Best investments for a drawdown account?

Linton

AnotherJoe said:

Aged said:

AnotherJoe said:

Aged said:

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. 

There's an inherent assumption in your post that neither capital nor dividends can go down if you chose investments biased for income.

Maybe you had £10k in BP and a 6% yield.

Now its £5k and 1% yield (or whatever, made up numbers)

How is that better than holding (say) SMT which went up 50% and you sold 6% to end up with 144% of your capital instead of 50%?

I appreciate that the value of the capital element will fluctuate, it just seemed it would be easier to identify the income if you could see it being credited in the same way as interest on savings. I guess I need to learn to think like an investor.

Fluctuate implies (to me anyway) about a level but not really dropping.

What we're seeing at present with income investments is it (1) "fluctuating" constantly downwards and (2) the income dropping. Unsurprising because there's a feedback effect. Many income investments stock price remained high because of the income they provided. When the income drops, then the share price does as well.

And as said, by choosing income investments specifically for a high level of income, you are biasing yourself towards a small section of the market, one that has lower growth, falling income, falling share prices.

 

I disagree. Yes, at the moment  because of COVID UK equity income has dropped and therefore UK shares providing income  are less popular.  But the situation has been very different in the past and will be different in the future.  Investing in what is currently popular is poor investing, now could be a good time to buy into quality UK dividend-paying companies.  And there are many - UK equity income isnt restricted to the dinosaurs. For example. the utilities' opportunity for profitable investment is somewhat limited but their income is as safe as anything could be. However as covered in the next paragraph UK equity income is just part of the income universe.

Going single mindedly for growth also biases one to a particular part of the market at the moment dominated by large US tech shares.  Some are arguably well overvalued and could disappear thanks to changes in fashion or technology.  In the end they will either mature or disappear, in both cases the current rate of growth is unsustainable. Also, the income market is also much larger than often suggested in these posts.  One can get good equity income from the Far East, and Global Infrastructure.  There is also European Assets Trust, EAT, a growth based IT that invests in Eurpoean Small Companies but is managed to pay a high dividend - unlike OEICs an IT is not constrained to only paying dividends from those generated by the companies in which it invests.  And then there are global corporate bonds and EM government bonds paying good income.  UK equity represents just 13% of my Income portfolio. As in all investing, diversification is paramount.

But I agree with Thrugelmire's comment saying solely investing for income is unlikely to be successful.  To ensure inflation matching one also needs growth - diversification again.  But one needs appropriate asset allocation. Is one's primary objective long term growth with income as a by-product or income with much less concern for maximising long term capital growth?  In retirement I am finding plans for "long term"  are getting replaced by those for the "medium term" alarmingly quickly!

Audaxer

Linton said:

AnotherJoe said:

Aged said:

AnotherJoe said:

Aged said:

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. 

There's an inherent assumption in your post that neither capital nor dividends can go down if you chose investments biased for income.

Maybe you had £10k in BP and a 6% yield.

Now its £5k and 1% yield (or whatever, made up numbers)

How is that better than holding (say) SMT which went up 50% and you sold 6% to end up with 144% of your capital instead of 50%?

I appreciate that the value of the capital element will fluctuate, it just seemed it would be easier to identify the income if you could see it being credited in the same way as interest on savings. I guess I need to learn to think like an investor.

Fluctuate implies (to me anyway) about a level but not really dropping.

What we're seeing at present with income investments is it (1) "fluctuating" constantly downwards and (2) the income dropping. Unsurprising because there's a feedback effect. Many income investments stock price remained high because of the income they provided. When the income drops, then the share price does as well.

And as said, by choosing income investments specifically for a high level of income, you are biasing yourself towards a small section of the market, one that has lower growth, falling income, falling share prices.

 

I disagree. Yes, at the moment  because of COVID UK equity income has dropped and therefore UK shares providing income  are less popular.  But the situation has been very different in the past and will be different in the future.  Investing in what is currently popular is poor investing, now could be a good time to buy into quality UK dividend-paying companies.  

I would think and hope UK Equity Income funds/ITs will return to pre-Covid levels eventually. As you will know the FTSE100 has been hovering around the 6,000 mark for some time, and from memory was at about 7,600 pre-Covid. Am I wrong in thinking that it will eventually get back to the pre-Covid level?

Thrugelmir

Audaxer said:

Linton said:

AnotherJoe said:

Aged said:

AnotherJoe said:

Aged said:

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. 

There's an inherent assumption in your post that neither capital nor dividends can go down if you chose investments biased for income.

Maybe you had £10k in BP and a 6% yield.

Now its £5k and 1% yield (or whatever, made up numbers)

How is that better than holding (say) SMT which went up 50% and you sold 6% to end up with 144% of your capital instead of 50%?

I appreciate that the value of the capital element will fluctuate, it just seemed it would be easier to identify the income if you could see it being credited in the same way as interest on savings. I guess I need to learn to think like an investor.

Fluctuate implies (to me anyway) about a level but not really dropping.

What we're seeing at present with income investments is it (1) "fluctuating" constantly downwards and (2) the income dropping. Unsurprising because there's a feedback effect. Many income investments stock price remained high because of the income they provided. When the income drops, then the share price does as well.

And as said, by choosing income investments specifically for a high level of income, you are biasing yourself towards a small section of the market, one that has lower growth, falling income, falling share prices.

