What is your trigger point to start spending from cash buffer?? + QE, Does it change the game?

Notepad_Phil

NedS said:

I'm a currently rare breed of income investor in my SIPP, so I will be drawing the income it generates in retirement (current predicted income of £13,100 this year). As long as I have sufficient income to fully utilise my personal tax allowance, I'm happy. For now, all income reinvested as I'm still a couple years away from pulling the trigger. As such, short term market volatility mean little to me unless dividend payments are affected.

Be careful that you still keep a suitable cash pot. Generally, dividends have now returned to more 'normal' rates, but many were heavily hit just a year or two ago when dividends seemed to be hit far harder in percentage terms than many of the stock markets during covid with quite a few dividend payments being cancelled in their entirety

Thrugelmir

NedS said:

I'm a currently rare breed of income investor in my SIPP, so I will be drawing the income it generates in retirement (current predicted income of £13,100 this year). As long as I have sufficient income to fully utilise my personal tax allowance, I'm happy. For now, all income reinvested as I'm still a couple years away from pulling the trigger. As such, short term market volatility mean little to me unless dividend payments are affected.

Nothing wrong with the principle. No pancea though. 

michaels

Thrugelmir said:

NedS said:

I'm a currently rare breed of income investor in my SIPP, so I will be drawing the income it generates in retirement (current predicted income of £13,100 this year). As long as I have sufficient income to fully utilise my personal tax allowance, I'm happy. For now, all income reinvested as I'm still a couple years away from pulling the trigger. As such, short term market volatility mean little to me unless dividend payments are affected.

Nothing wrong with the principle. No pancea though. 

Really? A company could have no assets apart from 1m, in the bank and zero income that it pays out as dividends at 100k pa for 10 years at which point the shares are of course worth zilch. Another could earn 1m per year but pay no dividends and see its share price rise each year in response.  The point being that you need to consider total return not some 'random' separation of dividends and asset values that is most likely driven by company objectives.

NedS

michaels said:

Thrugelmir said:

NedS said:

I'm a currently rare breed of income investor in my SIPP, so I will be drawing the income it generates in retirement (current predicted income of £13,100 this year). As long as I have sufficient income to fully utilise my personal tax allowance, I'm happy. For now, all income reinvested as I'm still a couple years away from pulling the trigger. As such, short term market volatility mean little to me unless dividend payments are affected.

Nothing wrong with the principle. No pancea though. 

Really? A company could have no assets apart from 1m, in the bank and zero income that it pays out as dividends at 100k pa for 10 years at which point the shares are of course worth zilch. Another could earn 1m per year but pay no dividends and see its share price rise each year in response.  The point being that you need to consider total return not some 'random' separation of dividends and asset values that is most likely driven by company objectives.

Lets not get into a discussion of the merits of total return versus income strategies. I have a portion of my total portfolio set aside to income to specifically meet the income I will need during a short period between early retirement and commencement of DB/SP so I don't have to sell any assets. The rest is in growth. So it's a bucket approach that works for me.

Getting back to the original discussion - I had been giving some thought recently to some of the JP Morgan Trusts (e.g, JGGI) that pay out 4% of NAV each year from income and capital, and whether this type of Investment Trust could work in older age to simplify things, or for DH should I die first. Of course the main downside of a 4% of NAV approach is that income is variable and will be reduced when markets are lower, but coming back to the topic of this thread, that may work well with a cash buffer to supplement any shortfall in market falls. One could look to take the desired income (increasing annually with inflation) from the 4% dividend. In years where markets rise above inflation and 4% of NAV is more than the desired income, the cash buffer can be replenished and any excess reinvested. In years where the share price drops and 4% of NAV is short of the desired income, the shortfall is made up from cash buffer. This arrangement has the effect of selling less equity when markets are down by drawing on the cash buffer and answers the question of when and by how much to draw upon the cash buffer using a simple rule-based approach. If you didn't want to use JGGI, you could implement the same 4% of NAV strategy using your index tracker of choice and cash buffer.

Thrugelmir

michaels said:

Thrugelmir said:

NedS said:

I'm a currently rare breed of income investor in my SIPP, so I will be drawing the income it generates in retirement (current predicted income of £13,100 this year). As long as I have sufficient income to fully utilise my personal tax allowance, I'm happy. For now, all income reinvested as I'm still a couple years away from pulling the trigger. As such, short term market volatility mean little to me unless dividend payments are affected.

Nothing wrong with the principle. No pancea though. 

