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Why dividends in retirement and not sell stock?

edited 30 November -1 at 1:00AM in Savings & Investments
35 replies 3.3K views
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  • bowlhead99bowlhead99 Forumite
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    Sally57 wrote: »
    cogito wrote: »
    Or Finsbury Growth & Income IT? Some similar holdings.
    It's common for funds with an equity income objective to have some similar holdings. However, FinsburyGT's strategy is to be principally invested in UK stock market listed companies, while Evenlode's Global Income is taking exposure to global stocks in the search for the risk/return and dividend profile it wants.
  • AudaxerAudaxer Forumite
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    EdSwippet wrote: »
    I have trouble seeing how that view makes sense. Getting some of your money returned to you in short order as a dividend is not a bonus. In fact, it's worse than a bonus if that return of capital is now miraculously transformed into taxable income.
    My investments are all in a S&S ISA so thankfully that's not a problem.
  • bostonerimusbostonerimus Forumite
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    Generally it seems recommended to move to dividend paying investments in retirement.

    That's very old thinking. A total return strategy that includes interest, dividends and capital gains is popular today.
    Misanthrope in search of similar for mutual loathing
  • AudaxerAudaxer Forumite
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    ColdIron wrote: »
    I'm retired and have about 6 years until my state pension kicks in so all my income is now from my dividends and some savings. Between my SIPP and a GIA I generate about £18k pa which covers all my bills and usual discretionary spending. The payments are steady and reliable and require no effort on my part.
    ColdIron, I'd be interested to know what approximate equity/bond percentages you have in your income portfolio. My income portfolio includes about 35% of bond funds (mainly strategic and global bond funds) which I think are good defensive assets, but I wonder whether they can sustain growing dividends over the long term like good equity income funds or ITs can. I'd be interested in your view.
  • ThrugelmirThrugelmir Forumite
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    Aminatidi wrote: »
    Just to highlight a timely example of why dividends might be viewed as paying yourself.

    This week I purchased a bunch of shares in Capital Gearing Trust.

    I hadn't realised I'd done so the day before the XD date.

    The next day was the XD day and the share price dropped around 1% to allow for the dividend and I was £300 down on something I'd only purchased the day before.

    In a month or so I'll get the dividend.

    But it's basically part liquidation of my holding in the trust and if I choose to reinvest it will cost me more money to do so in (small) dealing fees and stamp duty.

    That feels a bit like paying twice so personally I'd be much happier with no dividend and simply grow the pot.

    Buy shares when they have gone XD. As XD announcements coincide with the release of financial information. Resulting in the share prices reflecting this.
    “Buy value, not market trends or the economic outlook. Individual stocks determine the market, not vica versa." - Sir John Templeton
  • LintonLinton Forumite
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    Audaxer wrote: »
    ColdIron, I'd be interested to know what approximate equity/bond percentages you have in your income portfolio. My income portfolio includes about 35% of bond funds (mainly strategic and global bond funds) which I think are good defensive assets, but I wonder whether they can sustain growing dividends over the long term like good equity income funds or ITs can. I'd be interested in your view.

    Ok, I am not Coldiron, but we do appear to have similar strategies, so I will give an answer...
    In my income portfolio there is a 50/50 equity bond (mainly corporate and em bonds) ratio. Bonds by their very nature cannot provide sustainable growing returns unless some of the interest is reinvested. However I take the view that if one needs extra return to provide inflation linking that is best achieved by the use of a growth portfolio rather than taking some of the income from the income focussed investments. Use a growth portfolio purely for growth and an income portfolio purely for income, they are each optimised for their respective objectives and perhaps pretty poor for anything else.
    Growth of the income portfolio usually happens naturally as part of the annual rebalance.
  • ColdIronColdIron Forumite
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    Audaxer wrote: »
    ColdIron, I'd be interested to know what approximate equity/bond percentages you have in your income portfolio. My income portfolio includes about 35% of bond funds (mainly strategic and global bond funds) which I think are good defensive assets, but I wonder whether they can sustain growing dividends over the long term like good equity income funds or ITs can. I'd be interested in your view.
    My income GIA contains investment trusts only so there isn't much in the way of regular bond funds available. I have some high yield bonds along with property. The non equity proportion is currently 22.7%. I shall be very surprised if the HY bonds achieve any capital or dividend growth at all over time and not much in the way of downside protection either but that's not their job here

    The SIPP is a bit more complex as I have logically split it into sub portfolios. Income, wealth preservation and cash. The income section has strategic and corporate bonds, a small allocation to HY bonds and some property and infrastructure. The non equity proportion is currently 40.3%. The WP section is a split between PNL and RCP, I don't have the bond allocation to hand but you can look these up

    You can't expect capital growth from bonds if you are taking income from them but that's not what they're there for. Same story for growing dividends (interest), the asset class isn't called Fixed Income for nothing. I haven't needed to do this yet but I expect to increase the amount in bonds through rebalancing from equities. Like Linton I have separate growth portfolios and these contain some bonds with income reinvested but they are there for the usual reason to control volatility, probably about 35%. As I am retired I don't need to shoot the lights out and will be increasing the bond allocation over the years as I bed & ISA. There comes a time when hanging on to what you have becomes more important than growth at all costs. As I said earlier, if I need to increase the income pots I can supplement them from the growth pots or the WP ITs
  • AudaxerAudaxer Forumite
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    Thanks Linton and ColdIron for your responses. My income portfolio is 38% UK Equity Income, 20% Global Equity Income, 5% Asian Equity Income and 37% in strategic and global bonds. The income for the first year was about 3.9% of the original investment, and it should be slightly higher this year. The Global Equity Income funds have the lowest yields but have shown by far the greatest growth so far. I am hoping with annual rebalancing that this level of income will be sustainable over the long term without having to sell capital for income, but maybe that is being too optimistic?
  • edited 17 June 2019 at 9:54AM
    IanStIanSt Forumite
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    edited 17 June 2019 at 9:54AM
    If you sell shares down and take divis, you can get two tax free allowances £12,000 pa for CGT and £12,500 for income tax. £24,500pa tax free - kerrching :money:

    Though hopefully most people will have enough of their investments held within tax efficient wrappers to reduce the amounts they need to pay for either tax :)
  • ThrugelmirThrugelmir Forumite
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    ColdIron wrote: »

    You can't expect capital growth from bonds if you are taking income from them but that's not what they're there for.

    Potentially a capital loss though. If the market price is above nominal value.

    Nominal value is additionally being eroded by inflation over time.
    “Buy value, not market trends or the economic outlook. Individual stocks determine the market, not vica versa." - Sir John Templeton
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