Income Funds within L&G Pension

[Deleted User]

Audaxer said:

Deleted_User said:

Audaxer said:

Deleted_User said:

Audaxer said:

Until now I would think that a balanced Income Portfolio will have worked well for many retirees over the years allowing them to take dividends of around 4% increasing with inflation over many years, particularly one including the Investment Trusts that have increased dividends every year for decades. If they have been happy with that level of return in the way of dividends they may not have been that bothered about the volatility of capital. 

It may be that in the current climate an Income portfolio is now not the best approach, but if we have a bear market lasting say 5 few years or more, would it be wise to take income by selling capital from a growth portfolio?  

You won’t get a 4% in distributions and interest if you have an internationally diversified balanced portfolio. US companies tend to use profits for buy-backs; most other developed countries other than UK also have low dividends. And quality bonds don’t pay anywhere near 4%. 

I know you won't be able to get the same level of diversification. Income portfolios usually include UK Equity Income, Global Equity Income, Asian Equity Income funds as well as various bond funds. You have been able to get 4% in distributions up until now, but no guarantee that will continue going forward.  However I'm also not sure that more diversified growth portfolios will be any safer as regards selling capital for income in the next few years.

“Safer” has to be defined and I am not getting into predictions.

What is clear though is that by concentrating on Income funds, you would be picking lots of financial, real estate, energy, consumer staples  and utility stocks to the detriment of such important sectors as technology, healthcare and industrials.  Its like giving up the free lunch. 

I'm just saying that Income Portfolios have up until now produced enough natural income to meet the needs of retirees who have them, but I agree that might not been the case going forward. 

How do you define “enough”?  Distributions of 4%?  I don’t find this criterion to be meaningful. The value halves, the dividend halves, distributions are still “enough” according to this definition. What I would like to know is by how much the value of these funds has dropped since February and how does it compare with a boring index using total return. 

Linton

Deleted_User said:

Audaxer said:

Deleted_User said:

Audaxer said:

Deleted_User said:

Audaxer said:

Until now I would think that a balanced Income Portfolio will have worked well for many retirees over the years allowing them to take dividends of around 4% increasing with inflation over many years, particularly one including the Investment Trusts that have increased dividends every year for decades. If they have been happy with that level of return in the way of dividends they may not have been that bothered about the volatility of capital. 

It may be that in the current climate an Income portfolio is now not the best approach, but if we have a bear market lasting say 5 few years or more, would it be wise to take income by selling capital from a growth portfolio?  

You won’t get a 4% in distributions and interest if you have an internationally diversified balanced portfolio. US companies tend to use profits for buy-backs; most other developed countries other than UK also have low dividends. And quality bonds don’t pay anywhere near 4%. 

I know you won't be able to get the same level of diversification. Income portfolios usually include UK Equity Income, Global Equity Income, Asian Equity Income funds as well as various bond funds. You have been able to get 4% in distributions up until now, but no guarantee that will continue going forward.  However I'm also not sure that more diversified growth portfolios will be any safer as regards selling capital for income in the next few years.

“Safer” has to be defined and I am not getting into predictions.

What is clear though is that by concentrating on Income funds, you would be picking lots of financial, real estate, energy, consumer staples  and utility stocks to the detriment of such important sectors as technology, healthcare and industrials.  Its like giving up the free lunch. 

I'm just saying that Income Portfolios have up until now produced enough natural income to meet the needs of retirees who have them, but I agree that might not been the case going forward. 

How do you define “enough”?  Distributions of 4%?  I don’t find this criterion to be meaningful. The value halves, the dividend halves, distributions are still “enough” according to this definition. What I would like to know is by how much the value of these funds has dropped since February and how does it compare with a boring index using total return. 

For a retiree "enough" is defined in £ terms not yield. Capital value fluctuations are irrelevent - what matters is the income.  So take CTY for example.  Its capital value has dropped by about 20% since February and is currently rising.  Obviously the published yield has risen accordingly.  The 3 most recent dividends were paid at the end of November, February and May.  They are identical in £ terms.
Given that no effort was required to access the money, no worrying about what to sell at the depths of the crash or whether to raid the cash buffer, this seems perfectly satisfactory to me.  Obviously the future is unknown, but it always is.

