Most reliable way to have an income from an ISA portfolio.

Thrugelmir

Seldonista said:

How does an ordinary investor access these?

All are listed companies. Tend to go under the radar.  The LSE is full of interesting options.  Many companies have few analysts covering them so tend not to receive much media attention. 

Moe_The_Bartender

garmeg said:

Seldonista said:

Moe_The_Bartender said:

Income ITs:
REITs - but choose carefully. SGRO, BBOX, PHP are what I would choose.
Royalties - SONG
Contract - Infrastructure, Clean energy

I agree with posters above about investing for total return. It’s the only way that makes any sense to me and invest globally, not regionally.

What is SONG and what do you mean by contracts?

Presumably: Hipgnosis Songs Fund Limited Ord Npv, listed on the London Stock Exchange, trading with ticker code SONG.

That’s right and it’s a rather interesting one. The fund own songs and receives a royalty payment every time the song is played or streamed. Streaming services such as Spotify and Deezer have been booming during lockdown and that’s likely to continue providing an increasing revenue stream. As long as the managers continue to choose the songs which will produce the royalties (and so far the signs are good), the income stream will increase. For me, it’s a good alternative income fund.

Robert_McGeddon

I think you should perhaps do a bit more work on the pension side of things. Is the work pension DB or DC? If DB then what pension would you get at 55? Is there a reduction for taking it early? If you retired tomorrow and SP commences at age 67 then you may have 17 years that don't qualify so may not get full SP. Once you know your pension income you'll be in a better position to know how much you need from your ISAs (and maybe DC pension) to plug the gap.

£12K pa is an impressively small sum to live on. If you have unexpected capital expenditure (e,g, a new roof on the house) your numbers could change for the worse very quickly. Someone retiring at 65 might plan for a 30 year retirement - you're prehaps aiming for 45 years, a substantial increase.  Retirement is a serious step - once out of work for a while it's generally hard to return and get a similar income to what was the norm before.  In your shoes I would probably research and plan for another year or two to be absolutely comfortable with the numbers before pressing the retirement button.

Seldonista

Robert_McGeddon said:

I think you should perhaps do a bit more work on the pension side of things. Is the work pension DB or DC? If DB then what pension would you get at 55? Is there a reduction for taking it early? If you retired tomorrow and SP commences at age 67 then you may have 17 years that don't qualify so may not get full SP. Once you know your pension income you'll be in a better position to know how much you need from your ISAs (and maybe DC pension) to plug the gap.

£12K pa is an impressively small sum to live on. If you have unexpected capital expenditure (e,g, a new roof on the house) your numbers could change for the worse very quickly. Someone retiring at 65 might plan for a 30 year retirement - you're prehaps aiming for 45 years, a substantial increase.  Retirement is a serious step - once out of work for a while it's generally hard to return and get a similar income to what was the norm before.  In your shoes I would probably research and plan for another year or two to be absolutely comfortable with the numbers before pressing the retirement button.

you can make voluntary NICs for £795.60 a year (currently) to build up a full NI record for the max state pension, and though it obviously pays off it's still a chunk out of your income

dont_look_now

The OP seems well-placed to retire now, so far as finances goes. There are other factors, of course.

They mentioned a workplace pension of £200k (so I assume that is DC, not DB). Together with an ISA of £370k, that can be regarded as a total pot of £570k. Spending £12k a year from that total pot is a draw rate of 2.1%, which is pretty cautious, even for a super-long retirement. Though Robert McG is right to point out that larger one-off items of expenditure should be taken into account when estimating your expenditure, not just the regular monthly items.

And state pension should start in 17 years (or perhaps a bit later) after retirement, reducing the draw rate. A full state pension is about £9k a year, which would reduce the required draw rate from the pot to a mere £3k. As Seldonista suggests, do check your NI record, if you don't know it already; and plan to make voluntary contributions to ensure you get the full state pension, if you wouldn't otherwise have enough contributions.

So do check out your projected spending and state pension position a bit more carefully, but I think you will find that you are very well set.

Seldonista

Moe_The_Bartender said:

garmeg said:

Seldonista said:

Moe_The_Bartender said:

Income ITs:
REITs - but choose carefully. SGRO, BBOX, PHP are what I would choose.
Royalties - SONG
Contract - Infrastructure, Clean energy

I agree with posters above about investing for total return. It’s the only way that makes any sense to me and invest globally, not regionally.

What is SONG and what do you mean by contracts?

Presumably: Hipgnosis Songs Fund Limited Ord Npv, listed on the London Stock Exchange, trading with ticker code SONG.

