Best investments for a drawdown account?

BritishInvestor

Aged said:

dunstonh said:

With that in mind, would it not make sense to use Inc type units rather than Acc?

It depends on your investment strategy and drawdown strategy.  

Then the 'natural yield' would be clear to see

Most don't use natural yield nowadays but use total return.   However, if you wish to limit your investment potential and use yield then you would use Inc units. 

I understand what you're saying dunstonh. Was just looking for a bit more clarity re how much it's 'safe' to withdraw without risking blowing the whole thing to smithereens. At the end of the day my pension assets are there mainly to ensure I have a sufficient and dependable income. If it's REALLY possible to have your cake and eat it (as I have been led to believe) that's fine, but if not, I'm not sure whether paying adviser fees, platform fees, fund charges etc etc in the hope of 'growth' is worth it, never mind the stress and worry aspect it all brings.

"Was just looking for a bit more clarity re how much it's 'safe' to withdraw without risking blowing the whole thing to smithereens."

It might seem like an easy question but it's surprisingly tricky:

“The only way you can look at the retirement problem is through probability. You can’t look at it not with probability. Everywhere you turn there are probabilities: of inflation, of market performance, or mortality. It’s true that you don’t know the range of possible outcomes for next year, let alone 40 years from now. But you try to come up with the most credible set of probabilities that you can.”

This is a good book to read around the subject

https://www.amazon.co.uk/Beyond-4-Rule-retirement-portfolios/dp/1985721643/ref=sr_1_1?=8-1

Aged

BritishInvestor said:

It might seem like an easy question but it's surprisingly tricky:

“The only way you can look at the retirement problem is through probability. You can’t look at it not with probability. Everywhere you turn there are probabilities: of inflation, of market performance, or mortality. It’s true that you don’t know the range of possible outcomes for next year, let alone 40 years from now. But you try to come up with the most credible set of probabilities that you can.”

This is a good book to read around the subject

https://www.amazon.co.uk/Beyond-4-Rule-retirement-portfolios/dp/1985721643/ref=sr_1_1?=8-1

Thanks for that, I have ordered the book.

BritishInvestor

Aged said:

BritishInvestor said:

It might seem like an easy question but it's surprisingly tricky:

“The only way you can look at the retirement problem is through probability. You can’t look at it not with probability. Everywhere you turn there are probabilities: of inflation, of market performance, or mortality. It’s true that you don’t know the range of possible outcomes for next year, let alone 40 years from now. But you try to come up with the most credible set of probabilities that you can.”

This is a good book to read around the subject

https://www.amazon.co.uk/Beyond-4-Rule-retirement-portfolios/dp/1985721643/ref=sr_1_1?=8-1

Thanks for that, I have ordered the book.

There is another retirement planning book due for publication by year-end which should also be useful
Once you've read Abraham's book it would be good to have your feedback.

Aged

BritishInvestor said:

There is another retirement planning book due for publication by year-end which should also be useful
Once you've read Abraham's book it would be good to have your feedback.

Sounds interesting. Will no doubt have even more questions after reading the book!

AnotherJoe

Aged said:

AnotherJoe said:

Lets say you can get 3% from Inc funds (nearly all income) and 5% from growth funds (by a combination of growth and income),

Why would it be "blowing the whole thing up" to take 3% out of the latter (by selling units as well as taking the income) but it wouldnt by taking just the 3% out of the income?

My point is it's not possible to 'set and forget', it takes constant monitoring to make sure your not depleting your original capital and if you have to do that, it's just not worth all the trouble and charges is it? 

Why do you think an income based portfolio can't suffer from capital depletion?

I dont think it would  be anywhere near the level of trouble you seem to think it would be to drawdown from a portfolio not aimed at income*, and since you are worried about depleting capital, check out how much capital would have been depleted if you bought a portfolio full of high income stocks like BP, Shell, BT, Lloyds etc etc a year ago.

* I do this, i draw down from a portfolio of what most would call growth stocks. Once or twice a year i sell some funds and draw down from the cash pool monthly. which also builds a little from the odd dividend or two. I'm not selling investments every month as perhaps you might imagine ?

Aged

AnotherJoe said:

Why do you think an income based portfolio can't suffer from capital depletion?

I dont think it would  be anywhere near the level of trouble you seem to think it would be to drawdown from a portfolio not aimed at income*, and since you are worried about depleting capital, check out how much capital would have been depleted if you bought a portfolio full of high income stocks like BP, Shell, BT, Lloyds etc etc a year ago.

* I do this, i draw down from a portfolio of what most would call growth stocks. Once or twice a year i sell some funds and draw down from the cash pool monthly. which also builds a little from the odd dividend or two. I'm not selling investments every month as perhaps you might imagine ?

To my simple mind, 'withdrawing the natural yield' means you withdraw income but not capital. With my existing drawdown arrangement investments are being sold on an ongoing basis to cover charges and withdrawals. It makes no sense to me. 

dunstonh

To my simple mind, 'withdrawing the natural yield' means you withdraw income but not capital. With my existing drawdown arrangement investments are being sold on an ongoing basis to cover charges and withdrawals. It makes no sense to me. 

Yielding investments tends to mean you will need a UK bias.  UK large cap in particular and a number of old industries.   These tend to have poor growth (as they are paying out the higher dividend rather than reinvesting it for future) and old industries tend to be lower growth.   

So, you expect yielding portfolio to underperform of global diverse total return portfolio.

For example, if you had a yield portfolio with a 3.5% yield and 1.0% growth then your total return is 4.5%.  If you then draw that 3.5% yield, you are left with a 1% increase.    Whereas a total return portfolio may have 1.5% yield and 5% growth.  If you then draw 3.5%  you have a 3% increase.     Your yielding portfolio hasn't sold units but its value at the end of the year is lower than the one that has sold units.     

What matters is the total return.    Not the number of units held.

Aged

dunstonh said:

Yielding investments tends to mean you will need a UK bias.  UK large cap in particular and a number of old industries.   These tend to have poor growth (as they are paying out the higher dividend rather than reinvesting it for future) and old industries tend to be lower growth.   

So, you expect yielding portfolio to underperform of global diverse total return portfolio.

For example, if you had a yield portfolio with a 3.5% yield and 1.0% growth then your total return is 4.5%.  If you then draw that 3.5% yield, you are left with a 1% increase.    Whereas a total return portfolio may have 1.5% yield and 5% growth.  If you then draw 3.5%  you have a 3% increase.     Your yielding portfolio hasn't sold units but its value at the end of the year is lower than the one that has sold units.     

What matters is the total return.    Not the number of units held.

Yes I get it. It just needs to be managed properly. 

coyrls

As Dunstonh says, a portfolio designed for yield will distort asset allocations and increase risk.

Albermarle

Also some reduction in capital as you take the drawdown is normal as long as it is in a controlled and sustainable way .