How to get £1,000pm from a lump sum

Aminatidi

Linton wrote: »

I think you miss the key points...


Companies that pay decent dividends are in general different to those that produce high growth. They tend to be in mature industries that are cash generative but with little opportunity for growth related investment. Typical examples being sectors such as the utilities and infrastructure, oil, household goods, insurance etc. If such companies do not give their excess cash to the shareholders they are liable to waste it, perhaps in mergers and acquisitions or in speculative investment outside their area of expertise, both of which are likely to destroy shareholder value.



If you need a reliable income it is essential to get that income from as many sources as possible. In particular one should diversify taking both dividends from safe and steady companies and capital growth from those companies that can provide it. If you dont actually need the income then your strategy may well be different, though history has shown that income producers can fare much better than high growth companies during major downturns.

Perhaps

But my perception is that a lot of people don't look at the share price i.e. what their capital is actually worth and instead focus on those lovely "free" dividends that come in at regular intervals.

A bit like mentioned earlier in the thread where your £250K might be worth £100K but hey, they're "giving" you a steady 6% dividend.

I get it, that may be entirely suitable for some situations.

Equally go stick the lot in a growth fund and no dividend but you could shed 40% or more in a bad situation.

I guess everyone has to make a judgement based on their requirements and situation and perhaps if I end up where I'm dependent on my investments for an income I'll have a totally different mentality

Either way no reward without risk.

Linton

A_T wrote: »

Where did I suggest the OP only invest in government bonds? I said Lifestrategy which on both sides of the atlantic uses a bond allocation which is at least 50% non-government.

People need to answer points that have actually been made rather than answer points they wish had been made. In short too many strawmen.

I am arguing against the idea that because the LifeStrategy approach worked well in the past it must therefore be suitable for the future. Its only non-equity investments are in bonds, when broad diversification would seem desirable and your around 50% figure for safe government bonds seems much too high for current conditions to me. According to Morningstar the bond allocation is over 63% AAA and AA grade.



Detailed data isnt readily available for many funds, but where I have found it other similar funds where the manager has the freedom to allocate the resources use a wider range of assets with lower %s of very safe bonds. For example L&G Mixed Investment is 41% AAA and AA and mainly invests in corporate bonds. Royal Lononmd Cautious is 56% AAA and AA but also has 12% held in cash. Jupiter Merlin Conservative is 32% AAA and AA and again 12% cash.


I have yet to find another fund with a greater concentration of assets into very high grade bonds than the LS funds unless of course the remit constrains the choice.

dividendhero

Aminatidi wrote: »

I would suggest go and search for Terry Smith's opinion on investing for income.

To paraphrase his view is don't.

Invest for capital appreciation and draw an income from the balance.

Easy for him to say when he's sat on £250 million in Mauritius with no mortgage

Audaxer

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.

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.

I've got VLS40 and VLS60, and also have an income portfolio for income from natural yield. In a market crash, I think it would be better to take the dividends as income rather than having to sell VLS capital. All are in S&S ISAs so no issue with dividend tax.

A_T

Audaxer wrote: »

I've got VLS40 and VLS60, and also have an income portfolio for income from natural yield. In a market crash, I think it would be better to take the dividends as income rather than having to sell VLS capital. All are in S&S ISAs so no issue with dividend tax.

why do you think it would be better?

steamy

I spent the last two days reading up as much as I could on the topic and have decided to diversify by splitting the 250k - using half to get 1-2 BTL 2-bed terraces close to where I live, for income and lock away the rest in a Vanguard fund to accumulate and hopefully deliver capital growth in the long term.

I've done the numbers, looked at the local market, and even with the extra 3% stamp duty, as long as I stick to my target numbers, it should be fairly uncomplicated to get a BTL property on a mortgages returning 6.5-8% ROI, even at 35-40% equity. There's unlikely to be a lot of capital growth but it should hopefully keep up with inflation. I know the business and it should deliver a steady return over the years, at least until interest rates start to rise appreciably. 2 bed terraces in my area cost 130-150k, so I might even get two with a 35-40% deposit.

I sold the last rental because it was more than 2 hours away and I couldn't drive that far anymore during to my health issues. Travel within a 5 mile radius should be absolutely fine and I thought it would be a shame if I let all my experience of the business go to waste unused, especially when I have so much time on my hands now.

The rest can sit untouched in a low cost Vanguard lifestrategy fund, aiming for long term capital growth.

I really appreciate the discussion, it helped push me to read up on the topic.

Retired_Mortgage_Adviser

For what it's worth, that sounds like a sensible way forward. It won't be as hands-off as investing 100% in index funds, but as you say, you do have time on your hands and are presumably more familiar/comfortable with the nature of risks involved.

steamy wrote: »

I spent the last two days reading up as much as I could on the topic and have decided to diversify by splitting the 250k - using half to get 1-2 BTL 2-bed terraces close to where I live, for income and lock away the rest in a Vanguard fund to accumulate and hopefully deliver capital growth in the long term.

bostonerimus

firestone wrote: »

But to many people its psychological and i would guess more so with retirees in that they don't want to touch the lump sum or withdraw growth as they feel safer leaving the lump sum and taking div's as a substitute for savings interest and once invested does not require much in the way of decision making (but hopefully they understand the funds can drop)
You see the same thing when people point out the pro's & cons of P/Bonds with inflation etc but some people are still happy with them under those terms as they are not losing any of the original investment

IT dividends are payed from the dividends and capital gains of the investments held by the IT. With the IT you get some smoothing of the returns, but you can do the same thing yourself with a sensible withdrawal strategy from your own portfolio of funds. You just cut out the IT middleman. I can see how people would be attracted by the service the IT provides if they are just interested in stable income.

Audaxer

A_T wrote: »

why do you think it would be better?

If in a falling market and you still need to take income, then if dividends are still being received, that seems to me less damaging to your portfolio than selling capital that is reducing in value. It seems to me a more difficult decision to make as regards when to sell capital for income in a falling market.

Apodemus

bostonerimus wrote: »

IT dividends are payed from the dividends and capital gains of the investments held by the IT. With the IT you get some smoothing of the returns, but you can do the same thing yourself with a sensible withdrawal strategy from your own portfolio of funds. You just cut out the IT middleman. I can see how people would be attracted by the service the IT provides if they are just interested in stable income.

Sorry Bostonerimus, but I don’t follow your point here. Both Funds and ITs are collective investments and vehicles for putting your money into a wider range of underlying assets. It’s not as if ITs are mainly invested in Funds and acting as an additional layer between me and the underlying assets, so how are they the middleman?