Is this pound cost ravaging?

Eco_Miser

Thrugelmir wrote: »

If the investment is long term then you should be reinvesting the income. Otherwise you may well be disappointed with the return.

That does depend on the objective of the investment.
For instance I hope to be invested for another 30+ years, but I want the income now (and for those 30+ years), and I'm not really bothered about the remaining value when I'm dead.

Linton

smjxm09 wrote: »

No I am not worried about a drop as I am well aware about this being a medium to long term investment but I just wanted to get a better understanding. Even though this is a long term investment I do need to draw an income again in the coming months although I could put this day off for a while.


So this is what I understood when I made my investment, which seems what most of you are all saying. Basically there are two parts to my Fidelity investment which is the variable monthly income and the unit buying/ selling price. As the income comes from natural yield I would not suffer from !!!8220;pound cost ravaging!!!8221; even if the total return of income when added to the latest unit price shows me making a paper loss at the moment. The unit price, which has dropped, would only have an impact on me if I sold the units now which won!!!8217;t happen as this is a long term investment. Because the unit price is dropping this would be a good time to re-invest the income to buy more units which is happening now.

Does that summarise everything nicely or have I missed something. I suppose in an ideal world over time the unit price would gradually increase with inflation so the value of the capital sum invested would remain the same.

Your understanding is basically correct. However there is the risk that the fund manager may invest in underlying shares/bonds whose high return is accompanied by high risk which could result in capital loss. Also the manager's charges will impose a small but continuous load on the capital value. One would expect that the managers skills and the multi asset nature of the fund will ensure that these factors are more than outweighed by growth in other fund assets over the long term.

So you should check that the capital value is varying or rising rather than steadily losing value over time. Topping up the funds in an income portfolio may be desirable occasionally - what I do is to separately maintain an income portfolio and a growth portfolio and balance between the two perhaps once a year. You could also use this approach to ensure that the income rises with inflation.