Where to investment cash in an ISA

AnotherJoe

Why can't the money be outside the ISA, and used to buffer dividend payments ?
if its never intended to invest in funds or similar , there's very little point it being In an ISA. 
Thats what I do.
FWIW relying on dividend payments is a much more risky proposition these days. 

83705628

AnotherJoe said:

Why can't the money be outside the ISA, and used to buffer dividend payments ?
if its never intended to invest in funds or similar , there's very little point it being In an ISA. 
Thats what I do.
FWIW relying on dividend payments is a much more risky proposition these days. 

/
Maybe for the next year or two if you're s
talking about individual stocks but UK/Global index dividends are remarkably resilient. The only cuts we've had in the UK since the war were 2009 -11%, 1998 -14%, 2001-2 -3.4%, 1992-3 -4.9%, 1967 -2.5%, 1962-3 -6.9%, 1948 -7.7%. Doesn't always keep up with inflation but when it doesn't the total return does. US is similar https://www.multpl.com/s-p-500-dividend

AnotherJoe

tcallaghan93 said:

AnotherJoe said:

Why can't the money be outside the ISA, and used to buffer dividend payments ?
if its never intended to invest in funds or similar , there's very little point it being In an ISA. 
Thats what I do.
FWIW relying on dividend payments is a much more risky proposition these days. 

/
Maybe for the next year or two if you're s
talking about individual stocks but UK/Global index dividends are remarkably resilient. The only cuts we've had in the UK since the war were 2009 -11%, 1998 -14%, 2001-2 -3.4%, 1992-3 -4.9%, 1967 -2.5%, 1962-3 -6.9%, 1948 -7.7%. Doesn't always keep up with inflation but when it doesn't the total return does. US is similar https://www.multpl.com/s-p-500-dividend

If you choose investments on the basis that they pay dividends (esp if they pay a high level, say above 3%) then overall you'll get a lower return than From a mix of growth and dividends.
you also miss out on the growth stage of many companies. You also miss out on many industries and you end up with a higher proportion of companies that may be failing or stagnant and trying to hold up their share price via dividends. 

83705628

AnotherJoe said:

tcallaghan93 said:

AnotherJoe said:

Why can't the money be outside the ISA, and used to buffer dividend payments ?
if its never intended to invest in funds or similar , there's very little point it being In an ISA. 
Thats what I do.
FWIW relying on dividend payments is a much more risky proposition these days. 

/
Maybe for the next year or two if you're s
talking about individual stocks but UK/Global index dividends are remarkably resilient. The only cuts we've had in the UK since the war were 2009 -11%, 1998 -14%, 2001-2 -3.4%, 1992-3 -4.9%, 1967 -2.5%, 1962-3 -6.9%, 1948 -7.7%. Doesn't always keep up with inflation but when it doesn't the total return does. US is similar https://www.multpl.com/s-p-500-dividend

If you choose investments on the basis that they pay dividends (esp if they pay a high level, say above 3%) then overall you'll get a lower return than From a mix of growth and dividends.
you also miss out on the growth stage of many companies. You also miss out on many industries and you end up with a higher proportion of companies that may be failing or stagnant and trying to hold up their share price via dividends. 

/
If you'd said "you may" rather than "you will" get a lower return or "you also miss out" I would have agreed. But your comment is wrong (reasons below). That data is from the Barclays UK Equity Index. Also my original point is that relying on dividend payments may be risky if you're talking about individual companies over the short-term i.e. COVID, but the strength of that point is weaker for indices over the long-term, when dividends are consistent, resilient and at least keep pace with inflation.

The long-term evidence is the opposite to your point, on aggregate higher dividend payers have slightly outperformed historically so to say "you will" get a lower return is wrong both historically and intuitively - you cannot know that one "will" get a lower return by picking dividend payers or a dividend focused index, or just a general index with a higher dividend yield such as the UK vs the US. For example, 2000-2019 inclusive, the total investment return of the UK stock market was higher than the US's, "in spite of" a higher dividend yield. The reason the US outperformed over that period in £ terms happened solely during the last quarter of that 20 year period and came down to relative speculation and currency appreciation. The earnings growth + dividend yield of the S&P 500 was 6.88%, (6.06% total $ return, PE reduced by -0.77% a year), for the FTSE All Share the investment return was 7.26% (4.68% total £ return, PE reduced -2.405% a year).

If you own the index, you own all companies, whatever stage they're at, so you're guaranteed not to miss out the minority of companies that generate all the growth. You own all industries, all companies at all stages, and a company is only worth the present value of its future earnings discounted at the risk-free rate of interest, and dividends are a perfectly sensible means of using excess cash generated to increase shareholder's return for many companies.

