Comparing returns between BTL and stocks/funds

intgomo

Hi.
I'm lucky enough to own a buy-to-let property outright that yields 3.4% net of expenses.  The investment cost £240k.  I'm considering selling up next year and either investing in other property in search of higher net yield or putting the money into funds or index trackers (or similar).
Although I dabble with some stocks and shares, these are mainly for growth and I'm therefore wondering if net yield of >3.4% is a realistic expectation with more of a focus on income.
The sorts of questions I have are:  should I be looking at building a high-yield portfolio and actively managing this myself?  Are there more passive options that consistently return >3.4% net yield?  Should I be happy with what I'm getting as it's certainly better than putting it all into a bank account?
Any and all thoughts, feedback and opinions welcome.
Kind regards, John.
Background info:  I'm early 50s, hoping to retire late 50s, and my strategy is evolving to long-term buy and hold with the primary aim of generating income.

AnotherJoe

intgomo said:

Hi.
I'm lucky enough to own a buy-to-let property outright that yields 3.4% net of expenses.  The investment cost £240k.  I'm considering selling up next year and either investing in other property in search of higher net yield or putting the money into funds or index trackers (or similar).
Although I dabble with some stocks and shares, these are mainly for growth and I'm therefore wondering if net yield of >3.4% is a realistic expectation with more of a focus on income.

Is growth not income if you take some of it? In the long run all that matters is total income, eg growth plus dividends.

If you just focus on income, eg dividends, first you restrict yourself to a subset of all available investments and secondly your overall pot is not safe if dividends are cut because  share prices will fall (because an "income" share price will  be held up by the dividends it pays so.

Also, as you get older do you reallyw ant teh hassle of managing tenants and increasing restrictions and tax rules.?

 

Thrugelmir

Will you incur a CGT liability if you sell the property? 

intgomo

Thanks for the quick reply AnotherJoe.
Re. the letting situation, you've hit the nail on the head.  It's certainly not a hands-free investment, even with letting agents involved and no, I probably don't want the bother when I'm older.
There seems to be much interest in this forum on global market trackers and mixed equity/bonds products like Vanguard.  The income from these seems to be between 1% and 2% (not adjusted for costs) but I haven't factored in growth as per your comment.
Food for thought...

intgomo

Thrugelmir said:

Will you incur a CGT liability if you sell the property? 

Yes, but probably pretty close to annual allowance and I'm not planning any other disposals next year.

dunstonh

I'm lucky enough to own a buy-to-let property outright that yields 3.4% net of expenses. 

That is very low.  

and I'm therefore wondering if net yield of >3.4% is a realistic expectation with more of a focus on income.

Income focus is a rather dated method nowadays.  Total return is more popular.

should I be looking at building a high-yield portfolio and actively managing this myself?

It is a viable method.   Some people still use it but many, including myself, believe it is no longer ideal in the modern world.  HYP usually involve home bias and UK large cap.   UK large cap is consistently a poor performer (that could change but it hasnt in the last 25 years and no-one really expects it to as UK companies are too focused on dividends and not growth).   Plus, you cannot control you risk as well as total return without compromising the portfolio.

AnotherJoe

I experimented with a HYP portfolio a few years ago but couldn't stomach it's poor overall performance vs the large gains My other portfolios were making.
The shares lost value in dips just as much as my index investment shares did. Yes income came in but that would really Have dried up now and even if it hadn't if my growth shares were up say 50% when HYP flat, getting 4-5% income is little consolation. If that is even now viable for many companies. 

. Luckily for me I sold That up before the recent hit and subsequent massive cuts in dividends by many companies. 

I think income funds are really going to struggle over the next few years, and the only way they'll be able to pay income is by doing what you could do yourself, sell equity.Plus they will be compromised because the selection of funds, as Dunston says, is limited.

BTw if you do go for vanguard don't pick the life strategy funds, I believe they are compromised by the artificial "UK" element. (Which isn't really UK just large companies that arbitrarily are domiciled here)   Vanguard have other similar funds which aren't affected by that as do many other companies and you can always ways pick one with a bond element as well 

Bravepants

HSBC Global Strategy funds seem to be better weighted than Vanguard LS. 

Albermarle

https://monevator.com/passive-fund-of-funds-the-rivals/
Useful comparison .

Bravepants

Yes, great article Albermarle.

Linton

ISTM  that in principle shares/funds and BTL could give similar returns in capital value and generated income  over the lifetime of the investment, shares/funds have the major advantage that you can you can use the capital gains to increase your ongoing income. With a BTL they are inaccessible until you sell up.