Portfolio advice and income

paparish

I am planning for retirement soon (age 55) and need to plan my investments for income. I have saved for many years and am now mortgage free and have put my savings in both equities and property.

My ISA, SIPP, and investments total about £1m (£400,000 in equity trackers and £600,000 in buy to let properties). My equities investments are all tracker funds, 50% UK FTSE, 40% Developed World indexes, and about 5% each Emerging Markets and Commodities. Dividends are reinvested and my portfolio is averaging about 6% growth p.a.

My BTL gives me an income of just over 2% of the equity value of the properties, so about £12,000 p.a. There is also the capital appreciation which is quite significant - £70,000 last 12 months! - although I can't convert this into income unless I sell so I will need to start drawing down income from the £400,000 portfolio of equities investments.

I know I should consider the effect of inflation on the total size of the portfolio, so I cannot withdraw all gains every year. Can anyone suggest the maximum rate of withdrawal I can take while letting the fund size keep up with inflation? Also is a return of around 6% p.a. on an equity portfolio OK or should I be aiming for more?

I would also like to know what kind of fee an IFA would charge for offering an opinion on my choice of asset allocation and investment returns. I would not be looking for anyone to actively manage my investments as I prefer to DIY and just rebalance it when necessary.

gadgetmind

Do yourself (or spouse?) have any other sources of income?

gadgetmind

Do you really have no bonds in your investment portfolios? If not, is that deliberate?

And have you taken PCLS yet?

paparish

After retiring I will have some small self employed income of about £5000 a year. No I have not taken the lump sum from my SIPP yet but this is an option.

paparish

gadgetmind wrote: »

Do you really have no bonds in your investment portfolios? If not, is that deliberate?

And have you taken PCLS yet?

I went for equities as bonds seem to consistently return less and my risk tolerance was high. If I had diluted my portfolio with bonds I imagine my returns would be even less than 6%. But as I ask in the OP I'd be interested to hear opinions about whether I am getting a respectable growth or if it is reasonable to expect more.

gadgetmind

The problem with not having bonds is that you'll have to back off what you draw from your investments during bad years or you risk depleting your portfolio.

"Smarter Investing" by Tim Hale has plenty of tables showing this and you can also play with Firecalc.

A rule of thumb is 4% per year (rising with inflation) can be drawn from a portfolio of equities and bonds, but slightly less is safer.

bigadaj

Whilst you've doen well with capital appreciation then the yield on that property portfolio is tiny.

If you sell you may well be subject to cgt, though this depends on the property values, purchase price etc., but you have your annual limit as well as lettings relief. Alternatively might it be worth looking at a Mortgage on the buy to lets, as this would benefit from an element of tax relief, again dependent on your returns and original purchase price.

As you're no doubt aware the ifa won't look at your property assets or income so that leads to the question of how to manage asset allocation in totality.

Totton

6% equity return is reasonable imho, perhaps even a little conservative but that all depends on how much risk you take and whether your bravery is rewarded :-) You would probably have gotten more ever the last 12 months and significantly more over the last 24 months, the period before that maybe less so.

Taking 4% out per year is the old suggestion, more recently I have seen 3% offered as the safer bet due to low interest rates and probably market volatility. I'd look at it along the lines of 4% would give you 25 years before you run out if there was no growth, so add in your growth forecast each year to see what you would have left after 25 years, it's all speculative but who knows for sure what will happen.

I would suggest that taking 3% and adding that to your 2% BTL income may be enough to live on quite easily.

paparish

bigadaj wrote: »

Whilst you've doen well with capital appreciation then the yield on that property portfolio is tiny.

By what yardstick is this considered a tiny yield? I think it is realistic for property with strong capital appreciation (not short leases or less desirable locations). Also I always ignore the usual 'rental yield' figures quoted of 6%+ - these are nonsense as they are are the gross rents received and ignore all costs and expenses. In order to compare the actual benefit I receive compared to my equities investments, I have subtracted all costs incurred and this is the amount of profit.

paparish

Totton wrote: »

6% equity return is reasonable imho, perhaps even a little conservative but that all depends on how much risk you take and whether your bravery is rewarded :-)

I thought my asset allocation was anything but conservative - 100% equities (50% UK FTSE, 40% Developed World indexes, and about 5% each Emerging Markets and Commodities.) Within this about 10% is allocated to Small and Value equities. I am not sure how I could change this allocation for more growth?

jimjames

paparish wrote: »

I thought my asset allocation was anything but conservative - 100% equities (50% UK FTSE, 40% Developed World indexes, and about 5% each Emerging Markets and Commodities.) Within this about 10% is allocated to Small and Value equities. I am not sure how I could change this allocation for more growth?

I'm not sure the reference was that your asset allocation was conservative - more than your expected returns were on the low side and you could expect a higher amount based on 100% equity - but equally some years with bigger losses. But it is far better to have lower expectations of your returns than to be disappointed that you didn't get 20%.

I also have close to 100% equity so I'd think your allocation was ok.