Income Funds within L&G Pension

Linton

Notepad_Phil said:

If you are intending to use the natural yield method then just be careful that in an attempt to up your income you don't get trapped into concentrating on higher yielding funds that could perhaps disappoint during market downturns etc.

I'm one of those people who find it easiest (at the moment) to simply take and live off the natural yield from my pension portfolio, but the total yield of my portfolio is less than 3% and I've a big chunk in simple global equity trackers such as VWRL. If I was not so lucky and hence needed to put more than I was happy with in high income funds then I'd definitely consider other means.

Exactly - using a mixture of regular income from dividend/interest generating investments balanced with a tranche of growtrh investments is in my view optimal, as it is less effort and more balanced than focussing on growth alone.

coyrls

Linton said:

Deleted_User said:

As others have said, you will end up with a less diversified portfolio. Not a good thing. There is no meaningful difference in how you take money out: by selling shares or taking dividends. 

If you are correct and there is no difference financially between selling shares and taking dividends then surely the logical conclusion is that taking dividends is preferable as it requires much less effort.  The money just appears in one's current account automatically for free with no need for a monthly decision or payment of transaction costs.

You explained earlier that taking variable dividend income from a SIPP is not easy because SIPPs are not set up to pay out variable monthly amounts.  There is no need to make a monthly decision if you take the total return route; I make one annual withdrawal and rebalance at the same time.

Linton

coyrls said:

Linton said:

Deleted_User said:

As others have said, you will end up with a less diversified portfolio. Not a good thing. There is no meaningful difference in how you take money out: by selling shares or taking dividends. 

If you are correct and there is no difference financially between selling shares and taking dividends then surely the logical conclusion is that taking dividends is preferable as it requires much less effort.  The money just appears in one's current account automatically for free with no need for a monthly decision or payment of transaction costs.

You explained earlier that taking variable dividend income from a SIPP is not easy because SIPPs are not set up to pay out variable monthly amounts.  There is no need to make a monthly decision if you take the total return route; I make one annual withdrawal and rebalance at the same time.

Yes taking one single drawdown a year as part of rebalancing is an easier option than taking a monthly sum either from dividends or from selling funds.  A downside is that you have more in cash than you would otherwise need.  I do both taking an annual drawdown when necessary, usually from the Growth portfolio and natural yield from the income portfolio sufficient with other guaranteed income to meet my day to day needs.

WIthin equity one can identify shares that are managed to produce a steady income and those that are managed for  growth in the long term.    It makes sense to me to take income from those that produce it with less consideration or opportunity  for growth and look for growth from those companies that can reinvest sensibly and avoid bleeding cash by giving it back to the shareholders.  It certainly makes more sense than the other way around.

Operating two separate portfolios gives one the ability to allocate assets according to objectives, rather than simply taking whatever split the market happens to provide.

AnotherJoe

Linton said:

Deleted_User said:

As others have said, you will end up with a less diversified portfolio. Not a good thing. There is no meaningful difference in how you take money out: by selling shares or taking dividends. 

If you are correct and there is no difference financially between selling shares and taking dividends then surely the logical conclusion is that taking dividends is preferable as it requires much less effort.  The money just appears in one's current account automatically for free with no need for a monthly decision or payment of transaction costs.

Broken reasoning. You fastened on "effort to take out" and made that your goal,(the amount of effort) rather than "get more income" .

Yes, its easier to take income (say, 3%) out of a declining amount, (which will also end up a declining income), than it is to take (say) 5% out of a growing amount as a mixture of income and sales. 

Your choice.

Joey_Soap

dunstonh said:

Value = dividends and growth minus dividends paid out vs
Value = dividends and growth minus regular withdrawal paid out.

Dividend only restricts choice.   Total return does not.

Dangerous statement. That only applies when total return is positive. In a negative total return year, in order to not deplete future total return, then you must fall back on income reserves.

Linton

AnotherJoe said:

Linton said:

Deleted_User said:

As others have said, you will end up with a less diversified portfolio. Not a good thing. There is no meaningful difference in how you take money out: by selling shares or taking dividends. 

If you are correct and there is no difference financially between selling shares and taking dividends then surely the logical conclusion is that taking dividends is preferable as it requires much less effort.  The money just appears in one's current account automatically for free with no need for a monthly decision or payment of transaction costs.

Broken reasoning. You fastened on "effort to take out" and made that your goal,(the amount of effort) rather than "get more income" .

Yes, its easier to take income (say, 3%) out of a declining amount, (which will also end up a declining income), than it is to take (say) 5% out of a growing amount as a mixture of income and sales. 

Your choice.

It has been stated, rightly or wrongly, that taking a dividend is the same financially as selling for income.  If that is the case then criteria other than financial reward become more important.

dunstonh

Joey_Soap said:

dunstonh said:

Value = dividends and growth minus dividends paid out vs
Value = dividends and growth minus regular withdrawal paid out.

Dividend only restricts choice.   Total return does not.

Dangerous statement. That only applies when total return is positive. In a negative total return year, in order to not deplete future total return, then you must fall back on income reserves.

That is what the cash float would be for.   
Plus, total return allows you to set investment risk easier than yield which would require a higher equity content and be subject to higher falls during negative markets.  Dividends in the coming years are going to much lower than an already low figure.

Audaxer

dunstonh said:

Joey_Soap said:

dunstonh said:

Value = dividends and growth minus dividends paid out vs
Value = dividends and growth minus regular withdrawal paid out.

Dividend only restricts choice.   Total return does not.

Dangerous statement. That only applies when total return is positive. In a negative total return year, in order to not deplete future total return, then you must fall back on income reserves.

That is what the cash float would be for.   

I definitely agree with having a cash float, but do you still think 18 months to 24 months cash is enough? I'm not sure that would ensure that you didn't need to sell at a loss?

Prism

Joey_Soap said:

dunstonh said:

Value = dividends and growth minus dividends paid out vs
Value = dividends and growth minus regular withdrawal paid out.

Dividend only restricts choice.   Total return does not.

Dangerous statement. That only applies when total return is positive. In a negative total return year, in order to not deplete future total return, then you must fall back on income reserves.

The logic still applies during a negative period even if you must sell some of the shares rather than take a dividend. All things being equal income paying funds drop more during those down periods than accumulation ones. 

Joey_Soap

Prism said:

Joey_Soap said:

dunstonh said:

Value = dividends and growth minus dividends paid out vs
Value = dividends and growth minus regular withdrawal paid out.

Dividend only restricts choice.   Total return does not.

Dangerous statement. That only applies when total return is positive. In a negative total return year, in order to not deplete future total return, then you must fall back on income reserves.

The logic still applies during a negative period even if you must sell some of the shares rather than take a dividend. All things being equal income paying funds drop more during those down periods than accumulation ones. 

You have to accept that if, say you sell 5% of your share holdings in a down year (likely at a lowish price) then you only have 95% of your portfolio available to harvest future total returns from. I fully support a total return approach but you have to be very, very careful selling the family silver. I advocate a minumum of 24 months income cash float. That would basically cover the drop and recovery in the majority of stock market cycles in living memory.