Income Fund suggestions for SIPP

Linton

Brenchk said:

Hi, I’m looking for suggestions for funds which provide income. Now I’ve searched and can find lots of suggestions… my core portfolio is currently spread between Fundsmith, Fidelity Index World, and National Grid… the latter will provide c5% income and maybe some growth too… I’d like to pare down Fundsmith into an income fund… I will retire in October this year…

I’d appreciate any suggestions for funds which provide an income… I have no other criteria in terms of geography, or industry concentration… What’s working for you… 

Thank you.

If you want cash interest putting the funds in an ISA would seem far preferable than a SIPP since, possibly depending on your platform, the dividends/interest can be paid automatically into your current account as they occur. This is not possible with a SIPP. Which will require drawdowns that are either monthly and of a fixed size or are individually requested.

Also SIPP withdrawals  count against your tax bands whereas ISA ones don’t.

LHW99

Aso depends on what level of income you want / need. There are some funds (eg Schroder High Interest opportunities) with a high dividend but no likelihood of any capital gain. There are those with a medium rate of 3-4% (Artemis Global income, North American Income trust) where you will probably over time get some capital appreciation, and there are those that give less than 2%, such as F&C where you are likely to get capital growth long term. (Other funds / trusts are available).

If you use a range, covering global as well as UK markets / equities / bonds you can arrange the level of income you need, by a combination of dividends if the market is going badly, topped up by withdrawal / transfer from growth if things are good.

Some people run two portfolios, some keep everything in one (which I do, as our overall portfolio is not as large as many here).

Bostonerimus1

Linton said:

Bostonerimus1 said:

What's income? Interest, dividends, capital gains and maybe even spending some capital. So one way to generate those is a balanced portfolio of equities, bonds and cash. Take a look at "Total Return". 

An income fund is one that produces a steady and regular set of cash payments over time higher than the market average. This can be contrasted with a growth fund with an objective of increasing capital value over the longer term.

Generally capital value is far more volatile over the short and medium terms than income but may lead to higher long term returns.

Which type of fund is most appropriate depends on your objectives.

My post was attempting to get the OP to step back and look at how income is generated. A multi-asset income fund or investment trust is generating income form the usual sources, and then doling it out to the owner. I think of it as a "capacitor" or "reservoir" that takes in various income sources and provides a single stable income stream.

Brenchk

LHW99 said:

Aso depends on what level of income you want / need. There are some funds (eg Schroder High Interest opportunities) with a high dividend but no likelihood of any capital gain. There are those with a medium rate of 3-4% (Artemis Global income, North American Income trust) where you will probably over time get some capital appreciation, and there are those that give less than 2%, such as F&C where you are likely to get capital growth long term. (Other funds / trusts are available).

If you use a range, covering global as well as UK markets / equities / bonds you can arrange the level of income you need, by a combination of dividends if the market is going badly, topped up by withdrawal / transfer from growth if things are good.

Some people run two portfolios, some keep everything in one (which I do, as our overall portfolio is not as large as many here).

Some great suggestions in your response. I’ll take a closer look. Id like to build a couple of investments which provide c£18k p.a. And the remainder will sit in Fundsmith and Fidelity Index. To be fair I’m looking at running down Fundsmith in favour of Fidelity IW given consistency of performance and low fees. Thank you for taking the time to respond. 

Linton

Brenchk said:

Hi, I’m looking for suggestions for funds which provide income. Now I’ve searched and can find lots of suggestions… my core portfolio is currently spread between Fundsmith, Fidelity Index World, and National Grid… the latter will provide c5% income and maybe some growth too… I’d like to pare down Fundsmith into an income fund… I will retire in October this year…

I’d appreciate any suggestions for funds which provide an income… I have no other criteria in terms of geography, or industry concentration… What’s working for you… 

Thank you.

To answer your qustion as to what fund(s)...

Diversification is a major concern.  My income portfolio is very highly diversified with a target income of 6% of initial value.  

