SIPP - which fund to sell to replenish cash?

bostonerimus

johnsmith1890 wrote: »

Thanks guys for your thoughts. Mulling over the various possibilities, I'd be a bit nervous with just two funds. At least one, probably both, would have to be low/very low risk. At the moment I've got quite a good spread, with the FTSE Tracker, Vanguard Life, CS High Income, Asia shares, US shares, Small Co.s, Fundsmith and RL Bonds. But, I know it is a common school of thought to have just a few funds. Maybe I do need to drop from eight; I'll keep it under review. I'm tending towards selling a chunk of the only fund that's currently in profit - Fundsmith, but a few of the funds are close to breaking even (the US shares was even in positive territory a few days ago), so I might just sell bits of those funds.


On the subject of Acc funds, does anyone know how dividend payments are normally represented in the fund holdings?

I get the feeling that you don't actually have a target asset allocation and have a grab bag of funds that you think is diversified. There's a lot of redundancy in you fund choices so I would probably take a step back and design a portfolio that is simpler, composed of income funds so you can take all your dividends rather than being so dependent on total return. You are just guessing right now rather than following a plan; a simple rebalancing strategy is one that saves a lot of worry.

FYI regarding number of funds, I have the vast majority of my retirement money in 3 funds; a US equity index, an international equity index and a US bond index....I live in the US and have a domestic bias. One ridiculously easy solution is to use a single multi-asset fund. That will be diverse, it will automatically rebalance and you can just sell a bit whenever you need cash, job done!

[Deleted User]

Thanks again for the input. Some of the points mentioned.


CGT is not an issue.
My intention was to have a 60:40 split equity/bond and at the moment it's about that (38% bonds). I take the point about the Vanguard fund:


https://www.charles-stanley-direct.co.uk/ViewFund?sedol=B3TYHH9


It is very wide, but unfortunately I can't drill down to the lowest level, so a website that does would be great, especially if, as suggested you could also look at overlaps.


So maybe the consensus is fewer funds, which should have a wide - global - spread, and use Inc funds instead of Acc. As it stands, if all the funds were Inc, and the yields were about the same as the three Inc funds I have at the moment, they would deliver dividends that should fund half my salary (monthly pension payments). However, a bit of a rework is required to get to this. Question is, could I do this while still maintaining 60:40? I guess not. Anyway, plenty to think about ….

bostonerimus

Of course you can maintain 60/40, you can maintain any asset allocation you like. Just set a timetable for your withdrawals and selll and transfer things to keep you on track.

AnotherJoe

johnsmith1890 wrote: »

Question is, could I do this while still maintaining 60:40? I guess not.

Why ever not?

[Deleted User]

My thinking was that the funds delivering the highest yields, at least the ones I've got, are the bond funds. Therefore to obtain similar yields from other funds, these other funds are more likely to be bonds, so I would need to adjust the 60:40 split, more in favour of the bonds - 30:70 or 20:80 perhaps.

EdSwippet

johnsmith1890 wrote: »

My thinking was that the funds delivering the highest yields, at least the ones I've got, are the bond funds. Therefore to obtain similar yields from other funds, these other funds are more likely to be bonds, so I would need to adjust the 60:40 split, more in favour of the bonds - 30:70 or 20:80 perhaps.

Maybe read this series of Vanguard articles on 'total return' investing:

https://www.vanguardinvestor.co.uk/articles/latest-thoughts/investing-success/investing-for-income-types-of-income
https://www.vanguardinvestor.co.uk/articles/latest-thoughts/investing-success/investing-for-income-not-income-but-total-return
https://www.vanguardinvestor.co.uk/articles/latest-thoughts/investing-success/investing-for-income-the-risks-of-chasing-yield
https://www.vanguardinvestor.co.uk/articles/latest-thoughts/investing-success/investing-for-income-types-of-income

Spoiler extract:

The traditional route many investors have taken when managing a portfolio for income has been to buy a number of UK equity income funds (UK-focused funds that are designed to pay a high dividend) and balance this with some fixed interest to reduce the risk and top the income up. The idea here is that the income from these combined investments can then be spent and the investments will be left to grow.

However, at Vanguard we believe this is the wrong approach for most people. In fact, despite the title of this series, the whole concept of investing for income is flawed. Let's see why. ...

Prism

johnsmith1890 wrote: »

My thinking was that the funds delivering the highest yields, at least the ones I've got, are the bond funds. Therefore to obtain similar yields from other funds, these other funds are more likely to be bonds, so I would need to adjust the 60:40 split, more in favour of the bonds - 30:70 or 20:80 perhaps.

That will be because with bonds the primary force behind their returns is the yield (or interest). With equities yield typically takes a back seat to company growth or in some cases recovery.

bostonerimus

johnsmith1890 wrote: »

My thinking was that the funds delivering the highest yields, at least the ones I've got, are the bond funds. Therefore to obtain similar yields from other funds, these other funds are more likely to be bonds, so I would need to adjust the 60:40 split, more in favour of the bonds - 30:70 or 20:80 perhaps.

You need to understand the basics of investing for income and how the various strategies mesh with your personal circumstances. At one end might be an annuity and at the other an equity heavy portfolio invested for total return. In between there are various combinations of savings, equity, bonds, rental property etc etc.

sheslookinhot

Can you add some cash on an "as required" basis ?

AnotherJoe

johnsmith1890 wrote: »

My thinking was that the funds delivering the highest yields, at least the ones I've got, are the bond funds. Therefore to obtain similar yields from other funds, these other funds are more likely to be bonds, so I would need to adjust the 60:40 split, more in favour of the bonds - 30:70 or 20:80 perhaps.

I'd say this is a poor approach, because you will lower your overall income by focusing so much on income from bonds.
Set your allocation, which should be decided on the basis of your risk level, not your income level.
And then use the "natural income" from both bonds and equities, (plus selling off either bonds or equities if needed to get to your desired level of income), and then over the year or whatever period you choose, sell or buy equities/bonds to re-balance.

I suspect the flaw in your thinking is you believe that you need to use just income from either bonds or equities with income, to produce your income, rather than also selling off bonds or equities. You wrote "the funds delivering the highest yields" but thats looking at only one component of overall growth.
Whats better, a fund that yields 5% in dividends and 1% in growth, or a fund that yields 1% in dividends and 10% in growth? Because funds that focus on income tend to have lower overall total growth than those that arent restricted by having to focus on immediate and predictable yield.