Passive / Active investments for income.

Linton

Prism said:

Linton said:

Prism said:

Thrugelmir said:

Prism said:

Thrugelmir said:

Prism said:

Linton said:

Prism said:

Alexland said:

I wouldn't touch a passive income fund with a barge pole as you risk just sucking up a load of poor quality high yield companies.
There are investment trusts that get a good balance of yield and capital growth while still investing in good quality companies if you are willing to spend the time on selecting and monitoring them. The costs are a bit higher but that is generally covered by the enhanced return they achieve by using a conservative amount of gearing.

I'll take that one step further and say that I wouldn't touch any equity income fund with a barge pole. I'll take the standard dividends from a fund but no more. I can get income from other places like savings, bonds and property.

Equity income funds are in my view helpful in retirement unless you want to adopt an unbalanced 100% Growth investment strategy - something I would not dare do. Their advantage is that they are an efficient use of assets as they meet 2 objectives from a single investment.  Equity income funds add "Value" to balance the "Growth" investments and produce an income which can be transfered automatically to one's current account with zero effort.  It would seem far more logical and more easily implemented to do that than the reverse of taking income from selling Growth whilst reinvesting the dividends from Value.

 Europeans Assets Trust is a growth fund that pays a 6% dividend. 

EAT returns capital. European shares are generally low dividend payers. A consequence of the high tax treatment of dividends in many countries. 

I know, that was my point. It is entirely possible to have a growth oriented trust that sells shares to pay a high dividend and a value oriented trust that keeps some of its dividends and reinvests them as growth, paying less out along the way.

 Wish more IT's would follow the same principle. 

The EAT way? Most of my investments are in a tax wrapper so it makes no difference to me if I get a dividend or manufacture my own by selling some shares. 

If it makes no difference to you financially whether you take dividend/ interest or sell the shares/funds then surely the convenience of dividends/interest wins as you get can the money transferred directly into your current account with zero effort, thought or cost.

Maybe, however its only a minor convenience and wouldn't be a factor as to fund selection. I would select an income version of a fund over accumulation but would specifically select a fund or trust in the equity income category just because of that yield. If one of those funds is good on its own merits then thats different. 

Yes, the key is fund selection. The problem is the definition of “good” if you need a steady income as well as the long  term growth that ensures that income can continue at its current real value for the rest of your life.

I avoid that quandary by having separate portfolios for income and growth with different definitions of “good”.  The overall result may be broadly similar to your total return portfolio. However I have a clear justification from objectives for every fund held. This ensures that investments can be assessed on a simple basis and removed should they not be fulfilling their role.

Prism

AsifM068 said:

When investing in the CTY for example and dividend yield aside, how much depreciation on my capital per annum can I expect at present with a 200k investment please?

I would expect little to none over shorter periods with possibly some small growth over longer periods. To do this you can simply look at the share price which is 393p today. Five years ago it was 403p. Ten years ago it was 290p. So that looks like around a 35% gain in 10 years. Plus all the dividends along the way.

It has slightly underperformed the FTSE All Share over 5 years and outperformed it over 10 years. Slightly higher dividend at the expense of capital growth.

AsifM068

When looking at growth charts for an investment trust for example, are dividends reinvested assumed / factored in and how would the axis be labelled to tell if growth includes dividends re-invested or not please? - hope this makes sense.

Thrugelmir

Prism said:

Thrugelmir said:

Prism said:

Thrugelmir said:

Prism said:

Linton said:

Prism said:

Alexland said:

I wouldn't touch a passive income fund with a barge pole as you risk just sucking up a load of poor quality high yield companies.
There are investment trusts that get a good balance of yield and capital growth while still investing in good quality companies if you are willing to spend the time on selecting and monitoring them. The costs are a bit higher but that is generally covered by the enhanced return they achieve by using a conservative amount of gearing.

I'll take that one step further and say that I wouldn't touch any equity income fund with a barge pole. I'll take the standard dividends from a fund but no more. I can get income from other places like savings, bonds and property.

Equity income funds are in my view helpful in retirement unless you want to adopt an unbalanced 100% Growth investment strategy - something I would not dare do. Their advantage is that they are an efficient use of assets as they meet 2 objectives from a single investment.  Equity income funds add "Value" to balance the "Growth" investments and produce an income which can be transfered automatically to one's current account with zero effort.  It would seem far more logical and more easily implemented to do that than the reverse of taking income from selling Growth whilst reinvesting the dividends from Value.