That’s right and it’s a rather interesting one. The fund own songs and receives a royalty payment every time the song is played or streamed. Streaming services such as Spotify and Deezer have been booming during lockdown and that’s likely to continue providing an increasing revenue stream. As long as the managers continue to choose the songs which will produce the royalties (and so far the signs are good), the income stream will increase. For me, it’s a good alternative income fund.

If SONG, or a REIT or infrastructure IT pays you a dividend from carrying on their business... I don't know but it seems basically the same as it any other business you bought shares in paid you a dividend. I know some people might choose them for alternative income, or satellites. Have I got it wrong?

bowlhead99

Seldonista said:
If SONG, or a REIT or infrastructure IT pays you a dividend from carrying on their business... I don't know but it seems basically the same as it any other business you bought shares in paid you a dividend. I know some people might choose them for alternative income, or satellites. Have I got it wrong?

Yes in one sense it is just business income, translating to profits, translating to a payment to you of a dividend, like you might get from Microsoft or Apple or Unilever or HSBC etc. 

People looking for income in later life generally quite like that income to be not too correlated with the cycles of the economy and the stock market. So they embrace funds or investment vehicles that are set up to generate reliable income rather than getting a total return that's heavily driven by market sentiment on stock price appreciation or whose profits fluctuate a lot with global trading conditions or perhaps regulatory action (e.g. FCA telling banks not to pay dividends for 2020).  If the investment vehicles have somewhat passive income streams - they just sit there and watch the revenue come in from rents, royalties, dividends, interest, long term government contracts - then after some relatively fixed running costs can simply pay it all out quite reliably on a periodic basis. And as they know their investors might appreciate it, they may reinvest or hold-back some of the income to ensure that it can be paid reliably in the future.

If you take an infrastructure fund like HICL for example. Much of their income comes from public-private partnership assets such as schools, hospitals, prisons where they get paid on an availability basis rather than a volume of sales or transactions. Or regulated assets where a water company or transmission network is going to have relatively stable throughput and much of the billing is fixed. The debt finance which has been used to fund the assets should still be able to be serviced from the revenues through thick and thin, and the residual profit available for payout to investors. 

It won't be quite as simple as that because they will have some demand-based assets (e.g. a toll road in France or USA, or the HS1 project which gets paid for track access by Eurostar and Southeastern railways and takes carpark and retail revenues from customers), but some of those will have built-in resilience too - for example when Covid hit, track use dropped but the track allocations were already booked up for several quarters ahead so the money keeps coming in, and it's the train operators that suffer most from the reduced demand and need the government bailouts.  Some infrastructure investments will suffer more from cyclicality of demand-based revenue than others. For example ports and logistics investments will have more link to the world economy booms and busts of commercial demand than would be seen in an agreement to run a school. And there will usually be some currency exposure for better or worse because some assets will pay in USD or EUR or JPY etc.

Diversified portfolios of infrastructure assets will therefore have some of the properties of bond investments (pretty fixed contractual income) and some of the upside of equity investments (because they will own rather than lease their assets, or have long term regulated concessions to use them, and there will generally be inflation-proofing of the revenue stream, and at the end of the day they are valuable assets with profitability and potential upside from the base case as well as an exit route via sale to another operator or an IPO).  This makes them quite suitable for some types of investors because you are getting the positive aspects of both types of traditional asset classes with dampened volatility - infrastructure is really an alternative asset class of its own, with a number of funds available to retail investors as closed-ended, stockmarket listed vehicles.

Similarly you find defensive characteristics in some REIT type assets (e.g. a couple mentioned up the thread were PHP which owns healthcare sites and gets rental income from NHS etc, or BBOX which owns 'big box' massive logistics warehouses built to a custom spec and let on long term leases with upwards-only inflation-proofed rent reviews in strategically useful locations). And owning intellectual property such as music rights, taking royalties each time someone streams it on spotify or plays it on the radio, is quite an income-y investment because there is not much running cost to being sent money every month as a consequence of owning some undisputed rights.

Of course, if you hold an index fund you will get a mix of high growth companies and high dividend companies and everything in between, and you can hold a bond index fund too and take the edge off the volatility of your portfolio if you think the mix of bond types that makes up the index is a mix that satisfies your own personal objectives. 

But if the overall objective is to get some stable and reliable income, some people might prefer to have a portion of their portfolio in infrastructure and a portion in cash-generative commercial or government real estate etc, rather than just buy an index of stocks and an index of bonds and know that somewhere within it all they will be participating in some of these vehicles as 0.00x% of the global tracker.

Seldonista

bowlhead99 said:

Seldonista said:
If SONG, or a REIT or infrastructure IT pays you a dividend from carrying on their business... I don't know but it seems basically the same as it any other business you bought shares in paid you a dividend. I know some people might choose them for alternative income, or satellites. Have I got it wrong?