Really? A company could have no assets apart from 1m, in the bank and zero income that it pays out as dividends at 100k pa for 10 years at which point the shares are of course worth zilch. Another could earn 1m per year but pay no dividends and see its share price rise each year in response.  The point being that you need to consider total return not some 'random' separation of dividends and asset values that is most likely driven by company objectives.

How much do understand about company finance. As not a picture I can ever recall in my lifetime. Far more complex that you are suggesting. 

Thrugelmir

NedS said:

michaels said:

Thrugelmir said:

NedS said:

I'm a currently rare breed of income investor in my SIPP, so I will be drawing the income it generates in retirement (current predicted income of £13,100 this year). As long as I have sufficient income to fully utilise my personal tax allowance, I'm happy. For now, all income reinvested as I'm still a couple years away from pulling the trigger. As such, short term market volatility mean little to me unless dividend payments are affected.

Nothing wrong with the principle. No pancea though. 

Really? A company could have no assets apart from 1m, in the bank and zero income that it pays out as dividends at 100k pa for 10 years at which point the shares are of course worth zilch. Another could earn 1m per year but pay no dividends and see its share price rise each year in response.  The point being that you need to consider total return not some 'random' separation of dividends and asset values that is most likely driven by company objectives.

Lets not get into a discussion of the merits of total return versus income strategies. I have a portion of my total portfolio set aside to income to specifically meet the income I will need during a short period between early retirement and commencement of DB/SP so I don't have to sell any assets. The rest is in growth. So it's a bucket approach that works for me.

Getting back to the original discussion - I had been giving some thought recently to some of the JP Morgan Trusts (e.g, JGGI) that pay out 4% of NAV each year from income and capital, and whether this type of Investment Trust could work in older age to simplify things, or for DH should I die first. Of course the main downside of a 4% of NAV approach is that income is variable and will be reduced when markets are lower, but coming back to the topic of this thread, that may work well with a cash buffer to supplement any shortfall in market falls. One could look to take the desired income (increasing annually with inflation) from the 4% dividend. In years where markets rise above inflation and 4% of NAV is more than the desired income, the cash buffer can be replenished and any excess reinvested. In years where the share price drops and 4% of NAV is short of the desired income, the shortfall is made up from cash buffer. This arrangement has the effect of selling less equity when markets are down by drawing on the cash buffer and answers the question of when and by how much to draw upon the cash buffer using a simple rule-based approach. If you didn't want to use JGGI, you could implement the same 4% of NAV strategy using your index tracker of choice and cash buffer.

Draw the income out and long term capital growth will be muted.  That's the findings of Global Investment Reurns project which underpins the published data from the oft quoted Credit Suisse Yearbook. What you are attempting moves back into the realms of SWR discussion. Where there's no one size fits all solution. Many variables to be factored in. 

Sea_Shell

So folks, after the recent "turmoil" in the markets, we're now probably going to reinvest this month's DD payment, which hits the bank on Monday.

We're only talking £1100 pm.

However, with the rises in interest rates of late, do we put this is a 1 year fixed to guarantee ~2.5%, or put in our ISA in a fund with a similar risk profile from whence it came and hope it makes at least that back over the same period.

We'd use cash currently at 1.3% to fund this month, our lowest rated cash.

We could rinse and repeat this for a few months.

Notepad_Phil

Sea_Shell said:

...
However, with the rises in interest rates of late, do we put this is a 1 year fixed to guarantee ~2.5%, or put in our ISA in a fund with a similar risk profile from whence it came and hope it makes at least that back over the same period.
...

Well personally I'm moving any cash that comes in during a month into funds as I've got more than enough cash for the next umpteen years, which I think you may have too, so that would be my personal opinion on what's best to do - though if there was a specific need for the cash in a year's time then that might persuade me otherwise.

Sea_Shell

Notepad_Phil said:

Sea_Shell said:

...
However, with the rises in interest rates of late, do we put this is a 1 year fixed to guarantee ~2.5%, or put in our ISA in a fund with a similar risk profile from whence it came and hope it makes at least that back over the same period.
...

Well personally I'm moving any cash that comes in during a month into funds as I've got more than enough cash for the next umpteen years, which I think you may have too, so that would be my personal opinion on what's best to do - though if there was a specific need for the cash in a year's time then that might persuade me otherwise.

Is that "new" cash?  Wages?   Or drawdown?

Our "new" cash is literally a few £s of interest here and there.

Linton

My policy is to always take cash to cover any expenses from:

1) Large amount of immediately available cash in current accounts, replenished with dividends
2) Sale of PBs
3)  Sale of Wealth Preservation funds
4) Sale of mainstream equity

though I doubt I would ever get to (3) and (4) is inconceivable. So there isnt a trigger point.

All assets are rebalanced once a year.