 Europeans Assets Trust is a growth fund that pays a 6% dividend. 

EAT returns capital. European shares are generally low dividend payers. A consequence of the high tax treatment of dividends in many countries. 

I know, that was my point. It is entirely possible to have a growth oriented trust that sells shares to pay a high dividend and a value oriented trust that keeps some of its dividends and reinvests them as growth, paying less out along the way.

 Wish more IT's would follow the same principle. 

The EAT way? Most of my investments are in a tax wrapper so it makes no difference to me if I get a dividend or manufacture my own by selling some shares. 

Historically EAT suffered from a wide discount like many other IT's. One can always reinvest the income.  For many trusts there's an optimum size given their investment remit, I prefer a regular flow of income to reinvest elsewhere. 

Prism

Linton said:

Prism said:

Linton said:

Prism said:

Thrugelmir said:

Prism said:

Thrugelmir said:

Prism said:

Linton said:

Prism said:

Alexland said:

I wouldn't touch a passive income fund with a barge pole as you risk just sucking up a load of poor quality high yield companies.
There are investment trusts that get a good balance of yield and capital growth while still investing in good quality companies if you are willing to spend the time on selecting and monitoring them. The costs are a bit higher but that is generally covered by the enhanced return they achieve by using a conservative amount of gearing.

I'll take that one step further and say that I wouldn't touch any equity income fund with a barge pole. I'll take the standard dividends from a fund but no more. I can get income from other places like savings, bonds and property.

Equity income funds are in my view helpful in retirement unless you want to adopt an unbalanced 100% Growth investment strategy - something I would not dare do. Their advantage is that they are an efficient use of assets as they meet 2 objectives from a single investment.  Equity income funds add "Value" to balance the "Growth" investments and produce an income which can be transfered automatically to one's current account with zero effort.  It would seem far more logical and more easily implemented to do that than the reverse of taking income from selling Growth whilst reinvesting the dividends from Value.

 Europeans Assets Trust is a growth fund that pays a 6% dividend. 

EAT returns capital. European shares are generally low dividend payers. A consequence of the high tax treatment of dividends in many countries. 

I know, that was my point. It is entirely possible to have a growth oriented trust that sells shares to pay a high dividend and a value oriented trust that keeps some of its dividends and reinvests them as growth, paying less out along the way.

 Wish more IT's would follow the same principle. 

The EAT way? Most of my investments are in a tax wrapper so it makes no difference to me if I get a dividend or manufacture my own by selling some shares. 

If it makes no difference to you financially whether you take dividend/ interest or sell the shares/funds then surely the convenience of dividends/interest wins as you get can the money transferred directly into your current account with zero effort, thought or cost.

Maybe, however its only a minor convenience and wouldn't be a factor as to fund selection. I would select an income version of a fund over accumulation but would specifically select a fund or trust in the equity income category just because of that yield. If one of those funds is good on its own merits then thats different. 

Yes, the key is fund selection. The problem is the definition of “good” if you need a steady income as well as the long  term growth that ensures that income can continue at its current real value for the rest of your life.

I avoid that quandary by having separate portfolios for income and growth with different definitions of “good”.  The overall result may be broadly similar to your total return portfolio. However I have a clear justification from objectives for every fund held. This ensures that investments can be assessed on a simple basis and removed should they not be fulfilling their role.

Yes I use a similar approach in my non SIPP portfolio. Now to be fair I am not withdrawing from it yet so all dividends get rebalanced back in from time to time. However I don't split by income level but by asset class. So my non growth part is mainly made up of property funds, REITs and infrastructure. This does tend to pay a slightly higher yield but not always by much. The yield is not a big factor of my choices. The iShares global property fund has a yield of less than 2% for example however I still picked it over several higher yield paying REITs.

Linton

AsifM068 said:

When looking at growth charts for an investment trust for example, are dividends reinvested assumed / factored in and how would the axis be labelled to tell if growth includes dividends re-invested or not please? - hope this makes sense.

Generally fund performance charts are with dividends reinvested.  On the other hand graphs of indexes or share values normally ignore dividends, unless they say otherwise.  If you use Trustnet Charting you have the option of either.

