INVESTMENT TRUSTS GROWTH OR INCOME

GB12

The argument has always been growth till your close to retirement  (you define) then income. 
In the case of investment trusts with there dividend reserves quite clearly they appear to be the way to go. In terms of risk to your income.
The other view (Terry Smith of Fundsmith fame for instance) is stay with growth shares and sell some shares for income. He is right in the longer term (define it as you wish).
At the moment my income investment trusts in terms of share price are going the right way ....slowly. Value in favour at the moment.
3 weeks ago (roughly) my Smithson IT  (pure growth no dividend) was up 126% its now up 94%. Arhhhh.
On the face of it value wins. 
There is of course income investment trusts which do have some share price growth but normally at a cost to dividends. 
Murray income and North American Income Trust. 
But I need to increase my capital as I may need to move house to more expensive area. 
To reduce risk I am going for the small companies benefit. Better growth but lower dividends. 
In the UK sector going on the past investment trusts giving a 100% share price return and 1.5% dividend over 5 years isn't hard to find. In fact very easy to find multiple trusts that have achieved it.
I will keep some of my dividend IT's sell down some moving the money into an isa and buy smaller Companies. Most also have dividend reserves. Pure growth just to risky. 
Hopefully the middle road will work for me. 
How about you. 

MarkCarnage

Building a portfolio suited to your needs should be the outcome......

A combination of growth and value/income slants too. Bear in mind also that the right answer may have a tax angle to it unless they are held in a tax exempt 'wrapper'. Using both income and CGT allowances judiciously may help.

If a company (or a portfolio of companies held by an IT manager) can reinvest cash generated at a higher rate of return than you can by receiving the cash, then 'growth' is clearly the answer, but that's a very difficult question to answer in advance, so in practice a combination of the two probably works best.

Not sure that moving to small cap approach reduces risk though. It may improve returns, but not seeing why it reduces risk. Indeed it adds liquidity risk possibly. 

dunstonh

The argument has always been growth till your close to retirement  (you define) then income. 

That sentence can be taken out of context or misread.

Whilst you are working, you are generally in the growth or accumulation stage of life.  i.e. you have excess income you can put aside that you want to grow for you.
When you cease working, most will enter the income stage of life where they need to draw upon their investments.

However, in both the accumulation stage and the decumulation stage, you can use growth and income investments.  So, was the reference to stage of life or the type of investments? 

Linton

You need a well diversified portfolio if you require significant sustainable inflation linked income from your portfolio.  This implies you hold underlying shares capable of providing dividend income as well as those priced on future growth.

The advantage of using dividend paying funds in an ISA is that the payments are regular, tax free, and can be set up (depending on your platform?) to pay out to your bank account immediately and automatically, so zero effort.  

If you are taking income directly from a DC pension dividend paying investments are much less easy to jusitify.  You probably dont want to make a separate taxable payment each time you receive a dividend as most/all platforms only support automatic regular drawdowns of fixed amounts.  In that case it is arguably simplest to simply have a single cash drawdown once a year perhaps tied into annual rebalancing.  There seems little point other than paying platform charges in having dividends lying around in cash for up to a year. So ACC funds could be preferable.  However this should not mean going for 100% equity growth.

What I do is to hold the pension TFLS and non-pension investments in an dividend generating, S&S ISA based portfolio whilst keeping mostly growth investments in our SIPPs.  This provides some of the advantages of both approaches. 

masonic

GB12 said:

The argument has always been growth till your close to retirement  (you define) then income.

Only since value investing slipped out of favour. Who knows which style will succeed over the next decade or longer.

Whether I am reinvesting dividends vs making capital gains, drawing down capital vs withdrawing dividends, it's the total return that matters to me. When most assets are in an ISA or SIPP and charges are low, there's very little difference.

GB12

dunstonh said: The argument has always been growth till your close to retirement  (you define) then income. 

However, in both the accumulation stage and the decumulation stage, you can use growth and income investments.  So, was the reference to stage of life or the type of investments? 
Well both.

