Using our cash ISAs for Income and growth.

nigel52_2

Quick background: my wife and I have accumulated over many years a reasonable size Stock & Shares ISA portfolio.  We were taking circa 2.5% out a year as monthly income but were very unhappy with the growth aspect of the portfolio.  So much so that we have liquidated all the funds etc into cash and moved it across to II within a ISA wrapper.  Due to lower costs etc we think our best bet is to allocate roughly 80% of the ISA capital into something like City of London Invetment Trust and JP Morgan Global Growth and the remaining 20% be more adventurous for ISA growth.  However, what we are unable to determine is whether we put the 80% directly into City of London and JP Morgan or via the platform II (Interactive Investor) and the remaining 20% use their Mangaged ISA team (No real cost extra than the monthly fee)  or just use thier platform to buy into some tracker funds.  Any views on this please.

El_Torro

Using cash as an income stream tends to be a bad idea. Currently you can get interest rates that are higher than inflation, this isn't normally the case though. If you take an income (and even if you don't) then over the long run your cash will be worth less than it is today. 

Stocks & Shares are more suitable for long term income. The problem, as you've seen, is that these investments are volatile and it's difficult to rely on them for a steady income. 

One solution is to hold some cash, say 3 years worth (or more). You then invest the rest. You take income from the 3 year cash buffer and when stocks are doing well you can sell investments to top up your cash. If shares are on a downward trend avoid selling stocks, just eat into your cash buffer and hopefully the stocks will recover before you run out of cash.

poseidon1

nigel52_2 said:

Quick background: my wife and I have accumulated over many years a reasonable size Stock & Shares ISA portfolio.  We were taking circa 2.5% out a year as monthly income but were very unhappy with the growth aspect of the portfolio.  So much so that we have liquidated all the funds etc into cash and moved it across to II within a ISA wrapper.  Due to lower costs etc we think our best bet is to allocate roughly 80% of the ISA capital into something like City of London Invetment Trust and JP Morgan Global Growth and the remaining 20% be more adventurous for ISA growth.  However, what we are unable to determine is whether we put the 80% directly into City of London and JP Morgan or via the platform II (Interactive Investor) and the remaining 20% use their Mangaged ISA team (No real cost extra than the monthly fee)  or just use thier platform to buy into some tracker funds.  Any views on this please.

Since 2015 ( when i retired) ,via stocks and shares isa I  have invested in individual  corporate bonds, corporate bond funds and a specialist investment trust invested in debt instruments. These have produced an income stream paid on a monthly, quarterly and bi-annual basis.

The bond funds and investment trust took a beating  in terms of capital values,  when bank base rates rose significantly but have been  recovering over the last 8 to 10 months as the markets forsee base rates falling. Crucially, they have continued to deliver the expected income stream, and with the investment trust I  have been regularly buying more shares ( at the lower price) to increase income from that source.

As for the individual corporate bonds yielding between 4.5% to 7.5%, sadly they have been reaching their respective 5 to 6 year year redemption periods, with no suitable replacements on the horizon, so those redemption funds  ( as they arise ) have been fed into fixed interest cash isas paying out on a monthly basis. I may need to rethink this aspect when base rates actually begin to fall, and retail bank interest rates succumb accordingly.

I have not looked to equities for regular income, and reserved investment in that area largely for capital growth ( Eg Monks investment Trust, JGGI, Fundsmith etc ). With those, I  periodical cream off profits, and reinvest in the bonds to grow the income stream from that source.

This  requires a bit more hands on management, and monitoring, but thus far have been able to grow my isa income ( inclusive of using the full annual 20k allowance), without having to touch the sipp at all.

A somewhat different approach to the one you are considering, but it has enable me to access natural income yield without having to sell any investments to supplement interest income from the various bond sources, so you could consider bonds as part of your new strategy. 

I would add, there is also a growing cash buffer, which has been partially achieved from the unspent income paid out in prior years. This however is earmarked for a future 'upsizing' house move.

Bostonerimus1

You don't mention anything about your income needs or other sources of income like state pensions. You need to come up with an asset allocation that works with your retirement income needs and can survive the variability of the markets. From the funds you mention it appears that you have simply chosen a couple of well known names; I apologize if I'm wrong. The way you propose to allocate your money is risky and I would only recommend it if you have done a budget to see how the dividends and capital growth will factor into your spending and you also have a plan for the serious market corrections that will ocurr and that might last several years.

EthicsGradient

nigel52_2 said:

Quick background: my wife and I have accumulated over many years a reasonable size Stock & Shares ISA portfolio.  We were taking circa 2.5% out a year as monthly income but were very unhappy with the growth aspect of the portfolio.  So much so that we have liquidated all the funds etc into cash and moved it across to II within a ISA wrapper.  Due to lower costs etc we think our best bet is to allocate roughly 80% of the ISA capital into something like City of London Invetment Trust and JP Morgan Global Growth and the remaining 20% be more adventurous for ISA growth.  However, what we are unable to determine is whether we put the 80% directly into City of London and JP Morgan or via the platform II (Interactive Investor) and the remaining 20% use their Mangaged ISA team (No real cost extra than the monthly fee)  or just use thier platform to buy into some tracker funds.  Any views on this please.

From the best explanation I've found so far (not from ii itself, who are vague), ii's Managed ISA invests in a range of index trackers - either vanilla or "sustainable" - and from a quick questionnaire, they put you in 1 of 5 risk levels, with the difference being how much cash/bonds are held. From what you say, you want that 20% "adventurous", so would probably be the highest risk category, ie minimal cash/bonds (just 3%). But they will charge you 0.13% pa for this - above the trackers' fees, as far as I can tell. I don't see what you'd really gain from that - you've shown you can do research well enough to find 2 investment trusts that may suit you well, and I think you'd end up being just as good as ii in picking tracker funds too - without the cost. There doesn't seem a big need for ongoing changes, so I can't see the value the Managed ISA component would add for you.

nigel52_2

Bostonerimus1 said:

You don't mention anything about your income needs or other sources of income like state pensions. You need to come up with an asset allocation that works with your retirement income needs and can survive the variability of the markets. From the funds you mention it appears that you have simply chosen a couple of well known names; I apologize if I'm wrong. The way you propose to allocate your money is risky and I would only recommend it if you have done a budget to see how the dividends and capital growth will factor into your spending and you also have a plan for the serious market corrections that will ocurr and that might last several years.

We have enough pension income for most things but extra income for holidays and social would be nice. City of London keep back investments such that they can maintain dividends.  We have cash savings for the bumps in the road.

Bostonerimus1

nigel52_2 said:

Bostonerimus1 said:

You don't mention anything about your income needs or other sources of income like state pensions. You need to come up with an asset allocation that works with your retirement income needs and can survive the variability of the markets. From the funds you mention it appears that you have simply chosen a couple of well known names; I apologize if I'm wrong. The way you propose to allocate your money is risky and I would only recommend it if you have done a budget to see how the dividends and capital growth will factor into your spending and you also have a plan for the serious market corrections that will ocurr and that might last several years.

We have enough pension income for most things but extra income for holidays and social would be nice. City of London keep back investments such that they can maintain dividends.  We have cash savings for the bumps in the road.

Closed end funds like City of London are just a way of implementing a "total return" strategy and doling it out as regular "dividends". They are not a magic bullet. But you do get someone else to do manage the fund and distribute income for you. So if this high equity portfolio is a way to provide extra income and growth above and beyond guaranteed income sources like pensions then it looks reasonable to me.