Audaxer

Prism said:

Linton said:

Prism said:

Alexland said:

I wouldn't touch a passive income fund with a barge pole as you risk just sucking up a load of poor quality high yield companies.
There are investment trusts that get a good balance of yield and capital growth while still investing in good quality companies if you are willing to spend the time on selecting and monitoring them. The costs are a bit higher but that is generally covered by the enhanced return they achieve by using a conservative amount of gearing.

I'll take that one step further and say that I wouldn't touch any equity income fund with a barge pole. I'll take the standard dividends from a fund but no more. I can get income from other places like savings, bonds and property.

Equity income funds are in my view helpful in retirement unless you want to adopt an unbalanced 100% Growth investment strategy - something I would not dare do. Their advantage is that they are an efficient use of assets as they meet 2 objectives from a single investment.  Equity income funds add "Value" to balance the "Growth" investments and produce an income which can be transfered automatically to one's current account with zero effort.  It would seem far more logical and more easily implemented to do that than the reverse of taking income from selling Growth whilst reinvesting the dividends from Value.

Selling funds for income is trivial, and allows for more control should that be desired. With an income fund you might have to wait 6 weeks or more for the dividend payment after the price drop. If you sell units you can have them the next day, or immediately if its a trust.

That is true, but in most cases a retiree who relies on income, would be more wary of selling capital from growth funds during an equity crash than continuing to take income from dividends paid automatically.

Thrugelmir

Audaxer said:

Prism said:

Linton said:

Prism said:

Alexland said:

I wouldn't touch a passive income fund with a barge pole as you risk just sucking up a load of poor quality high yield companies.
There are investment trusts that get a good balance of yield and capital growth while still investing in good quality companies if you are willing to spend the time on selecting and monitoring them. The costs are a bit higher but that is generally covered by the enhanced return they achieve by using a conservative amount of gearing.

I'll take that one step further and say that I wouldn't touch any equity income fund with a barge pole. I'll take the standard dividends from a fund but no more. I can get income from other places like savings, bonds and property.

Equity income funds are in my view helpful in retirement unless you want to adopt an unbalanced 100% Growth investment strategy - something I would not dare do. Their advantage is that they are an efficient use of assets as they meet 2 objectives from a single investment.  Equity income funds add "Value" to balance the "Growth" investments and produce an income which can be transfered automatically to one's current account with zero effort.  It would seem far more logical and more easily implemented to do that than the reverse of taking income from selling Growth whilst reinvesting the dividends from Value.

Selling funds for income is trivial, and allows for more control should that be desired. With an income fund you might have to wait 6 weeks or more for the dividend payment after the price drop. If you sell units you can have them the next day, or immediately if its a trust.

That is true, but in most cases a retiree who relies on income, would be more wary of selling capital from growth funds during an equity crash than continuing to take income from dividends paid automatically.

If a company uses a buy back mechanism to reward shareholders rather than distribute the cash as a dividend. As it's beneficial tax wise. Does that make the company a growth stock? 

coastline

AsifM068 said:

When looking at growth charts for an investment trust for example, are dividends reinvested assumed / factored in and how would the axis be labelled to tell if growth includes dividends re-invested or not please? - hope this makes sense.

Here's a few examples with your suggested CTY compared to the MSCI World Index. On the Chart Basis tab you can select " with or without income ". The chart itself should stretch back to 1995 at least but it's best to look at what we've got today.

Chart Tool | Trustnet

Here's an example of a global tracker with recent dividend history. It's a pity that dividends were cut during the pandemic given you have another 7 years before you need the income ? What's got to be remembered is generally dividends are increasing yearly and can be much higher in a decades time . There's inflation to consider of course but looking at Dividend Yield History on the link it's expressed in Year End Yield but since 2011 the MSCI World Index has increased 280% ? Maybe you'll get somewhere near to your target without searching for higher yield ?

iShares MSCI World ETF (URTH) Dividend Yield | Seeking Alpha

Audaxer

AsifM068 said:

When investing in the CTY for example and dividend yield aside, how much depreciation on my capital per annum can I expect at present with a 200k investment please?

It's had a bad few years but over the long term I would expect some capital appreciation from CTY as well as increasing dividends like it has done for the last 54 years. I have only a small holding in it as I wouldn't risk my whole portfolio in any one IT.