Audaxer

Linton said:

Deleted_User said:

Audaxer said:

Deleted_User said:

Audaxer said:

Deleted_User said:

Audaxer said:

Until now I would think that a balanced Income Portfolio will have worked well for many retirees over the years allowing them to take dividends of around 4% increasing with inflation over many years, particularly one including the Investment Trusts that have increased dividends every year for decades. If they have been happy with that level of return in the way of dividends they may not have been that bothered about the volatility of capital. 

It may be that in the current climate an Income portfolio is now not the best approach, but if we have a bear market lasting say 5 few years or more, would it be wise to take income by selling capital from a growth portfolio?  

You won’t get a 4% in distributions and interest if you have an internationally diversified balanced portfolio. US companies tend to use profits for buy-backs; most other developed countries other than UK also have low dividends. And quality bonds don’t pay anywhere near 4%. 

I know you won't be able to get the same level of diversification. Income portfolios usually include UK Equity Income, Global Equity Income, Asian Equity Income funds as well as various bond funds. You have been able to get 4% in distributions up until now, but no guarantee that will continue going forward.  However I'm also not sure that more diversified growth portfolios will be any safer as regards selling capital for income in the next few years.

“Safer” has to be defined and I am not getting into predictions.

What is clear though is that by concentrating on Income funds, you would be picking lots of financial, real estate, energy, consumer staples  and utility stocks to the detriment of such important sectors as technology, healthcare and industrials.  Its like giving up the free lunch. 

I'm just saying that Income Portfolios have up until now produced enough natural income to meet the needs of retirees who have them, but I agree that might not been the case going forward. 

How do you define “enough”?  Distributions of 4%?  I don’t find this criterion to be meaningful. The value halves, the dividend halves, distributions are still “enough” according to this definition. What I would like to know is by how much the value of these funds has dropped since February and how does it compare with a boring index using total return. 

For a retiree "enough" is defined in £ terms not yield. Capital value fluctuations are irrelevent - what matters is the income.  So take CTY for example.  Its capital value has dropped by about 20% since February and is currently rising.  Obviously the published yield has risen accordingly.  The 3 most recent dividends were paid at the end of November, February and May.  They are identical in £ terms.
Given that no effort was required to access the money, no worrying about what to sell at the depths of the crash or whether to raid the cash buffer, this seems perfectly satisfactory to me.  Obviously the future is unknown, but it always is.

Totally agree, and as the yield on CTY is now around 5.5% and the dividends very unlikely to be cut, it is tempting to increase my investment in that IT.

[Deleted User]

Linton said:

Deleted_User said:

Audaxer said:

Deleted_User said:

Audaxer said:

Deleted_User said:

Audaxer said:

Until now I would think that a balanced Income Portfolio will have worked well for many retirees over the years allowing them to take dividends of around 4% increasing with inflation over many years, particularly one including the Investment Trusts that have increased dividends every year for decades. If they have been happy with that level of return in the way of dividends they may not have been that bothered about the volatility of capital. 

It may be that in the current climate an Income portfolio is now not the best approach, but if we have a bear market lasting say 5 few years or more, would it be wise to take income by selling capital from a growth portfolio?  

You won’t get a 4% in distributions and interest if you have an internationally diversified balanced portfolio. US companies tend to use profits for buy-backs; most other developed countries other than UK also have low dividends. And quality bonds don’t pay anywhere near 4%. 

I know you won't be able to get the same level of diversification. Income portfolios usually include UK Equity Income, Global Equity Income, Asian Equity Income funds as well as various bond funds. You have been able to get 4% in distributions up until now, but no guarantee that will continue going forward.  However I'm also not sure that more diversified growth portfolios will be any safer as regards selling capital for income in the next few years.

“Safer” has to be defined and I am not getting into predictions.

What is clear though is that by concentrating on Income funds, you would be picking lots of financial, real estate, energy, consumer staples  and utility stocks to the detriment of such important sectors as technology, healthcare and industrials.  Its like giving up the free lunch. 