Yes in one sense it is just business income, translating to profits, translating to a payment to you of a dividend, like you might get from Microsoft or Apple or Unilever or HSBC etc. 

People looking for income in later life generally quite like that income to be not too correlated with the cycles of the economy and the stock market. So they embrace funds or investment vehicles that are set up to generate reliable income rather than getting a total return that's heavily driven by market sentiment on stock price appreciation or whose profits fluctuate a lot with global trading conditions or perhaps regulatory action (e.g. FCA telling banks not to pay dividends for 2020).  If the investment vehicles have somewhat passive income streams - they just sit there and watch the revenue come in from rents, royalties, dividends, interest, long term government contracts - then after some relatively fixed running costs can simply pay it all out quite reliably on a periodic basis. And as they know their investors might appreciate it, they may reinvest or hold-back some of the income to ensure that it can be paid reliably in the future.

If you take an infrastructure fund like HICL for example. Much of their income comes from public-private partnership assets such as schools, hospitals, prisons where they get paid on an availability basis rather than a volume of sales or transactions. Or regulated assets where a water company or transmission network is going to have relatively stable throughput and much of the billing is fixed. The debt finance which has been used to fund the assets should still be able to be serviced from the revenues through thick and thin, and the residual profit available for payout to investors. 

It won't be quite as simple as that because they will have some demand-based assets (e.g. a toll road in France or USA, or the HS1 project which gets paid for track access by Eurostar and Southeastern railways and takes carpark and retail revenues from customers), but some of those will have built-in resilience too - for example when Covid hit, track use dropped but the track allocations were already booked up for several quarters ahead so the money keeps coming in, and it's the train operators that suffer most from the reduced demand and need the government bailouts.  Some infrastructure investments will suffer more from cyclicality of demand-based revenue than others. For example ports and logistics investments will have more link to the world economy booms and busts of commercial demand than would be seen in an agreement to run a school. And there will usually be some currency exposure for better or worse because some assets will pay in USD or EUR or JPY etc.

Diversified portfolios of infrastructure assets will therefore have some of the properties of bond investments (pretty fixed contractual income) and some of the upside of equity investments (because they will own rather than lease their assets, or have long term regulated concessions to use them, and there will generally be inflation-proofing of the revenue stream, and at the end of the day they are valuable assets with profitability and potential upside from the base case as well as an exit route via sale to another operator or an IPO).  This makes them quite suitable for some types of investors because you are getting the positive aspects of both types of traditional asset classes with dampened volatility - infrastructure is really an alternative asset class of its own, with a number of funds available to retail investors as closed-ended, stockmarket listed vehicles.

Similarly you find defensive characteristics in some REIT type assets (e.g. a couple mentioned up the thread were PHP which owns healthcare sites and gets rental income from NHS etc, or BBOX which owns 'big box' massive logistics warehouses built to a custom spec and let on long term leases with upwards-only inflation-proofed rent reviews in strategically useful locations). And owning intellectual property such as music rights, taking royalties each time someone streams it on spotify or plays it on the radio, is quite an income-y investment because there is not much running cost to being sent money every month as a consequence of owning some undisputed rights.

Of course, if you hold an index fund you will get a mix of high growth companies and high dividend companies and everything in between, and you can hold a bond index fund too and take the edge off the volatility of your portfolio if you think the mix of bond types that makes up the index is a mix that satisfies your own personal objectives. 

But if the overall objective is to get some stable and reliable income, some people might prefer to have a portion of their portfolio in infrastructure and a portion in cash-generative commercial or government real estate etc, rather than just buy an index of stocks and an index of bonds and know that somewhere within it all they will be participating in some of these vehicles as 0.00x% of the global tracker.

I wouldn't trust myself to know what to pick. It sounds fun though, maybe when I'm retired to do that research. Right now I'm just waiting to start a new job and using this forum to prevent my addictive energy clutching onto anything destructive.
I could buy UU and NG, I think I understand them well enough, and all you're buying with them is an RPI linked dividend. But I'll probably always stick with index funds and choose the serenity of accepting whatever return the market gives.

^opm^

Robert_McGeddon said:

I think you should perhaps do a bit more work on the pension side of things. Is the work pension DB or DC? If DB then what pension would you get at 55? Is there a reduction for taking it early? If you retired tomorrow and SP commences at age 67 then you may have 17 years that don't qualify so may not get full SP. Once you know your pension income you'll be in a better position to know how much you need from your ISAs (and maybe DC pension) to plug the gap.

