Cautious multi asset income fund recommendations

smjxm09

I have an existing multi asset income fund https://www.trustnet.com/factsheets/o/jsqp/fidelity-multi-asset-income-n-inc that I am quite happy that I picked myself but I seek 3 more similar products. I am looking for funds that don't charge an initial fee and have reasonable fees. Two funds would need to accept ISA transfers. I am looking for a growth rate between 4%-6% over the long term and seek to take the natural yield only.

At the moment my IFA seems to have dropped a clanger as I have a major investment with a PRU Cautious Smoothed Fund with life insurance attached. It was sold on the understanding that I would need to take a 3% income from it but was told with the EGR rate around 5.5% this would be fine. What I have since found out by digging around is that the 3% income it taken by selling 3% of my units each year. After 20 years and allowing for fees I would be left with just 13% of my income producing units. Seems my IFA was not aware of that so he has gone away to seek further advice but I am now suffering from a major lack of trust.

masonic

An example would be L&G Multi Index Income 4 with a yield of 3.6% and annual management charge (OCF) of 0.35%. It's 3-year performance volatility is closely in line with the considerably more expensive Fidelity fund you mention above.

Of course the yield is variable so no guarantees it would stay above 3%.

If the growth of the Pru fund exceeds 3% and it is accumulative, then I don't understand your aversion to selling units to release part of that growth so the fund would only grow at 2.5% per year instead of 5.5%. Or are you saying that the 5.5% growth rate has not been achieved?

Alexland

Given current market valuations and growth prospects then I very much doubt 4-6% growth will be possible from a cautious portfolio. It's looking hard to get that out of an adventurous portfolio and then there is inflation and fees to consider.

A_T

If you're looking to take natural yield only then you're going to struggle see your principal grow much

dunstonh

At the moment my IFA seems to have dropped a clanger as I have a major investment with a PRU Cautious Smoothed Fund with life insurance attached. It was sold on the understanding that I would need to take a 3% income from it but was told with the EGR rate around 5.5% this would be fine. What I have since found out by digging around is that the 3% income it taken by selling 3% of my units each year.

What is wrong with that?

After 20 years and allowing for fees I would be left with just 13% of my income producing units.

No you wouldnt.

Seems my IFA was not aware of that so he has gone away to seek further advice but I am now suffering from a major lack of trust.

Of course your IFA was aware of it. This is exactly how it is meant to work.

I wonder if they have gone away to decide how to get to explain it to you in a way you understand. Especially if you went in all guns blazing or said things similar to what you have in your post.

There are multiple ways to provide monthly withdrawals. Natural yield (although income will be variable and may not match your frequency) and total return. Pru uses total return. So, as long as you draw less than the total return, your capital will not fall in value.

And btw, if you look at UT/OEIC funds held on platform then you are still going to have charges which would be paid out of sale of units unless you reduce the amount of yield you take or keep topping up the cash account from personal funds.

smjxm09

masonic wrote: »

An example would be L&G Multi Index Income 4 with a yield of 3.6% and annual management charge (OCF) of 0.35%. It's 3-year performance volatility is closely in line with the considerably more expensive Fidelity fund you mention above.

Of course the yield is variable so no guarantees it would stay above 3%.

If the growth of the Pru fund exceeds 3% and it is accumulative, then I don't understand your aversion to selling units to release part of that growth so the fund would only grow at 2.5% per year instead of 5.5%. Or are you saying that the 5.5% growth rate has not been achieved?

The issue is that I did hold 62,000 units now it is around 59,000 units. By selling 3% of the units each year to give me an income eventually after around 24 years including fees which is taken by selling units I will have one unit left that would need to be worth £100,000 rather than £1.70 and then that unit will be sold and I will have no units to earn me any income and I will have used up all the capital sum invested.

Linton

smjxm09 wrote: »

I have an existing multi asset income fund https://www.trustnet.com/factsheets/o/jsqp/fidelity-multi-asset-income-n-inc that I am quite happy that I picked myself but I seek 3 more similar products. I am looking for funds that don't charge an initial fee and have reasonable fees. Two funds would need to accept ISA transfers. I am looking for a growth rate between 4%-6% over the long term and seek to take the natural yield only.