 

I disagree. Yes, at the moment  because of COVID UK equity income has dropped and therefore UK shares providing income  are less popular.  But the situation has been very different in the past and will be different in the future.  Investing in what is currently popular is poor investing, now could be a good time to buy into quality UK dividend-paying companies.  

I would think and hope UK Equity Income funds/ITs will return to pre-Covid levels eventually. As you will know the FTSE100 has been hovering around the 6,000 mark for some time, and from memory was at about 7,600 pre-Covid. Am I wrong in thinking that it will eventually get back to the pre-Covid level?

Why the fixation with the FTSE100.  Plenty of cash generative companies across the LSE as a whole. 

Audaxer

Thrugelmir said:

Audaxer said:

Linton said:

AnotherJoe said:

Aged said:

AnotherJoe said:

Aged said:

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. 

There's an inherent assumption in your post that neither capital nor dividends can go down if you chose investments biased for income.

Maybe you had £10k in BP and a 6% yield.

Now its £5k and 1% yield (or whatever, made up numbers)

How is that better than holding (say) SMT which went up 50% and you sold 6% to end up with 144% of your capital instead of 50%?

I appreciate that the value of the capital element will fluctuate, it just seemed it would be easier to identify the income if you could see it being credited in the same way as interest on savings. I guess I need to learn to think like an investor.

Fluctuate implies (to me anyway) about a level but not really dropping.

What we're seeing at present with income investments is it (1) "fluctuating" constantly downwards and (2) the income dropping. Unsurprising because there's a feedback effect. Many income investments stock price remained high because of the income they provided. When the income drops, then the share price does as well.

And as said, by choosing income investments specifically for a high level of income, you are biasing yourself towards a small section of the market, one that has lower growth, falling income, falling share prices.

 

I disagree. Yes, at the moment  because of COVID UK equity income has dropped and therefore UK shares providing income  are less popular.  But the situation has been very different in the past and will be different in the future.  Investing in what is currently popular is poor investing, now could be a good time to buy into quality UK dividend-paying companies.  

I would think and hope UK Equity Income funds/ITs will return to pre-Covid levels eventually. As you will know the FTSE100 has been hovering around the 6,000 mark for some time, and from memory was at about 7,600 pre-Covid. Am I wrong in thinking that it will eventually get back to the pre-Covid level?

Why the fixation with the FTSE100.  Plenty of cash generative companies across the LSE as a whole. 

Not a fixation - it's just that some of the Equity Income funds I have fell at approximately the same rate as the FTSE100 and FTSE All Share indexes, so I would expect the equity income funds to increase around the same time as these indexes go up again. I would be surprised if these indexes didn't get back to pre-Covid levels eventually as they have always regained losses in the past, but just wondered whether others thought that is likely this time? 

NottinghamKnight

Audaxer said:

Thrugelmir said:

Audaxer said:

Linton said:

AnotherJoe said:

Aged said:

AnotherJoe said:

Aged said:

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. 

There's an inherent assumption in your post that neither capital nor dividends can go down if you chose investments biased for income.

Maybe you had £10k in BP and a 6% yield.

Now its £5k and 1% yield (or whatever, made up numbers)

How is that better than holding (say) SMT which went up 50% and you sold 6% to end up with 144% of your capital instead of 50%?

I appreciate that the value of the capital element will fluctuate, it just seemed it would be easier to identify the income if you could see it being credited in the same way as interest on savings. I guess I need to learn to think like an investor.

Fluctuate implies (to me anyway) about a level but not really dropping.

What we're seeing at present with income investments is it (1) "fluctuating" constantly downwards and (2) the income dropping. Unsurprising because there's a feedback effect. Many income investments stock price remained high because of the income they provided. When the income drops, then the share price does as well.

And as said, by choosing income investments specifically for a high level of income, you are biasing yourself towards a small section of the market, one that has lower growth, falling income, falling share prices.

 

I disagree. Yes, at the moment  because of COVID UK equity income has dropped and therefore UK shares providing income  are less popular.  But the situation has been very different in the past and will be different in the future.  Investing in what is currently popular is poor investing, now could be a good time to buy into quality UK dividend-paying companies.  

I would think and hope UK Equity Income funds/ITs will return to pre-Covid levels eventually. As you will know the FTSE100 has been hovering around the 6,000 mark for some time, and from memory was at about 7,600 pre-Covid. Am I wrong in thinking that it will eventually get back to the pre-Covid level?

Why the fixation with the FTSE100.  Plenty of cash generative companies across the LSE as a whole. 

Not a fixation - it's just that some of the Equity Income funds I have fell at approximately the same rate as the FTSE100 and FTSE All Share indexes, so I would expect the equity income funds to increase around the same time as these indexes go up again. I would be surprised if these indexes didn't get back to pre-Covid levels eventually as they have always regained losses in the past, but just wondered whether others thought that is likely this time? 

Though it took nearly two decades to get back up to around 7000 of course.

dunstonh

Not a fixation - it's just that some of the Equity Income funds I have fell at approximately the same rate as the FTSE100 and FTSE All Share indexes, so I would expect the equity income funds to increase around the same time as these indexes go up again.

UK Large cap would make up a lot of the content in a UK equity income fund.

I would be surprised if these indexes didn't get back to pre-Covid levels eventually as they have always regained losses in the past, but just wondered whether others thought that is likely this time? 

It is inevitable as inflation will eventually get you there.  It may not be within your lifetime though or it could be next week.

You should go by the basis that you should be invested in what you would use if you were investing the money today unless there is a justifiable reason for not making a change.