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Portfolio advice and income

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  • Your_Hero
    Your_Hero Posts: 883 Forumite
    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?

    Agreed with jimjames. Whilst 6% p.a. seems reasonable, it's all relative to the risk you take. For 100% allocation in equities I would say this may be on the low side.

    A 2% rental yield is on the low side for property lets but of course the capital appreciation does make up for this. Ignoring the capital appreciation (because property price doesn't always go up every year), are you happy with a 2% return (pre-tax profit) on your money?
    Stephen Covey once said that "when you teach once, you learn twice". That is the primary reason for my participation on the forums as an IFA.

    Although I strive to provide accurate information in my posts, there may be the odd time when I fail. Yes I know it's hard to believe but even Your Hero can make mistakes. Apologies in advance.
  • paparish
    paparish Posts: 9 Forumite
    Your_Hero wrote: »
    Agreed with jimjames. Whilst 6% p.a. seems reasonable, it's all relative to the risk you take. For 100% allocation in equities I would say this may be on the low side.

    A 2% rental yield is on the low side for property lets but of course the capital appreciation does make up for this. Ignoring the capital appreciation (because property price doesn't always go up every year), are you happy with a 2% return (pre-tax profit) on your money?

    For me the lower return on property is acceptable because:

    1. Properties still yield an income regardless of the overall price of the property - i.e. rental income continue even when house prices decline.

    2. Property does not tend to give the roller-coaster ride that equities do. Even the house price 'crashes' are a decline over many months allowing a bail out (if that's your choice) at least one a year at the end of a tenancy. With 2 or more BTL properties, you are never more than 3-4 months away from being able to sell part of your property 'empire' if you want. Trends in property tend to play out over many months or a a couple of years. Equities by comparison can drop 10% in a day and market timing is pointless.
    3. Property also gives some degree of protection against rampant inflation.

    I see the property as a stable income and a lower-risk balance to my equities investment.

    So I'm happy with 2% return so long as my equities investments can average around 4% above inflation - my question is whether this rate of return is realistic? My logic is that if I can withdraw an income of around 4% p.a. from my equities portfolio, without reducing the amount retained relative to inflation, then I would hope to be OK.
  • vectistim
    vectistim Posts: 635 Forumite
    Part of the Furniture
    A 2% return on £600,000 worth of property is really quite abysmal, bearing in mind CGT issues I'd be looking at rebuilding the portfolio to get at least a pre-tax 4% income (so gross yield 5-6% min)
    IANAL etc.
  • If you've gone for mostly large cap companies in your portfolio then 6% is close to what I'd expect.
  • Daniel54
    Daniel54 Posts: 836 Forumite
    Part of the Furniture 500 Posts Name Dropper
    I would be thinking seriously of selling a BTL and maximising pension contributions while I still had the earned income for full tax relief
  • paparish
    paparish Posts: 9 Forumite
    Daniel54 wrote: »
    I would be thinking seriously of selling a BTL and maximising pension contributions while I still had the earned income for full tax relief

    I didn't understand this but I'm sure it's interesting. What's the advantage of me selling a BTL in terms of pension contributions and tax relief?
  • Daniel54
    Daniel54 Posts: 836 Forumite
    Part of the Furniture 500 Posts Name Dropper
    Pension tax relief avaialble on your earned income the year the pension contribtions are made

    Maximum annual contribution £40k including basic rate tax relief ( if any relief at 40% ,the balance paid back in cash through your self assessment

    You can go back three years to bring forward unused annual allowances,but again never more than your earned income in the year the contributions are made

    Use capital from the BTL to augment/replace the income put into the pension

    ( this is in a nutshell and I'm happy to be corrected)

    Advantages of going this route and selling a BTL in my opinion would be:

    Effectively capital from the BTL has been put into a tax wrapper where reinvested income and capital growth are tax free

    The government has increased the capital through tax relief

    The 25% PCLS wholly or partially offsets the CGT paid on sale

    You can make partial withdrawals of the capital,if needed ( not possible with a BTL)

    Just a thought and obviously depends on your individual circumstances
  • pip895
    pip895 Posts: 1,178 Forumite
    Tenth Anniversary 1,000 Posts Combo Breaker
    Another vote in principal for transferring some of the BTL into pension contribution if it is feasible. 2% doesn't seem great - my own BTL returns are closer to 4% pre tax.


    Personally I wouldn't be banking on much future capital appreciation and I am also concerned about noises coming from government and particularly the opposition with regard to "greedy" landlords etc. and what that might translate to.
  • paparish
    paparish Posts: 9 Forumite
    Daniel54 wrote: »
    Pension tax relief avaialble on your earned income the year the pension contribtions are made

    Maximum annual contribution £40k including basic rate tax relief ( if any relief at 40% ,the balance paid back in cash through your self assessment

    You can go back three years to bring forward unused annual allowances,but again never more than your earned income in the year the contributions are made

    Use capital from the BTL to augment/replace the income put into the pension

    ( this is in a nutshell and I'm happy to be corrected)

    Advantages of going this route and selling a BTL in my opinion would be:

    Effectively capital from the BTL has been put into a tax wrapper where reinvested income and capital growth are tax free

    The government has increased the capital through tax relief

    The 25% PCLS wholly or partially offsets the CGT paid on sale

    You can make partial withdrawals of the capital,if needed ( not possible with a BTL)

    Just a thought and obviously depends on your individual circumstances

    Thank you.
  • paparish
    paparish Posts: 9 Forumite
    pip895 wrote: »
    Another vote in principal for transferring some of the BTL into pension contribution if it is feasible. 2% doesn't seem great - my own BTL returns are closer to 4% pre tax.


    Personally I wouldn't be banking on much future capital appreciation and I am also concerned about noises coming from government and particularly the opposition with regard to "greedy" landlords etc. and what that might translate to.

    Thank you.
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