I'm just saying that Income Portfolios have up until now produced enough natural income to meet the needs of retirees who have them, but I agree that might not been the case going forward. 

How do you define “enough”?  Distributions of 4%?  I don’t find this criterion to be meaningful. The value halves, the dividend halves, distributions are still “enough” according to this definition. What I would like to know is by how much the value of these funds has dropped since February and how does it compare with a boring index using total return. 

For a retiree "enough" is defined in £ terms not yield. Capital value fluctuations are irrelevent - what matters is the income.  So take CTY for example.  Its capital value has dropped by about 20% since February and is currently rising.  Obviously the published yield has risen accordingly.  The 3 most recent dividends were paid at the end of November, February and May.  They are identical in £ terms.
Given that no effort was required to access the money, no worrying about what to sell at the depths of the crash or whether to raid the cash buffer, this seems perfectly satisfactory to me.  Obviously the future is unknown, but it always is.

The NAV of CTY is 350p vs 425p a year ago. Thats a staggering drop of 18%. Staggering, when compared to the market in general. My investment is up over the last 12 month. I know what I prefer. 

I checked out a random company in the CTY investment trust. Shell cut its dividend by a factor of 3. I am guessing similar cuts have been made by the other holdings. So all CTY is doing, is paying out capital and masking what is actually going on. Dangerous. 

Prism

Deleted_User said:

Linton said:

Deleted_User said:

Audaxer said:

Deleted_User said:

Audaxer said:

Deleted_User said:

Audaxer said:

Until now I would think that a balanced Income Portfolio will have worked well for many retirees over the years allowing them to take dividends of around 4% increasing with inflation over many years, particularly one including the Investment Trusts that have increased dividends every year for decades. If they have been happy with that level of return in the way of dividends they may not have been that bothered about the volatility of capital. 

It may be that in the current climate an Income portfolio is now not the best approach, but if we have a bear market lasting say 5 few years or more, would it be wise to take income by selling capital from a growth portfolio?  

You won’t get a 4% in distributions and interest if you have an internationally diversified balanced portfolio. US companies tend to use profits for buy-backs; most other developed countries other than UK also have low dividends. And quality bonds don’t pay anywhere near 4%. 

I know you won't be able to get the same level of diversification. Income portfolios usually include UK Equity Income, Global Equity Income, Asian Equity Income funds as well as various bond funds. You have been able to get 4% in distributions up until now, but no guarantee that will continue going forward.  However I'm also not sure that more diversified growth portfolios will be any safer as regards selling capital for income in the next few years.

“Safer” has to be defined and I am not getting into predictions.

What is clear though is that by concentrating on Income funds, you would be picking lots of financial, real estate, energy, consumer staples  and utility stocks to the detriment of such important sectors as technology, healthcare and industrials.  Its like giving up the free lunch. 

I'm just saying that Income Portfolios have up until now produced enough natural income to meet the needs of retirees who have them, but I agree that might not been the case going forward. 

How do you define “enough”?  Distributions of 4%?  I don’t find this criterion to be meaningful. The value halves, the dividend halves, distributions are still “enough” according to this definition. What I would like to know is by how much the value of these funds has dropped since February and how does it compare with a boring index using total return. 

For a retiree "enough" is defined in £ terms not yield. Capital value fluctuations are irrelevent - what matters is the income.  So take CTY for example.  Its capital value has dropped by about 20% since February and is currently rising.  Obviously the published yield has risen accordingly.  The 3 most recent dividends were paid at the end of November, February and May.  They are identical in £ terms.
Given that no effort was required to access the money, no worrying about what to sell at the depths of the crash or whether to raid the cash buffer, this seems perfectly satisfactory to me.  Obviously the future is unknown, but it always is.

The NAV of CTY is 350p vs 425p a year ago. Thats a staggering drop of 18%. Staggering, when compared to the market in general. My investment is up over the last 12 month. I know what I prefer. 

I checked out a random company in the CTY investment trust. Shell cut its dividend by a factor of 3. I am guessing similar cuts have been made by the other holdings. So all CTY is doing, is paying out capital and masking what is actually going on. Dangerous. 

