How to get £1,000pm from a lump sum

steamy

Hi, I recently sold a property and now have around 250k sitting in my bank accounts. It was from a rental property that I sold to avoid the new 2020 CGT rules and because of ill-health making it difficult to manage the work associated with the property.

I need this money to generate some regular income for me (ideally monthly or at most quarterly). I am happy to take the risk associated with equities and was hoping someone could suggest how to go about this.

Is there any low cost index (Vanguard?) fund that would do this job? What level of income could I expect from such an amount? Is 1,000 pm even possible?

Just to be clear, I will not be fully dependent on this income so it does not need to be "certain". I live in a mortgage free property, can take in a lodger (if needed) and have a small monthly tax-free protection payout.

Any advice would be appreciated. I had an initial free consultation with an IFA who suggested something which would cost me almost 1% in fees annually and expected to return about 3-4%!

masonic

There is no investment that could reliably produce £12k per year from a £250k investment without significant risk of running down to zero at some point in the future, but you could achieved your stated level of income with some risk of failure (odds better than 50:50 of you not running out of money before say 30 years). This is assuming you want your income to rise in line with inflation.

I wouldn't get too distracted by the difference between 'natural income' and 'total return' as it's much easier to find suitable investments that will grow at a sufficient rate for you to take income by drawing down those investments rather than relying on dividends. As such the standard suite of low cost index funds could certainly be considered.

Linton

£1K/month from £250K is 4.8%. I am currently getting about 6% ongoing income from my highly focussed income portfolio of a size of the same order of magnitude as your pot.

The portfolio investments and %s are:


17.1 Schroder High Yield Opp Z Inc
16.8 MAN GLG UK Income Prof D Inc
15.1 Premier Global Infrastructure C Inc
11.8 Janus Henderson Asian Dividend Income I Inc
9.6 Threadneedle Emerging Market Bond Inst Inc
9.4 European Assets Trust
9.0 L&G High Income Trust I
7.6 Princess Private Equity
3.6 International Biotechnology Trust

Although I hope this gives you some ideas as to what can be done I would not recommend that you simply copy what I do. There are some gotchas and factors to be considered:
- This level of income is probably not sustainable so I also have significant investments that focus on long term growth. This will be used to restore any falls in capital value of the income portfolio.
- The income portfolio is entirely held within an S&S ISA so tax is not a problem. Both the amount and the hassle of dealing with it could be a problem for you.
- Broadly speaking dividends will tend to increase with inflation. Bond returns wont. So again you would need growth equity investments to ensure that your income matches inflation. It would not be sensible in my view to manage without bonds as you need to diversify your sources of income very broadly.
- Running such a portfolio needs ongoing monitoring and management. Do you have the time and experience?
- Putting all your money into generating one form of income is a bad idea. In my case I also take income as drawdown from the capital of the growth fund.

bowlhead99

steamy wrote: »

have around 250k sitting in my bank accounts.

happy to take the risk associated with equities

Is there any low cost index (Vanguard?) fund that would do this job? What level of income could I expect from such an amount? Is 1,000 pm even possible?

Vanguard's global equity income fund yields about 3% before annual platform costs (£5-£400 a year on £250k depending where you buy it). You would expect to get capital growth on top of the income over the long term, to uplift your £650 a month of monthly cash to the £1000 level you seek; returning it as a mixture of capital growth and income.

However, as it is fully invested in equities (mostly international businesses) a loss in value of 40% wouldn't be unexpected in a bad year. It is not much comfort saying yay, I made £7500 in income this year, while watching the capital drop by £100,000.

The UK stock market, being stuffed with companies that pay higher dividends on average than the international indexes, due to cultural and tax differences and industry mix, could give you a better yield. Vanguard's UK equity income fund yields 5% at the last count. But then you are putting your eggs in one basket - the risks of buying businesses listed on the stock market of one small geographic region, in a particular set of industry sectors - banks, big pharma, oil/resources. And again a 40-50% crash would be unwelcome. You would not expect the gross dividends to keep going at £12500 a year when the capital value was only £125000.

A single fund sounds like low hassle but is not the best way to get reliable income. Just as when you are a landlord, one house seems less hassle than a street of houses or a street's worth of houses dotted around the country, but the latter is much more reliable as you diversify away from the risks of a single tenant and the whims of a local property market.

A_T

An easy way to do it would be to put it all in Vanguard Lifestrategy 20 or 40 and just sell £1000 per month. Those two funds have grown c. 6% and 7% per annum since inception. You'll also stay within CGT allowance.

If you try to get an income from natural yield through dividends you will come a cropper if there is a market crash. Plus you'll fall foul of dividend tax which is now only 2k per annum.

steamy

Oh dear, I'm already regretting selling the property

Thanks for all your thoughts. Most of that went over my head but from what I can understand I could potentially get about 3% income from a world equity income fund or maybe 5% from an UK focused one, both with the risk of large fluctuations in capital value (which I am fine with, at least I think so!). I would rather not put all my eggs in the UK basket.

I kind of guessed that 1000pm would be hard to achieve. 3% (600pm) is also fine I guess if that is the best I can do with minimum effort. My aim is to stay invested for the long term so hopefully at the end of it there will be some capital gain as well to look forward to.

From an income pov, I'll just go back to taking in a lodger if it gets too tight or the income disappears/drops for a while.

Tax is not a concern at the moment as I have (almost) no taxable income. My monthly protection benefits are tax free.

Thanks for the advice!

Dazed_and_confused

If you try to get an income from natural yield through dividends you will come a cropper if there is a market crash. Plus you'll fall foul of dividend tax which is now only 2k per annum.

Based on what the op had posted on this thread it appears tax will not be an issue.

With the taxable income consisting of dividends and savings interest they are likely to be able to have £20,500 in taxable income before any tax would actually be payable.

Just to be clear, I will not be fully dependent on this income so it does not need to be "certain". I live in a mortgage free property, can take in a lodger (if needed) and have a small monthly tax-free protection payout.

Jonathan_Kelvin

A_T wrote: »

An easy way to do it would be to put it all in Vanguard Lifestrategy 20 or 40 and just sell £1000 per month. Those two funds have grown c. 6% and 7% per annum since inception. You'll also stay within CGT allowance.

Why are you suggesting that the historic performance will continue?

A_T

Jonathan_Kelvin wrote: »

Why are you suggesting that the historic performance will continue?

Why are you suggesting that it won't?

If you look at the US version of Lifestrategy 20 it has been going 25 years - been through 2 of the biggest ever stock market crashes - and taking out 5% per annum would still have seen the capital value grow.

bostonerimus

A_T wrote: »

Why are you suggesting that it won't?

If you look at the US version of Lifestrategy 20 it has been going 25 years - been through 2 of the biggest ever stock market crashes - and taking out 5% per annum would still have seen the capital value grow.

I took a CETV and put it in US Vanguard Balanced Index ( https://investor.vanguard.com/mutual-funds/profile/VBIAX) back in 2015. It's grown by 8% average each year and has a yield of 2%. Doing something similar with a VLS fund might work for the OP.

Jonathan_Kelvin

A_T wrote: »

Why are you suggesting that it won't?.

Because, to put it bluntly, there is absolutely zero evidence that it will. This is pretty much lesson number one in investing, that past performance does not predict future performance.

The growth in the past has been driven by events in the past. If you want specific driving factors that simply cannot be repeated, which drove this growth then the introduction of QE and the collapse of interest rates are two pretty major ones.

Hopefully you are having a little bit of a joke here, but please, suggesting that something that has risen for years will continue to is both foolish and irresponsible.