Help with choosing investments

d.white

Hello, I would like to widen and reduce the risk in my investments (100% equities).

Can anyone suggest an investment fund which will invest in a broad range of commodities with low annual fees (Total Expense Ratio)?

I would also like to hold some bonds but the list of funds and choices is baffling!

I don't need to draw income at the moment so would want to reinvest income. But in the future I would want to start drawing off income while leaving the capital untouched so I would assume I need separate funds for growth and income?

Any pointers appreciated! Thank you.

dunstonh

Can anyone suggest an investment fund which will invest in a broad range of commodities with low annual fees (Total Expense Ratio)?

Commodity funds are generally higher risk than conventional equity funds. Plus, moving to single sector funds generally increase the risk unless you move to all the major sectors and balance it accordingly. So, that does not fit with your objective.

I would also like to hold some bonds but the list of funds and choices is baffling!

There is less fixed interest funds than equity funds. So, if you have done your research on equities, you should find the bonds less time consuming.

But in the future I would want to start drawing off income while leaving the capital untouched so I would assume I need separate funds for growth and income?

Not necessarily. You could just draw the natural income across all your funds. Plus, do not rule out using growth for income payments. It can be quite tax efficient to do so.


**edit. Noah's post reported to board for spam. Please disregard that post (assuming it is still here when you read the thread) as it is not UK based.

gadgetmind

d.white wrote: »

But in the future I would want to start drawing off income while leaving the capital untouched so I would assume I need separate funds for growth and income?

How far into the future are we talking?

Is the money currently in a SIPP or ISA or held unwrapped?

d.white

dunstonh wrote: »

Commodity funds are generally higher risk than conventional equity funds. Plus, moving to single sector funds generally increase the risk unless you move to all the major sectors and balance it accordingly. So, that does not fit with your objective.

I don't really want to have lots of single sector funds. I want a broad commodity basket fundbut I haven't found one that looks like it has low(ish) cost.

d.white

gadgetmind wrote: »

How far into the future are we talking?

Is the money currently in a SIPP or ISA or held unwrapped?

For the next 5 years I want to accumulate and reinvest income. After 5 years I will review whether I want to start drawing some income.

All three. Some is in an ISA up to my limit, some in SIPP, and the rest is unwrapped.

gadgetmind

d.white wrote: »

For the next 5 years I want to accumulate and reinvest income. After 5 years I will review whether I want to start drawing some income.

If that's your plan, and you don't expect the need to convert this to cash to buy an annuity or similar, then you can afford to maintain a fairly high exposure to equities.

I can recommend "Smarter Investing" by Tim Hale if you want to understand hos different asset classes interact and how you can draw on them in retirement.

All three. Some is in an ISA up to my limit, some in SIPP, and the rest is unwrapped.

OK, the unwrapped will need care depending on your exact tax position. There is no more tax on dividend income for a basic rate tax payer but there is on income from bonds. This means that you're better holding these wrapped, but that adds complexity when rebalancing.

As for growth versus income, there does seem to be the idea that income generating assets are better for when you need income, but I've never seen that myself. I'd rather hold whatever gives the best total return as capital gains can also be tax efficient.

Note that when starting to draw income, you're better off using the unwrapped assets, even if you slowly deplete them, but keep slamming what you can into ISAs. This is so that tax is less of a problem when state pension kicks in.

Jegersmart

d.white wrote: »

For the next 5 years I want to accumulate and reinvest income. After 5 years I will review whether I want to start drawing some income.

All three. Some is in an ISA up to my limit, some in SIPP, and the rest is unwrapped.

A commodities-focused fund (tracking a basket of commodities prices) will not pay dividends or income. If you mean you want a fund or index that tracls a basked of equities operating in the commods markets then it is of course possible - although most of those funds do not pay a dividend or have a "yield" as such.

J

Jegersmart

You could take a look at this:

http://etf.stock-encyclopedia.com/category/commodity-etfs.html

Ark_Welder

gadgetmind wrote: »

As for growth versus income, there does seem to be the idea that income generating assets are better for when you need income, but I've never seen that myself. I'd rather hold whatever gives the best total return as capital gains can also be tax efficient.

The potential problem with relying on capital gains for income is volatility, i.e. the risk that assets will fall substantially in price just before a sale is required. I'm not thinking about yesterday's hiccup in some equities markets, more Japan's 7% fall yesterday, the 1987 crash, or even steady falls over a week or month. Does the individual sell at the lower prices? Or do they hang on hoping for a rise? If the latter, then for how long? Timing the market... Relying more on dividends/interest for income allows for a greater tolerance towards volatility in capital values. Potential volatility is also the main reason (only reason?) for gradually moving retirement-pot equities into bonds/bond-like assets as the date for retirement approaches - assuming that the pot will be used to purchase an annuity rather than drawdown.

If using capital gains for regular income is being considered then it might best be achieved using lower volatility assets. As an example: over certain timescales (but not all) the total returns from Personal Assets and Scottish Mortgage Trust can be shown to be similar. But the former has lower volatility than the latter. So PNL ought to be a better bet than SMT for this purpose because there should be a reduced chance of depleting capital at the wrong time due to the lower likelihood of a substantial fall just before the time of the sale.

But a different story when re-investing income now, and looking to take it some years down the line: in this case, the level of income being generated now should be less of a concern - if it is of any concern at all.

(I have holdings in both PNL and SMT).

d.white

Jegersmart wrote: »

A commodities-focused fund (tracking a basket of commodities prices) will not pay dividends or income. If you mean you want a fund or index that tracls a basked of equities operating in the commods markets then it is of course possible - although most of those funds do not pay a dividend or have a "yield" as such.

J

Yes I take your point.

I should clarify I was not looking for the commodities fund for yield, but to broaden my overall portfolio. But I cannot find a fund with a broad basket of commodities which is low cost.

Yield may apply more to the bonds part of my question. I want bonds or gilts to reduce the overall risk on my portfolio if equities suffer a severe or prolonged downturn (I am 100% UK and global equities), but I want to get a reasonable return on the bonds or gilts proportion of the portfolio.

I'm not sure whether to go for something like iShares Markit iBoxx GBP Corporate Bond ex-Financials (GBP) ISXF (3.76% yield).

gadgetmind

d.white wrote: »

I'm not sure whether to go for something like iShares Markit iBoxx GBP Corporate Bond ex-Financials (GBP) ISXF (3.76% yield).

I hold that ETF but didn't before reading the book I recommended.

Yes, this is a hint.