It is very likely that is what they are doing, or if not yet, what they will do to preserve the history of the dividend as it's quite an important selling point. I'm not sure it classes as masking though as everybody knows (or should know) thats how this stuff works. One reason I'm not convinced by these kind of trusts is that you have no control of 'if' it happens. For example if it was up to me I would cut the income and pay myself a reduced amount or out of some other form of asset. CTY will need to continue to pay out even if that means selling capital.

Linton

Deleted_User said:

Linton said:

Deleted_User said:

Audaxer said:

Deleted_User said:

Audaxer said:

Deleted_User said:

Audaxer said:

Until now I would think that a balanced Income Portfolio will have worked well for many retirees over the years allowing them to take dividends of around 4% increasing with inflation over many years, particularly one including the Investment Trusts that have increased dividends every year for decades. If they have been happy with that level of return in the way of dividends they may not have been that bothered about the volatility of capital. 

It may be that in the current climate an Income portfolio is now not the best approach, but if we have a bear market lasting say 5 few years or more, would it be wise to take income by selling capital from a growth portfolio?  

You won’t get a 4% in distributions and interest if you have an internationally diversified balanced portfolio. US companies tend to use profits for buy-backs; most other developed countries other than UK also have low dividends. And quality bonds don’t pay anywhere near 4%. 

I know you won't be able to get the same level of diversification. Income portfolios usually include UK Equity Income, Global Equity Income, Asian Equity Income funds as well as various bond funds. You have been able to get 4% in distributions up until now, but no guarantee that will continue going forward.  However I'm also not sure that more diversified growth portfolios will be any safer as regards selling capital for income in the next few years.

“Safer” has to be defined and I am not getting into predictions.

What is clear though is that by concentrating on Income funds, you would be picking lots of financial, real estate, energy, consumer staples  and utility stocks to the detriment of such important sectors as technology, healthcare and industrials.  Its like giving up the free lunch. 

I'm just saying that Income Portfolios have up until now produced enough natural income to meet the needs of retirees who have them, but I agree that might not been the case going forward. 

How do you define “enough”?  Distributions of 4%?  I don’t find this criterion to be meaningful. The value halves, the dividend halves, distributions are still “enough” according to this definition. What I would like to know is by how much the value of these funds has dropped since February and how does it compare with a boring index using total return. 

For a retiree "enough" is defined in £ terms not yield. Capital value fluctuations are irrelevent - what matters is the income.  So take CTY for example.  Its capital value has dropped by about 20% since February and is currently rising.  Obviously the published yield has risen accordingly.  The 3 most recent dividends were paid at the end of November, February and May.  They are identical in £ terms.
Given that no effort was required to access the money, no worrying about what to sell at the depths of the crash or whether to raid the cash buffer, this seems perfectly satisfactory to me.  Obviously the future is unknown, but it always is.

The NAV of CTY is 350p vs 425p a year ago. Thats a staggering drop of 18%. Staggering, when compared to the market in general. My investment is up over the last 12 month. I know what I prefer. 

I checked out a random company in the CTY investment trust. Shell cut its dividend by a factor of 3. I am guessing similar cuts have been made by the other holdings. So all CTY is doing, is paying out capital and masking what is actually going on. Dangerous. 

You do not need income so can be satisfied with a possibly ephemeral increase in capital value.  No income for us means no food, or cancelling the world cruise, depending on our circumstances.  We need real cash.  Chasing capital value is merely a possible means to that end rather than an objective.

As to CTY being dangerous, possibly as nothing is guaranteed but it has prospered with steadily increasing dividends in £ terms for the last 54 years through far worse crashes than COVID. For example, in 2008 the banks who were some of the largest dividend payers at the time stopped paying.  CTY dropped by about 40%, but its dividends continued. 

No-one is uggesting that you put all your money in CTY.  You still need an appropriately balanced portfolio.

[Deleted User]

I don’t know how transparent they really are. According to Trustnet, “The Company’s objective is to provide long-term growth in income and capital, principally by investment in equities listed on the London Stock Exchange. The Board continues to recognise the importance of dividend income to shareholders.”  I saw no warning about potential to cannibalize the capital. An older person, who is too focused on the dividends and  the same number of pounds dropping into his account monthly can be easily lulled into a false sense of security. 

