Moving from Growth to Income

ColdIron

Then your original plan has merit, although I'd put in a little more effort than just reading Money Observer If this is to be a bridge will the income be sufficient for 6 years? I am guessing so as you mention only using part of it

Audaxer

dunstonh wrote: »

Using gains is just as effective and with modern platforms offering cash accounts, you can take a fixed regular withdrawal from the cash account and just refloat it periodically from sale of units.

dunstonh, do you mean just the normal cash account within the S&S ISA that pays hardly any interest? I had planned to hold my cash buffer, apart from the cash set aside for platform fees, outside the S&S ISA in a higher interest current or savings account. Am I missing some advantage as regards a fixed withdrawal system from cash held within the ISA?

Truffle_Snuffler

ColdIron wrote: »

Then your original plan has merit, although I'd put in a little more effort than just reading Money Observer If this is to be a bridge will the income be sufficient for 6 years? I am guessing so as you mention only using part of it

I've moved to a part time job. The income would be to help support the loss of full time salary. I mentioned the Money Observer site as it was one of the first I came across but would do (much) more research before making any moves.

dunstonh

dunstonh, do you mean just the normal cash account within the S&S ISA that pays hardly any interest?

Yes.

Am I missing some advantage as regards a fixed withdrawal system from cash held within the ISA?

Fixed monthly withdrawal is easy to budget. Rather than having variable distribution dates and amounts. Keeping in 18-24 months worth of withdrawals in cash means you can plan the refloat.

You dont need to keep the cash inside the ISA. If you have good money control you could just made ad-hoc withdrawals periodically and put it in a savings account earning better interest and draw from that. So, from investments to savings. Savings to current account.

It is the total return that matters. Not whether it is income or growth.

BLB53

Personally I would stick with the VLS and just withdraw the income you need by selling units. The fund has grown by around 10% p.a on average over the past 7 years so it should be possible to take out £5K each year without damaging the capital value.

If you stick with VLS then think about transferring to Vanguard Investor which will save you £200 per year in platform charges.

Audaxer

BLB53 wrote: »

Personally I would stick with the VLS and just withdraw the income you need by selling units. The fund has grown by around 10% p.a on average over the past 7 years so it should be possible to take out £5K each year without damaging the capital value.

I agree about sticking with the VLS80 being a good option. However after such a long bull run I think hoping to draw out even 5% each year for the next 7 years without damaging the capital value is a bit optimistic. I hope I'm wrong about that.

Linton

Regarding income from dividends or income from growth, in my view it isnt either/or but rather both/and to provide diversification. The dividend income is a lot more stable than growth but you need growth as well to ensure you keep up with inflation. So I have three separate portfolios. One providing about 6% steady dividends but currently barely maintaining its value, the second is a growth portfolio with regular direct drawdown, and the third for Wealth Preservation and includes a cash buffer. Rebalancing beteween the three hopefully will provide a steady inlation linked income in good times and bad.

seacaitch

Audaxer wrote: »

IHowever after such a long bull run I think hoping to draw out even 5% each year for the next 7 years without damaging the capital value is a bit optimistic.

I don't think this point can be emphasised enough.

After a long good run enjoyed by an asset class, the tendency to extrapolate those good returns into the future can get ever stronger - but it's a mistake to do so.

At the beginning of this year, Vanguard themselves helpfully laid out the projected 10 year nominal returns from a model they use:
https://www.vanguardinvestor.co.uk/articles/latest-thoughts/markets-economy/why-investors-prepare-for-lower-returns

...and you can see the model had median 10yr projected returns of an 80/20 portfolio around ~4% nominal. With this year already having had a good start, a chunk of those 10yr return projections have already been enjoyed, leaving the projections for the remaining 9+ years even lower...

Don't become lulled into thinking the returns of the past 9 1/2 years, since the Mar-09 lows, are necessarily or even likely prologue for the next 9 years. Both equities and govt bonds have enjoyed very favourable markets since then, hence the stellar returns of portfolios since.

Also, don't become lulled into thinking that something like VLS80 is anything other than the sum of its parts (its portfolio holdings). It's not a magic box that can churn out great returns for ever more regardless of what markets do: it will simply deliver the returns of the underlying holdings, whether that be good, modest, or grim, and those underlying holdings are not going to be tactically adjusted to a changing environment. I'm sure most people here understand this, but perhaps some may not, and might have unrealistic expectations of what the future may have in store.

I'm not knocking VLS80 or funds like it, just trying to help ensure people's expectations are realistic so that when the tough times come - as they will - that they are prepared.

As to the main question: converting a growth-focused portfolio to an income-focused one on reaching retirement, that's not my preference and not what I would do or have done. But, each to their own: it's very important that each investor finds an approach that they believe in and are comfortable with, as opposed to simply mimicking what others do. This is especially important when markets turn downwards, to help ensure an investor doesn't panic out of a portfolio that they don't really believe in, thereby locking in losses.

The right time to question your approach is when times are good and you're relaxed, not when the !!!!!!'s hitting the fan and stress levels are high.

bostonerimus

When I was looking to span the gap between retirement and my DB pension starting I planned to do the following.

1) Put a couple of years of cash into my bank account
2) I stayed invested in simple equity and bond funds, no ITs or funds specifically marketed as "income".
3) Deposited quarterly dividends into a cash like account.
4) I looked at my spending every 3 months and decided whether I needed (or wanted) to sell anything
to top up the cash account. Sell in good times to take capital gains and hold tight in bad times to avoid selling at a loss.

..........rinse and repeat

Iain_For

One option for the total return approach that I intend to use, if you’re solely in VLS80, is to move it to Vanguard where you can set up regular withdrawals from selling units to generate a fixed monthly cash amount, i.e you don’t need to hold cash in the ISA (CSD may offer this as well, not sure). If you’ve more than one fund you can set up a withdrawal strategy, e.g. evenly across funds, from cash, or from a particular split of funds. Obviously you’d end up selling more units in months when markets fall, sort of pound cost averaging in reverse.

I should add that I also hold a cash cushion outside of the ISA equivalent to several years income requirements as a mitigation of sequence of return risk as I approach retirement next year.