£12K pa is an impressively small sum to live on. If you have unexpected capital expenditure (e,g, a new roof on the house) your numbers could change for the worse very quickly. Someone retiring at 65 might plan for a 30 year retirement - you're prehaps aiming for 45 years, a substantial increase.  Retirement is a serious step - once out of work for a while it's generally hard to return and get a similar income to what was the norm before.  In your shoes I would probably research and plan for another year or two to be absolutely comfortable with the numbers before pressing the retirement button.

Yes the 200k is in a DC pension. If i needed to spend a lump sum then i would think there is still enough capital there to safely spend it.

Thrugelmir

Seldonista said:

bowlhead99 said:

Seldonista said:
If SONG, or a REIT or infrastructure IT pays you a dividend from carrying on their business... I don't know but it seems basically the same as it any other business you bought shares in paid you a dividend. I know some people might choose them for alternative income, or satellites. Have I got it wrong?

Yes in one sense it is just business income, translating to profits, translating to a payment to you of a dividend, like you might get from Microsoft or Apple or Unilever or HSBC etc. 

People looking for income in later life generally quite like that income to be not too correlated with the cycles of the economy and the stock market. So they embrace funds or investment vehicles that are set up to generate reliable income rather than getting a total return that's heavily driven by market sentiment on stock price appreciation or whose profits fluctuate a lot with global trading conditions or perhaps regulatory action (e.g. FCA telling banks not to pay dividends for 2020).  If the investment vehicles have somewhat passive income streams - they just sit there and watch the revenue come in from rents, royalties, dividends, interest, long term government contracts - then after some relatively fixed running costs can simply pay it all out quite reliably on a periodic basis. And as they know their investors might appreciate it, they may reinvest or hold-back some of the income to ensure that it can be paid reliably in the future.

If you take an infrastructure fund like HICL for example. Much of their income comes from public-private partnership assets such as schools, hospitals, prisons where they get paid on an availability basis rather than a volume of sales or transactions. Or regulated assets where a water company or transmission network is going to have relatively stable throughput and much of the billing is fixed. The debt finance which has been used to fund the assets should still be able to be serviced from the revenues through thick and thin, and the residual profit available for payout to investors. 

It won't be quite as simple as that because they will have some demand-based assets (e.g. a toll road in France or USA, or the HS1 project which gets paid for track access by Eurostar and Southeastern railways and takes carpark and retail revenues from customers), but some of those will have built-in resilience too - for example when Covid hit, track use dropped but the track allocations were already booked up for several quarters ahead so the money keeps coming in, and it's the train operators that suffer most from the reduced demand and need the government bailouts.  Some infrastructure investments will suffer more from cyclicality of demand-based revenue than others. For example ports and logistics investments will have more link to the world economy booms and busts of commercial demand than would be seen in an agreement to run a school. And there will usually be some currency exposure for better or worse because some assets will pay in USD or EUR or JPY etc.

Diversified portfolios of infrastructure assets will therefore have some of the properties of bond investments (pretty fixed contractual income) and some of the upside of equity investments (because they will own rather than lease their assets, or have long term regulated concessions to use them, and there will generally be inflation-proofing of the revenue stream, and at the end of the day they are valuable assets with profitability and potential upside from the base case as well as an exit route via sale to another operator or an IPO).  This makes them quite suitable for some types of investors because you are getting the positive aspects of both types of traditional asset classes with dampened volatility - infrastructure is really an alternative asset class of its own, with a number of funds available to retail investors as closed-ended, stockmarket listed vehicles.

Similarly you find defensive characteristics in some REIT type assets (e.g. a couple mentioned up the thread were PHP which owns healthcare sites and gets rental income from NHS etc, or BBOX which owns 'big box' massive logistics warehouses built to a custom spec and let on long term leases with upwards-only inflation-proofed rent reviews in strategically useful locations). And owning intellectual property such as music rights, taking royalties each time someone streams it on spotify or plays it on the radio, is quite an income-y investment because there is not much running cost to being sent money every month as a consequence of owning some undisputed rights.

Of course, if you hold an index fund you will get a mix of high growth companies and high dividend companies and everything in between, and you can hold a bond index fund too and take the edge off the volatility of your portfolio if you think the mix of bond types that makes up the index is a mix that satisfies your own personal objectives. 

But if the overall objective is to get some stable and reliable income, some people might prefer to have a portion of their portfolio in infrastructure and a portion in cash-generative commercial or government real estate etc, rather than just buy an index of stocks and an index of bonds and know that somewhere within it all they will be participating in some of these vehicles as 0.00x% of the global tracker.

I could buy UU and NG, I think I understand them well enough, and all you're buying with them is an RPI linked dividend. 

Subject to regulatory constraints. Utility companies are going to be effected with reduction in consumption and customer bad debts. Very little is immune to Covid in some way or another.