At the moment my IFA seems to have dropped a clanger as I have a major investment with a PRU Cautious Smoothed Fund with life insurance attached. It was sold on the understanding that I would need to take a 3% income from it but was told with the EGR rate around 5.5% this would be fine. What I have since found out by digging around is that the 3% income it taken by selling 3% of my units each year. After 20 years and allowing for fees I would be left with just 13% of my income producing units. Seems my IFA was not aware of that so he has gone away to seek further advice but I am now suffering from a major lack of trust.

I dont think your IFA has dropped a clanger.....
1) Normally when people are talking about % drawdown they mean as a % of the initial pot often increasing with inflation.
2) I think your maths is wrong - if you do sell off 3% of your units every year after 20 years you will be left with 97%^20=55% of your units. Dont forget that the 3% is a percentage of a decreasing number of units. But each unit increasing at 5%/year will be worth 2.6 times its current value.

dunstonh

The issue is that I did hold 62,000 units now it is around 59,000 units.

And what was the unit price when you held 62,000 units and what is the unit price at 59,000 units?

What is the answer to the following two sums?
5x4 = ?
4x5 = ?

By selling 3% of the units each year to give me an income eventually after around 24 years including fees which is taken by selling units I will have one unit left that would need to be worth £100,000 rather than £1.70 and then that unit will be sold and I will have no units to earn me any income and I will have used up all the capital sum invested.

That is an incorrect assumption and it does not work that way.

Think of it like a bank account. If the bank account balance is £150,000 and you draw out £300 that month. The value falls to £149,700. However, over the month, the investment return could take it to £150,100

The only way the money can fall in value or run out is if you draw more than it makes.

Over time, the unit count falls but the unit price rises. So, you end up with this 5x4 4x5 situation. Or if your draw rate is not excessive, 4x6.

masonic

smjxm09 wrote: »

The issue is that I did hold 62,000 units now it is around 59,000 units. By selling 3% of the units each year to give me an income eventually after around 24 years including fees which is taken by selling units I will have one unit left that would need to be worth £100,000 rather than £1.70 and then that unit will be sold and I will have no units to earn me any income and I will have used up all the capital sum invested.

Your calculations are plain wrong!

If you start with 62,000 units and sell 3% per year plus 2% per year to cover fees (I'm overestimating), after 24 years you will have 19,056 units.

If the units increase in value by 5.5% per year, the 19,056 units will be worth 5% more than you paid for the 62,000 units. So if you paid £62,000 for the 62,000 units, you'd end up with 19,056 units worth £65,000. Of course, it is unlikely you're being charged as much as 2% per year as a custody charge for the investment, so you'll likely be better off than that.

So, I'll restate my question...

If the growth of the Pru fund exceeds 3% and it is accumulative, then I don't understand your aversion to selling units to release part of that growth so the fund would only grow at 2.5% per year instead of 5.5%. Or are you saying that the 5.5% growth rate has not been achieved?

Linton

Looking at things the other way round - for your number of units to drop from 100% to 13% in 20 years you would need to be selling about 9.5% every year. Are your fees really that high?.

bostonerimus

smjxm09 wrote: »

The issue is that I did hold 62,000 units now it is around 59,000 units. By selling 3% of the units each year to give me an income eventually after around 24 years including fees which is taken by selling units I will have one unit left that would need to be worth £100,000 rather than £1.70 and then that unit will be sold and I will have no units to earn me any income and I will have used up all the capital sum invested.

You've got three potential sources of income; divindeds/interest, capital gains and you can also spend some capital. Very few people can retire on just dividends/income and the ones that can have a large pension pot and low income needs. If you concentrate on dividends at the expense of capital gains you will probably have a poorer retirement than if you used a more balanced approach. This then leads me to question your current asset allocation and the amount of cash and short term bonds you hold for down markets. Given your aversion to a total return income approach have you considered buying an annuity with some of your money, that way you are guaranteed not to run out of money.