Royal Dutch Shell shares.

bowlhead99

C_Mababejive wrote: »

So faced with this,why would tyou want to hold a huge wad in RDSB when you can be widely diversified?

I am actually pointing this remark at myself here also !

There may also be other implications.

At a persons particular point in life, they may not want to receive big fat divis courtesy of RDSB because it has tax implications and it may be more prudent to hold the diversified funds instead?

An investment in RDSB certainly skews your returns towards dividend income, which may or may not be good for your personal circumstances.

Over-simplifying, if you had £100k of unwrapped RDSB investment giving 6% income instead of a more generallist fund giving 3% income, that's £3,000 of extra income which attracts tax at 7.5% or 32.5% (your personal dividend allowance is already fully consumed whether you went for the 3% payer or the 6% payer).

Whereas the more balanced fund might give you an extra £3,000 of unrealised capital gain instead, attracting tax at 10% or 20%, but only after you had used up your annual exemption of £12000 of gains in a tax year, which you would generally not expect to do in an average year if you only had £100k invested unwrapped.

It would get harder to avoid the CGT the more you have invested, especially if you allow the gains to compound - but if you are only looking to take a few thousand out for spending money and leave the rest for your heirs (no CGT on death) it can be convenient to invest in things that focus less on dividend production and more on capital growth. You can see from the above that the preference for income over gains or vice versa can depend on your tax bracket, the amounts involved, other investments you hold, etc.

Generally I would agree with the questioner saying, "why would you have a large wad in [individual company of your choice] when for a relatively nominal management fee you could hold a diversified fund of assets instead".

It is good to ask such questions because regardless of the economic, regulatory or environmental changes imposed on companies over the very long term, there are often short term factors that affect their value or the income they produce. For example within the last couple of decades people thought it was great to get a decent yield and growth potential from Lloyds or RBS, then all of a sudden they aren't allowed to pay dividends and the value drops 80-90%. Or BP merrily paying a large divi and then they have a tens of billions of dollars bill for a Deepwater Horizon event.

As such, irrespective of whether you think Shell is well positioned or badly positioned for the long term evolution of its business, there are always short term issues for companies which can throw them off course. The risk of some company-specific event or regulatory change or government action putting a spanner in your works re income or growth or wealth preservation generally, is diversified away as you add more holdings, international holdings, more asset classes, etc etc.

C_Mababejive

Thanks BH,,just for clarity,,on the HL comparison tool with the figures i quoted where it states cumulative, am i right in saying this would be the cumulative return with dividends reinvested in the RDSB and CTY? If yes, of course that could negatively impact as the reinvesment might occur on a price high so effectively buying into some downside??

AnotherJoe

C_Mababejive wrote: »

This is an issue which has been troubling me in recent years for i have a significant holding in RDSB much of which came due to the purchase of BG. I fully realise that conventional wisdom says dont hold big wads in one asset and yet it is such a mega company that keeps churning out dividends reliably.....

.... until it doesn't.

And then the bottom falls out of the share price since dividends are whats holding it up.
Double. Whammy.

Thrugelmir

C_Mababejive wrote: »

RDSB 36.57%
CTY 43.59%

HSBC Gbl strat balanced 54.02%

HSBC all world index 84.91%

So faced with this,why would tyou want to hold a huge wad in RDSB when you can be widely diversified?

A reminder that:

Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product equal any corresponding indicated historical performance level(s).