "take away" will be why fees matter, why you need uncorrelated assets (yes, boring old bonds!), why you should never panic and sell, and why you need any cash holdings to be index linked.

There are some great charts showing how much you can withdraw long-term from various portfolios without significant chance of it all going wrong.

The firecalc web site is also a great tool, particularly with the advanced settings, but you'll struggle to work it without background. I used it to model the income I needed pre-state-pension, what I needed afterwards, and also tried a few tricks such as when to back-off draw down if the portfolio is having a bad year.

Rollinghome

jamesd wrote: »

That's one of the most respected studies of long term investment returns publications on the planet.

It's also the document that Barclay's gives to their 'wealth management' clients and as such should be considered as the sales material that it is. It would be naive to expect it to convey any view that would be contrary to their business interests.

You'll need to read his book to see the basis of his assertions and you will find that his knowledge is fairly limited. Nonetheless he does make some valid points that tend to be overlooked by those who show excessive reverence for the Barclay's data while too often being unaware of the basis.

jamesd

It's useful background material for those looking to understand how investment returns vary. No surprise that they would want to do some educating of their clients so they know what to expect. I use it myself here for that sort of education and I'm not selling anything.

Glen_Clark

jamesd wrote: »

3. He's paying 2.5% in trading commissions on shares? Those must be pretty small trades or a _really_ expensive broker!

Thats the best deal I have found for certificated trades. I know the charges are higher than a Crest account or some funds, but you only pay them once, unlike a Crest account or fund. I buy them with the intention of keeping them long term so I don't want to pay someone else to keep my certificates when I can keep them myself for nothing and be sure I have not invested with a Bernard Madoff because I can see the certificates with my name on them.
Skipton Building Society Sharedealing (minimum charge £20 but I always deal above that) = 0.75% to buy, plus 0.5% duty, then 0.75% to sell, total 2.0%.
The Broker's Buying/Selling price spread is on top of that, and varies according to how widely traded the shares are, but for popular shares I guess about 0.5% so that makes the total charges up to about 2.5%.
If you know of a better deal for certificated trades I would love to hear of it.

jamesd

I haven't looked for the cheapest way to buy or sell with share certificates instead of normal records. It's a very unpopular way of trading so it wouldn't surprise me at all if prices are high for it.

One deal that is probably cheaper is the one from Hargreaves Lansdown at 1% to 0.5% depending on deal size, plus £20. Depends on the deal size though, though what you're using is cheaper for the smaller deal size range.

Glen_Clark

jamesd wrote: »

I haven't looked for the cheapest way to buy or sell with share certificates instead of normal records. It's a very unpopular way of trading so it wouldn't surprise me at all if prices are high for it.

One deal that is probably cheaper is the one from Hargreaves Lansdown at 1% to 0.5% depending on deal size, plus £20. Depends on the deal size though, maybe what you're using is cheaper if your deal sizes are very small.

Well I can see that the punter keeping the certificates is 'very unpopular' with the dealers because it deprives them of their annual fee, withdrawal fee etc But avoiding those fees is not 'very unpopular' with me

Thanks for the link, I'll keep it in mind.
Incidentally, by my calculations the trade would have to be above £24,000 for Hargreaves Lansdown to be cheaper. Would you call a £24,000 trade 'very small?'

jamesd

I was thinking more of the 2.5% from the IC piece. I've updated the size description to better fit the Skipton Building Society pricing, which is clearly better than HL until the deal size is big enough to get the 0.5% HL rate.

Glen_Clark

jamesd wrote: »

I was thinking more of the 2.5% from the IC piece. I've updated the size description to better fit the Skipton Building Society pricing, which is clearly better than HL until the deal size is big enough to get the 0.5% HL rate.

Are you saying you pay commission on up to £10,000 at 1%, so the commission would be £100
But if your deal is £10,001 you only pay 0.5% so the commission is £50 ?
(all plus £20)

I took it to mean you pay the first £10,000 at 1%, the next 10,000 at 0.5%, then above £20,000 0.25%.
Which means the trade would have to be above £24,000 to make Hargreaves Lansdown cheaper than Skipton. (In which case I will ask Skipton for a discount as I know they have some discretion with these charges)

Incidentally, £24,000 is more than most people take home in a year, so I would not call a trade that size 'very small'.

jamesd

The range column is deal value so yes it appears to be a drop for the whole trade when the size passes a threshold. Easy enough to phone them to check before you ask for a discount elsewhere.

Yes, I agree that a trade size of £24,000 isn't very small, I was thinking of 2.5% vs 1% plus £20 where HL would be ahead by 25p at a £1350 deal size. Having worked it out I wouldn't describe that as very small either, just small.

gadgetmind

Glen_Clark wrote: »

Well I can see that the punter keeping the certificates is 'very unpopular' with the dealers because it deprives them of their annual fee

Very few platforms charge such a fee.

I use paper share certificates for a few holdings and they are a pain TBH. You have to take care of them, track which are/aren't valid through scrip dividends and corporate actions, and there are also higher fees for buying as you need a certificate issuing. Come time to sell, most platforms will "dematerialise" a certificate into a nominee account for free, and you can then sell there. This is nearly always cheaper than selling a paper cert directly.

The only advantages to a paper cert is that you are in the shareholder register, which makes attending meetings and voting easier, but TBH all you need is a print out of contract note etc.