Managing Sequence of Risk

MaxiRobriguez

tacpot12 said:

To the people who pointed out that there had not really been a poor sequence of returns during the pandemic, would agree with this, but I would also point out that the nature of the risk is that we don't know whether one poor return is the start of a sequence or not.

My contention is that by taking my income from the natural yeild of the portfolio, I am less exposed to any sequence of return risk. I might have a poor return, or I might have a sequence of poor returns, but it only affects my income during  the period of the poor return, when the returns return to normal, all my assets return to normal. Someone whose plan is to sell assts for their retirement income will not have their assets return to normal as they have sold some of them (and done so at low prices, so had to sell more. I only sell when the markets have not just crashed. 

I know that this smacks of trying to time the markets, but I'm willing to risk that a recovery follows a crash.  

 

You're not timing the market, you are assuming that your dividends won't be impacted (to the same extent) in a crash scenario.

They might not be impacted to the same degree as the share price, but it's still a risk for you. Yields are mutable as share price. 

Audaxer

Thrugelmir said:

Audaxer said:

Thrugelmir said:

Audaxer said:

masonic said:

Audaxer said:

...income ITs that have a long history of increasing dividends.

Mentioned a few times now, so worth clarifying. The increase is in relation to nominal dividend per share, which must increase as the share price increases, otherwise the yield would fall. I don't think they have a log history of increasing dividend yield, unless I'm mistaken?

The yield can still fall if the dividend per share is increasing. A lot of the UK equity income ITs had big falls during the Covid crash which resulted in very decent yields for those brave enough to buy into them at or near the bottom. For example Merchants IT share price dropped to as low at £3.03 in March 2020, which would have given anyone buying in at that point a yield of nearly 9%. At close of play Friday the share price was up to £5.74 and the yield is down to 4.74% for anyone buying in now, but the actual dividends paid out are still increasing.

Reading the annual accounts for the year ended 31st Januay 2021. Of the total dividends paid out of 27.2p, 9.9p was drawn from existing reserves. Yield may have looked attractive in March 2020, but has been mentioned previously.  A sizable chunk of the dividend received would have been a return of ones own capital. 

Yes, but if you had been lucky or brave enough to invest in Merchants at near the bottom in March 2020, you would still be getting a yield of up to 9% on your initial investment, have increasing dividends, and have seen your capital value almost double.

I invested in it just before the crash unfortunately, but I'm happy with the 5.2% yield I bought in at and the fact the dividends are still increasing. I was concerned when I saw how fast the share price was falling during Covid, but pleased that it has recovered really well.

That was a one off event. By the 3rd week of February 2020 my entire portfolio was 65% cash. Subsequently reinvesting before the end of April.  I returned 39.1% in 2020 calender year. Unlikely to achieve this level of performance again in my investing lifetime. 

Well done @Thrugelmir I think even you must have been lucky or brave getting out of the market at the right time and getting back in at the right time, as I don't think many experienced investors would have got the timing right.

Thrugelmir

Audaxer said:

Thrugelmir said:

Audaxer said:

Thrugelmir said:

Audaxer said:

masonic said:

Audaxer said:

...income ITs that have a long history of increasing dividends.

Mentioned a few times now, so worth clarifying. The increase is in relation to nominal dividend per share, which must increase as the share price increases, otherwise the yield would fall. I don't think they have a log history of increasing dividend yield, unless I'm mistaken?

The yield can still fall if the dividend per share is increasing. A lot of the UK equity income ITs had big falls during the Covid crash which resulted in very decent yields for those brave enough to buy into them at or near the bottom. For example Merchants IT share price dropped to as low at £3.03 in March 2020, which would have given anyone buying in at that point a yield of nearly 9%. At close of play Friday the share price was up to £5.74 and the yield is down to 4.74% for anyone buying in now, but the actual dividends paid out are still increasing.

Reading the annual accounts for the year ended 31st Januay 2021. Of the total dividends paid out of 27.2p, 9.9p was drawn from existing reserves. Yield may have looked attractive in March 2020, but has been mentioned previously.  A sizable chunk of the dividend received would have been a return of ones own capital. 

Yes, but if you had been lucky or brave enough to invest in Merchants at near the bottom in March 2020, you would still be getting a yield of up to 9% on your initial investment, have increasing dividends, and have seen your capital value almost double.

I invested in it just before the crash unfortunately, but I'm happy with the 5.2% yield I bought in at and the fact the dividends are still increasing. I was concerned when I saw how fast the share price was falling during Covid, but pleased that it has recovered really well.

That was a one off event. By the 3rd week of February 2020 my entire portfolio was 65% cash. Subsequently reinvesting before the end of April.  I returned 39.1% in 2020 calender year. Unlikely to achieve this level of performance again in my investing lifetime. 

Well done @Thrugelmir I think even you must have been lucky or brave getting out of the market at the right time and getting back in at the right time, as I don't think many experienced investors would have got the timing right.

Just followed the news. For example. Migrant workers didn't return to their places of employment after the end of the Chinese New Year due to Covid lockdowns. Traditionally the only time workers go home every year. Also China called force majeure on a number of gas, oil and commodity contracts.  Clearly the engine of the world economy had stalled. The impact was always going to ripple outwards akin to throwing a pebble in the pond. Decided subsequently to buy investments such as energy and commodities . As prices were attractive for a long term hold.  Then along came the INRG ETF fad. I cashed in Orsted for an average profit of 82% and Vestas Wind for 94%. IT's such as Black Rock World Mining made a usefull contribution as well to the overall portfolio gain. 

masonic

Deleted_User said:

I agree that it's a matter of investors in ITs needing to be aware of what they're buying into. The dividend reserve only tells you the amount an IT would be allowed to pay out as income, because of past income that wasn't paid out already. To see how it's held, you need to look at the latest net cash or gearing; and whether there is further borrowing arranged but not currently drawn down (because one alternative to making up dividends by selling assets is making them up by taking on more debt). There should also be some discussion of gearing and dividend policies in the board's and manager's reports.

Yes, in the example I looked at with Audaxer earlier in the thread, just looking at cash over several years was quite revealing, showing that these reserves more than halved in the two years from the start of the Covid crash. I didn't take the time to read the discussion or look at gearing / share disposals, but it should be easy enough to get a good guide from recent annual reports how the various income trusts have managed to pay their dividend during this recent difficult time.