[Deleted User]

Linton said:

Deleted_User said:

Linton said:

Deleted_User said:

Audaxer said:

Deleted_User said:

Audaxer said:

Deleted_User said:

Audaxer said:

Until now I would think that a balanced Income Portfolio will have worked well for many retirees over the years allowing them to take dividends of around 4% increasing with inflation over many years, particularly one including the Investment Trusts that have increased dividends every year for decades. If they have been happy with that level of return in the way of dividends they may not have been that bothered about the volatility of capital. 

It may be that in the current climate an Income portfolio is now not the best approach, but if we have a bear market lasting say 5 few years or more, would it be wise to take income by selling capital from a growth portfolio?  

You won’t get a 4% in distributions and interest if you have an internationally diversified balanced portfolio. US companies tend to use profits for buy-backs; most other developed countries other than UK also have low dividends. And quality bonds don’t pay anywhere near 4%. 

I know you won't be able to get the same level of diversification. Income portfolios usually include UK Equity Income, Global Equity Income, Asian Equity Income funds as well as various bond funds. You have been able to get 4% in distributions up until now, but no guarantee that will continue going forward.  However I'm also not sure that more diversified growth portfolios will be any safer as regards selling capital for income in the next few years.

“Safer” has to be defined and I am not getting into predictions.

What is clear though is that by concentrating on Income funds, you would be picking lots of financial, real estate, energy, consumer staples  and utility stocks to the detriment of such important sectors as technology, healthcare and industrials.  Its like giving up the free lunch. 

I'm just saying that Income Portfolios have up until now produced enough natural income to meet the needs of retirees who have them, but I agree that might not been the case going forward. 

How do you define “enough”?  Distributions of 4%?  I don’t find this criterion to be meaningful. The value halves, the dividend halves, distributions are still “enough” according to this definition. What I would like to know is by how much the value of these funds has dropped since February and how does it compare with a boring index using total return. 

For a retiree "enough" is defined in £ terms not yield. Capital value fluctuations are irrelevent - what matters is the income.  So take CTY for example.  Its capital value has dropped by about 20% since February and is currently rising.  Obviously the published yield has risen accordingly.  The 3 most recent dividends were paid at the end of November, February and May.  They are identical in £ terms.
Given that no effort was required to access the money, no worrying about what to sell at the depths of the crash or whether to raid the cash buffer, this seems perfectly satisfactory to me.  Obviously the future is unknown, but it always is.

The NAV of CTY is 350p vs 425p a year ago. Thats a staggering drop of 18%. Staggering, when compared to the market in general. My investment is up over the last 12 month. I know what I prefer. 

I checked out a random company in the CTY investment trust. Shell cut its dividend by a factor of 3. I am guessing similar cuts have been made by the other holdings. So all CTY is doing, is paying out capital and masking what is actually going on. Dangerous. 

You do not need income so can be satisfied with a possibly ephemeral increase in capital value.  No income for us means no food, or cancelling the world cruise, depending on our circumstances.  We need real cash.  Chasing capital value is merely a possible means to that end rather than an objective.

As to CTY being dangerous, possibly as nothing is guaranteed but it has prospered with steadily increasing dividends in £ terms for the last 54 years through far worse crashes than COVID. For example, in 2008 the banks who were some of the largest dividend payers at the time stopped paying.  CTY dropped by about 40%, but its dividends continued. 

No-one is uggesting that you put all your money in CTY.  You still need an appropriately balanced portfolio.

I dont “chase capital value”. All I care about is long term total return. I am talking 10, 20, 30 years.  That includes capital and distributions, but fundamentally depends on growth in profits over a cycle. There is nothing “ephemeral” about that. Sales are real and costs are real. 

People who excessively focus on dividends hurt long term returns, just like those who only care about capital growth. 

Linton

Deleted_User said:

Linton said:

Deleted_User said:

Linton said:

Deleted_User said:

Audaxer said:

Deleted_User said:

Audaxer said:

Deleted_User said:

Audaxer said:

Until now I would think that a balanced Income Portfolio will have worked well for many retirees over the years allowing them to take dividends of around 4% increasing with inflation over many years, particularly one including the Investment Trusts that have increased dividends every year for decades. If they have been happy with that level of return in the way of dividends they may not have been that bothered about the volatility of capital. 

