£10,000 a year from 10 shares?

bowlhead99

You're right that the numbers are not using today's prices. Looking at GSK and Billiton prices it seems they're using figures close to year end values (i.e. maybe a pound or so cheaper than today, even though the articles in moneywise and money observer only got published last week). And obviously "prospective" dividend yield is only going to be a guess anyway.

So, not a portfolio you are actually expected to copy. The purpose of the article is presumably just to give an example to show how in practice an investor can use equities to get income.

Fwiw, the money observer rag they linked to also has a similar article but using investment trusts. In that case they use 10 trusts with total price of £245k to get their £10k. Most of the trusts are on premiums which may of course unwind while you're getting the income, which they acknowledge (e.g. Murray intl, over 7%...). Again they were using 1 Jan prices. I must admit to not reading the article in full as I know how investing works anyway!

adindas

Yes and with investment the current value of your investment could also fall much far below the original book value that you had paid.

Not to mention pump and dumb, insider trading which is very well documented.

Lets hope you do not loose more than 50% of the book value of your investment when you want to cash it. I lost 45% of the book value when I have to cash it during credit crunch. Lesson learned ... ....

gadgetmind wrote: »

No, not really. If you're talking about interest from cash savings, or a fixed interest bond, then the interest received won't rise and then value of the capital will slowly fall due to inflation.

Yield from dividends rises over time, usually at greater than the rate of inflation (but this depends on mix of income/growth companies) and the value of your capital will also grown, albeit in a rather "lumpy" way.

Over long (multi-decade) periods, fixed interest alone can't deliver the goods.

Aged

bowlhead99 wrote: »

So, not a portfolio you are actually expected to copy. The purpose of the article is presumably just to give an example to show how in practice an investor can use equities to get income.

Exactly. Due to the widespread shift to money purchase schemes, many ordinary people are now facing retirement with a 'pension' in the form of a pot of money that they will have to invest to provide themselves with an income. Many of these people are in for a shock when they realise just how little their capital will earn them if they keep it in savings accounts like the pensioners of yesteryear did with their 'lump sums', when interest rates were much higher. A lot of them will also be very reluctant to expose their pension savings to risk by getting involved in equities and such like. I'd like to see more articles like this that provide examples and comparisons and make people think. Knowledge is power

gadgetmind

Aged wrote: »

Many of these people are in for a shock when they realise just how little their capital will earn them if they keep it in savings accounts

A shock? So the fact that neither cash, nor fixed interest, can generate a rising income stream is a surprise? Really?

And they are also shocked that savings accounts are currently paying low rates of interest?

Some people are easily shocked.

Aged

gadgetmind wrote: »

A shock? So the fact that neither cash, nor fixed interest, can generate a rising income stream is a surprise? Really?

And they are also shocked that savings accounts are currently paying low rates of interest?

Some people are easily shocked.

Yes! The vast majority of ordinary, hard working people don't have much of an opportunity to save during their lives - this is all new to them. They assume that the pension pot they have diligently accumulated over their working lives will be enough to see them through, and in many cases it isn't. Don't you get that? Really?

gadgetmind

Aged wrote: »

They assume that the pension pot they have diligently accumulated over their working lives will be enough to see them through

It might be or it might not be. If depends on how much they have accumulated and how they choose to deploy it.

Rather than just assuming, many people research and consider. If others don't, well I guess that's their decision. But if they claim the "shock" is something that couldn't have been predicted, well, sympathy shortage ahead.

coyrls

Aged wrote: »

Yes! The vast majority of ordinary, hard working people don't have much of an opportunity to save during their lives - this is all new to them. They assume that the pension pot they have diligently accumulated over their working lives will be enough to see them through, and in many cases it isn't. Don't you get that? Really?

Good to see the "ordinary hard working people" make an appearance again and for that matter "the vast majority".

bowlhead99

Aged wrote: »

Yes! The vast majority of ordinary, hard working people don't have much of an opportunity to save during their lives - this is all new to them. They assume that the pension pot they have diligently accumulated over their working lives will be enough to see them through, and in many cases it isn't. Don't you get that? Really?

I agree with gadgetmind that someone who hasn't engaged in any retirement planning, should have.

But yes I do see your point. People who have diligently accumulated a large pot of investments over their working lives should have enough to see them through. The problem is that many, i.e. millions, of people don't understand finance. Even without a knowledge barrier, half the people in the country have below average intelligence. So, not everyone is going to have made knowledgeable, smart decisions.

Some of those people may well have diligently accumulated a large pot which should see them through if invested wisely. Let it keep growing, drawing down the minimum of what you need, or perhaps buy a guaranteed annuity so that they keep getting cash year after year, or perhaps a combination, and they would be fine, The risk is that plenty of people (who are not the relative experts who spend their time on MSE) will think 'I don't trust banks and finance companies, I would rather manage it myself, and by 'manage' they mean stick it under the mattress or in a bank account or in a bond paying fixed interest with no inflation link.

These people will take a reasonable sum of money that could last for retirement and destroy it because they heard that their parents or grandparents retired and 'lived off their savings': you put the money in a bank and the bank pays you money for keeping it there, right?

The difference is how long people are likely to live (longer), how much defined benefit pension they have coming in (generally lower), how much interest rate premium over inflation they can find at banks (zero or negative in the long long term, as opposed to some short favourable timespans that have occurred in the past that might colour their expectations).

It's clear that people should 'research and consider' and if some don't, that's their problem (as per Gadgetmind). But there can be absolutely no doubt that some people will not have researched and considered wisely, and are therefore in for a shock (as per Aged).

Sure, it is their fault that they are shocked. But they are still shocked. Unlike Gadget, they do not all have the experience and financial / commercial sense that comes from working at senior management level in a range of companies, and they don't have the same size pot that comes from maxing ISA and pension contributions every year. It may be a cliche to talk about 'the vast majority' and 'ordinary hard working people' but the ordinary people on ordinary average salaries with ordinary average levels of intelligence and knowledge of finance, are typically less equipped for retirement than the smartest of posters on an investments forum.

No denying that they should go and get themselves equipped but certainly no denying that they exist.

IronWolf

a portfolio of 10 shares is way too risky for your average man on the street. For a portfolio of that size you need to do thorough due diligence on the companies and have confidence in their future. Something beyond Joe Public.

When interest rates start to rise I think there are a lot of investors focusing just on dividend yield as an alternative to savings that are in for a rude awakening when they realise capital losses can quickly and easily wipe out the dividends they've got over the last few years

gadgetmind

bowlhead99 wrote: »

there can be absolutely no doubt that some people will not have researched and considered wisely, and are therefore in for a shock (as per Aged).

I guess I just hate surprises, hence me reading the road ahead. Others can't see beyond the end of their noses, and therefore end up reacting to events at the last second in an instinctive way rather than taking a long-term reasoned approach.

Maybe it would be better if the world was kind even to short sighted people, but there's only so much you can do to protect people from themselves.