DIY S&S Isa: for regular income?

gterr

Hi there,

I'm intending to move some savings into S&S ISAs and if possible I'd like to educate myself sufficiently to be able to take the DIY approach.

I would want the fund to produce a regular income, preferably from the start. Obviously, the income would initially be small but would grow as I placed more funds inside the S&S ISA.

I like the idea of passive investing using tracker funds, e.g. the Vanguard Life Strategy funds. Would it be possible to invest in these within an ISA (or series of ISAs) and take an income? If so, is it possible to arrange the level of income taken so that the fund would still grow sufficiently to keep pace with inflation (or to decline at slow rate)?

Could I later decide to take a higher income and allow the fund to diminish?

How much control would I have over these things if I used a supermarket like HL?

Many thanks for your time.

le_loup

No.
You get dividends if you buy income funds. The amount of the dividend is determined by the companies in the fund and may keep pace with inflation, may be higher or lower or may cease altogether.
You need to do a bit more research on Stocks and Shares ISAs.

dunstonh

I like the idea of passive investing using tracker funds, e.g. the Vanguard Life Strategy funds.

Good funds for growth. Not so good for income unless you plan to use the growth to take a regular withdrawal rather than take the natural income.

If so, is it possible to arrange the level of income taken so that the fund would still grow sufficiently to keep pace with inflation (or to decline at slow rate)?

As you would be reliant on growth with that fund, you would have to monitor it and be prepared to adjust the capital withdrawals based on the capital value.

Could I later decide to take a higher income and allow the fund to diminish?

yes

How much control would I have over these things if I used a supermarket like HL?

You would need to check with HL. I dont know if they allow regular capital withdrawals in addition to natural income. They probably do as most platforms do nowadays.

Another concern with your approach is that the Vanguard funds have a dilution levy. If you plan on taking capital withdrawals straight away then you are better off investing less and using that cash not invested to cover you. Using capital to provide income can be tax efficient for non-ISA investments but within an ISA, using a yield approach is usually better or make sure the investments you use do not have any initial charges (maybe use multiple funds and select the one without initial charges to be used to sell units and not the one with).

xylophone

You might try Cavendish and use equity income, bond, or distribution funds, selecting inc rather than acc units in the funds you choose.

http://www.cavendishonline.co.uk/investments/our-service/

Some examples of income producing funds can be seen here http://www.fairinvestment.co.uk/income_fund_selection.aspx?cmpid=006&gclid=CJfYn-i_q7MCFbDItAodZQYA3g

gterr

Thanks.

Le Loup: Yes, I do realise that I need to learn more before I start investing.

Dunstonh: Thanks for your help. I have downloaded HL's guides to Equity Income, and to S&S Isas. Having previously been won over by the arguments for passive investing it may turn out that a different approach is required for us, given that we need to take an income fairly soon.

Thanks for your time.

Xylophone: thanks for the pointers. I'll look at these later.

le_loup

You can still do passive if you want to, it's just that you cannot predetermine the income in the way that you were seeking. It's not like a savings account paying a fixed rate of income.

kidmugsy

Several of the big, generalist investment trusts boast of their having paid increasing dividends for many decades (investment trusts can keep reserves for this purpose). So you could put together a mixture of them to pay you income quarterly, or even monthly. If I were interested in equity investment at the moment, that's what I'd do.

gadgetmind

I don't understand the logic of putting money into an ISA and then taking some of it back out fairly quickly.

I let income accumulate within our ISAs until there is enough to make a new purchase in there. I don't intend to take anything out until all of our non-ISA holdings have been moved into ISAs and/or spent at Oddbins.

We also have our dividend income holdings most outside ISAs and growth and interest ones inside.

gterr

gadgetmind wrote: »

I don't understand the logic of putting money into an ISA and then taking some of it back out fairly quickly.

Well, my circumstances are probably not the same as yours. We are approaching retirement and will have a rather meagre income from pensions. But we do have a holiday cottage which we will sell, and this will yield approx £175k. It's a question of how best to use that £175k to supplement our retirement income.

We need to start to move money into tax-efficient wrappers, and have decided S&S ISAs is an appropriate vehicle. It's going to take some years to get it all into S&S ISAs, but we will need an income from it before then. It's analogous to other forms of draw-down, surely?

gadgetmind

gterr wrote: »

We need to start to move money into tax-efficient wrappers, and have decided S&S ISAs is an appropriate vehicle. It's going to take some years to get it all into S&S ISAs, but we will need an income from it before then. It's analogous to other forms of draw-down, surely?

Yes, but while you're moving your unwrapped holdings into ISAs, you're better drawing more heavily on these as that way you get everything into ISAs much faster.

If these unwrapped holdings mainly generate dividend income, then there is no further tax for basic rate tax payers, so that's quite efficient already, but you do have to keep track of the income and capital gains.

You then use your capital gains allowances every year, and your dividend income, to generate enough cash to fund both your lifestyle and your ISA contributions.

In effect, you rob Peter to pay Paul, with Peter being your unwrapped holdings and Paul your ISAs. It kind of feels like you're using capital faster, but you're using it to avoid drawing on ISAs before you need to.

Our situations aren't too different as my wife (basic rate tax payer) is accumulating unwrapped holdings, mainly dividend income shares and Investment Trusts. When we retire, we'll start selling these so we can continue to fund our ISAs as per above.

dunstonh

Yes, but while you're moving your unwrapped holdings into ISAs, you're better drawing more heavily on these as that way you get everything into ISAs much faster.

I agree. Where you have ISA and unwrapped investments you should draw against the unwrapped before the ISA. Some platforms also allow you to take the ISA investment charges from the unwrapped account as well (more common on unbundled platforms than bundled).