It may be that in the current climate an Income portfolio is now not the best approach, but if we have a bear market lasting say 5 few years or more, would it be wise to take income by selling capital from a growth portfolio?  

You won’t get a 4% in distributions and interest if you have an internationally diversified balanced portfolio. US companies tend to use profits for buy-backs; most other developed countries other than UK also have low dividends. And quality bonds don’t pay anywhere near 4%. 

I know you won't be able to get the same level of diversification. Income portfolios usually include UK Equity Income, Global Equity Income, Asian Equity Income funds as well as various bond funds. You have been able to get 4% in distributions up until now, but no guarantee that will continue going forward.  However I'm also not sure that more diversified growth portfolios will be any safer as regards selling capital for income in the next few years.

“Safer” has to be defined and I am not getting into predictions.

What is clear though is that by concentrating on Income funds, you would be picking lots of financial, real estate, energy, consumer staples  and utility stocks to the detriment of such important sectors as technology, healthcare and industrials.  Its like giving up the free lunch. 

I'm just saying that Income Portfolios have up until now produced enough natural income to meet the needs of retirees who have them, but I agree that might not been the case going forward. 

How do you define “enough”?  Distributions of 4%?  I don’t find this criterion to be meaningful. The value halves, the dividend halves, distributions are still “enough” according to this definition. What I would like to know is by how much the value of these funds has dropped since February and how does it compare with a boring index using total return. 

For a retiree "enough" is defined in £ terms not yield. Capital value fluctuations are irrelevent - what matters is the income.  So take CTY for example.  Its capital value has dropped by about 20% since February and is currently rising.  Obviously the published yield has risen accordingly.  The 3 most recent dividends were paid at the end of November, February and May.  They are identical in £ terms.
Given that no effort was required to access the money, no worrying about what to sell at the depths of the crash or whether to raid the cash buffer, this seems perfectly satisfactory to me.  Obviously the future is unknown, but it always is.

The NAV of CTY is 350p vs 425p a year ago. Thats a staggering drop of 18%. Staggering, when compared to the market in general. My investment is up over the last 12 month. I know what I prefer. 

I checked out a random company in the CTY investment trust. Shell cut its dividend by a factor of 3. I am guessing similar cuts have been made by the other holdings. So all CTY is doing, is paying out capital and masking what is actually going on. Dangerous. 

You do not need income so can be satisfied with a possibly ephemeral increase in capital value.  No income for us means no food, or cancelling the world cruise, depending on our circumstances.  We need real cash.  Chasing capital value is merely a possible means to that end rather than an objective.

As to CTY being dangerous, possibly as nothing is guaranteed but it has prospered with steadily increasing dividends in £ terms for the last 54 years through far worse crashes than COVID. For example, in 2008 the banks who were some of the largest dividend payers at the time stopped paying.  CTY dropped by about 40%, but its dividends continued. 

No-one is uggesting that you put all your money in CTY.  You still need an appropriately balanced portfolio.

I dont “chase capital value”. All I care about is long term total return. I am talking 10, 20, 30 years.  That includes capital and distributions, but fundamentally depends on growth in profits over a cycle. There is nothing “ephemeral” about that. Sales are real and costs are real. 

People who excessively focus on dividends hurt long term returns, just like those who only care about capital growth. 

Agreed, something like CTY should be just part of a much broader investment strategy.   However many us who look on our investments for income are happy to sacrifice some long term returns - we dont have so much of the long term to worry about. 

Audaxer

Deleted_User said:

I don’t know how transparent they really are. According to Trustnet, “The Company’s objective is to provide long-term growth in income and capital, principally by investment in equities listed on the London Stock Exchange. The Board continues to recognise the importance of dividend income to shareholders.”  I saw no warning about potential to cannibalize the capital. An older person, who is too focused on the dividends and  the same number of pounds dropping into his account monthly can be easily lulled into a false sense of security. 

CTY has provided long-term growth in capital as well as income as can been seen from the Trustnet figures.