Firstly, investment advisor say put your money into growth as in Smithson and as you approach retirement move to equity income. But I believe as does Terry Smith that you will always be better off in growth.  IE sell shares to pay yourself an income. 
Problem comes when as pointed out Smithson fell from 126% gain to 94% gain in 3 weeks. I suspect you would still be better off if you were taking an income every 3 or so months from growth. I also suspect I would find it difficult to do so after that fall!
Another example  is  JPMorgan Japan Small Cap Growth & Income. Bought in December 2020 went up about 8% very quickly is now down 26%.
4% dividend out of capital.  Basically the latter is selling shares to pay an income.  

The small cap with roughly a 1.5% dividend (out of income) plus reserves is meant to sit somewhere in between. 
If I decide to move house and I need money I would be in trouble if I had Smithson.  Or even Japan Small Cap. 
The small cap with a dividend shares are also falling but no where near as far as Smithson or other similar shares.
The income equity are holding firm or rising slightly. Most are up 30% plus from purchase in March 2020....but I also bought Smithson up 94% clearly I have done better on a total return basis with Smithson. And as markcarnage says the capital gains tax allowance could make Smithson even more profitable. 

@masonic
Total return is based on the following 
Dividends reinvested on ex dividend date 
At middle price
And with no cost included. 

To put it mildly very iffy way to measure total returns and clearly is biased towards income equity. 

bostonerimus

There's no "secret sauce" to ITs, they are just a wrapper that can own lots of stuff that the managers then either sell or take dividends etc and distribute them to the IT's shareholders. You can do exactly the same with your own portfolio in a Total Return approach and emphasize whatever you like...value, growth, dividends etc. I get the feeling that this thread might become a lot of "sound and fury,. Signifying nothing".

dunstonh

Firstly, investment advisor say put your money into growth as in Smithson and as you approach retirement move to equity income. 

Opinion only.

But I believe as does Terry Smith that you will always be better off in growth.  IE sell shares to pay yourself an income. 

Opinion only.

Problem comes when as pointed out Smithson fell from 126% gain to 94% gain in 3 weeks. I suspect you would still be better off if you were taking an income every 3 or so months from growth. 

If you had an income bias then your unit prices would still fall.

This is why people are told to have 2-4 years worth of withdrawals to be held in cash.   That way you don't have to sell units to fund the withdrawals in most periods (the majority of crashes would be recovered within that timescale).

Another example  is  JPMorgan Japan Small Cap Growth & Income. Bought in December 2020 went up about 8% very quickly is now down 26%.

But that fund is extremely high risk.  Its the sort of fund that most people would not hold, especially in retirement.  However, if they do then probably no more than 2% of their overall portfolio.

The income equity are holding firm or rising slightly. Most are up 30% plus from purchase in March 2020....but I also bought Smithson up 94% clearly I have done better on a total return basis with Smithson. And as markcarnage says the capital gains tax allowance could make Smithson even more profitable. 

Equity income tends to have a higher UK bias and the UK has done well over the last 2 months (not all bits but the high dividend payers have).  About time as they have done nothing over the last 15 years (relatively speaking).   This is why you don't get carried away during short term periods.

Are you investing within your risk tolerance, behavioural understanding and capacity for loss?  Are you keeping a cash float?

masonic

GB12 said:

@masonic
Total return is based on the following 
Dividends reinvested on ex dividend date 
At middle price
And with no cost included. 

To put it mildly very iffy way to measure total returns and clearly is biased towards income equity. 

I think you have misunderstood the point I was making. It is irrelevant whether your net returns come from capital gains or dividends. You should always calculate them in a sensible manner, such as unitisation of your portfolio, or internal rate of return net of all costs. You should do this yourself.

GB12

" If you had an income bias then your unit prices would still fall.

This is why people are told to have 2-4 years worth of withdrawals to be held in cash.   That way you don't have to sell units to fund the withdrawals in most periods (the majority of crashes would be recovered within that timescale)."

Dunstonh good points
Some very good points there.
I intend on holding for 5 years at least. 
There is no chance of me having 2-4 years of cash reserves. I simply cannot afford to have that much doing nothing.