AnotherJoe

Fair comment, i should have said "you'll very likely" get a lower return rather than be so definite.

I"ll also correct you you wrote

"If you own the index, you own all companies, whatever stage they're at, so you're guaranteed not to miss out the minority of companies that generate all the growth. You own all industries, all companies at all stages"

Not so, indexes only have so many companies,  the top 100, 250, 500, whatever. Thats why there are small company indexes and even those are generally relatively large.

If you own the S&P500 index for example, where's Tesla in that ? (to pick one high growth outlier)

 

83705628

AnotherJoe said:

Fair comment, i should have said "you'll very likely" get a lower return rather than be so definite.
Wrong except in extreme cases of unsustainably high dividends. You could say the same of the opposing extreme view that "companies that don't pay dividends are better". There could be companies that do not generate enough excess cash flow to pay dividends. Also the yield is just the dividend the company pays divided by the price, the market's price estimate could be off, so a "high yield" stock like BATS could actually have been a very good investment compared with a company with a lower yield that may have seemed more sustainable at the time.

I"ll also correct you you wrote

"If you own the index, you own all companies, whatever stage they're at, so you're guaranteed not to miss out the minority of companies that generate all the growth. You own all industries, all companies at all stages"
Not so, indexes only have so many companies,  the top 100, 250, 500, whatever. Thats why there are small company indexes and even those are generally relatively large. If you own the S&P500 index for example, where's Tesla in that ? (to pick one high growth outlier)

 This is a very minor technical point about the way some indices are constructed, it's not a fair criticism of indexing generally. If you own the FTSE All Share, FTSE Global All Cap, or Vanguard's US Equity index funds then you will own essentially all such companies. The opposing view is that you should try and pick the winners of the future, good luck with that.

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Sorcerer2018

I invest only in income based Investment Trusts only, many of which have paid an increasing dividend for more than 20 years. City of London over 50 years so far. And whilst i have no idea if this will continue in the future, it's a pretty good track record.

83705628

Sorcerer2018 said:

I invest only in income based Investment Trusts only, many of which have paid an increasing dividend for more than 20 years. City of London over 50 years so far. And whilst i have no idea if this will continue in the future, it's a pretty good track record.

/
Fair enough, IMHO looking at the holdings one may as well buy a UK equity index fund.

Audaxer

Sorcerer2018 said:

I invest only in income based Investment Trusts only, many of which have paid an increasing dividend for more than 20 years. City of London over 50 years so far. And whilst i have no idea if this will continue in the future, it's a pretty good track record.

I have some of these Investment Trusts and I hope they will be able to continue paying increasing dividends, but in these uncertain times I fear that even some of these ITs may well have to cut dividends, but hopefully not by much. I think it is sensible to keep the cash buffer, but if you never intend to invest the £10k, I think it makes more sense to keep it outside of the S&S ISA. You might only get up to 1% interest, but £100 a year interest is better than nothing.

ColdIron

Audaxer said:

Sorcerer2018 said:

I invest only in income based Investment Trusts only, many of which have paid an increasing dividend for more than 20 years. City of London over 50 years so far. And whilst i have no idea if this will continue in the future, it's a pretty good track record.

I have some of these Investment Trusts and I hope they will be able to continue paying increasing dividends, but in these uncertain times I fear that even some of these ITs may well have to cut dividends, but hopefully not by much

CTY has has increased its dividend for this year and pledged its intention to do the same next year

• Dividend record breaker City of London (CTY) has notched up its 54th year of consecutive increases in payouts and pledged to extend that streak next year amid a deafening silence from half its rivals in the UK Equity Income sector as to their intentions during the UK’s unprecedented dividend drought.
• 
  
• The £1.4bn trust’s board yesterday declared a fourth interim dividend of 4.75p per ordinary share, taking the total for the year to 30 June to 19p, up 2.2% on last year and offering a 5.6% yield on the current share price of 334p.
• 
  
• The board also guided payouts for the current financial year would top 19p, which if achieved would make for 55 years of rising dividends, maintaining the trust’s coveted spot at the top of the Association of Investment Companies’ ‘Dividend Heroes’ list.
• A statement on future dividends continued: ‘This is likely to be funded from a combination of income received during the year and revenue reserves.

Good for income but I wouldn't hold out much hope for significant capital growth

https://citywire.co.uk/investment-trust-insider/news/dividend-heroes-city-of-london-targets-55th-annual-increase-as-rivals-stay-mute/a1382894
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