The funds used are: 

AEW UK Reit

CT Emerging Markets Bond Ins Inc

European Assets Trust

GCP Infrastructure

Janus Henderson Asian Dividend Income I Inc

MAN GLG UK Income Prof D Inc

Premier Global Infrastructure B Inc

Schroder High Yield Opp Z Inc

Schroder US equity income maximiser Z Dis

Sequoia economic infrastructure

Which includes global equity, corporate bonds and other things beside.

The next important consideration is inflation.  My portfolio will increase with inflation to some extent but not sufficiently over the long term.  So one also needs a growth portfolio.  This pays for extra income funds as needed.

Linton

Bostonerimus1 said:

Linton said:

Bostonerimus1 said:

What's income? Interest, dividends, capital gains and maybe even spending some capital. So one way to generate those is a balanced portfolio of equities, bonds and cash. Take a look at "Total Return". 

An income fund is one that produces a steady and regular set of cash payments over time higher than the market average. This can be contrasted with a growth fund with an objective of increasing capital value over the longer term.

Generally capital value is far more volatile over the short and medium terms than income but may lead to higher long term returns.

Which type of fund is most appropriate depends on your objectives.

My post was attempting to get the OP to step back and look at how income is generated. A multi-asset income fund or investment trust is generating income form the usual sources, and then doling it out to the owner. I think of it as a "capacitor" or "reservoir" that takes in various income sources and provides a single stable income stream.

Yes, I agree a multi-asset income fund may be a reasonable option in some circumstances though I have no idea how stable their income is.

One concern is that the assets being allocated may not be best suited for higher income.  For example very safe bonds would probably strongly outweigh corporate bonds and interesting niche options like REITs and Infrastructure would be almost entirely ignored.

Perhaps more research is neded.

poseidon1

Brenchk said:

LHW99 said:

Aso depends on what level of income you want / need. There are some funds (eg Schroder High Interest opportunities) with a high dividend but no likelihood of any capital gain. There are those with a medium rate of 3-4% (Artemis Global income, North American Income trust) where you will probably over time get some capital appreciation, and there are those that give less than 2%, such as F&C where you are likely to get capital growth long term. (Other funds / trusts are available).

If you use a range, covering global as well as UK markets / equities / bonds you can arrange the level of income you need, by a combination of dividends if the market is going badly, topped up by withdrawal / transfer from growth if things are good.

Some people run two portfolios, some keep everything in one (which I do, as our overall portfolio is not as large as many here).

Some great suggestions in your response. I’ll take a closer look. Id like to build a couple of investments which provide c£18k p.a. And the remainder will sit in Fundsmith and Fidelity Index. To be fair I’m looking at running down Fundsmith in favour of Fidelity IW given consistency of performance and low fees. Thank you for taking the time to respond. 

You have not mentioned the size of your Sipp, but there is still a case ( I believe ) for an element of bonds to produce a natural yield via regular income payments.

In this regard I have Sipp  investment in Royal London Sterling Extra yield fund current running yield of 7.17% ( via corporate bonds) with income paid quarterly. 

In addition, also have  a holding in Twenty-four Select Monthly income Investment Trust, a specialist high yield bond investment trust. This pays income monthly, which currently is reinvested in more of the shares to grow that income stream.

Like yourself I also have growth  investments in the likes of Fundsmith, but my approach is to periodically cream off profits to reinvest in investments producing natural income, rather than encash capital assets to use as income.
However, this works for me due to a diverse income portfolio across sipp, isa and property so can tweak individual elements accordingly to maintain a steady but growing annual income flow. Been retired since 2015.

Bostonerimus1

Linton said:

Bostonerimus1 said:

Linton said:

Bostonerimus1 said:

What's income? Interest, dividends, capital gains and maybe even spending some capital. So one way to generate those is a balanced portfolio of equities, bonds and cash. Take a look at "Total Return". 

An income fund is one that produces a steady and regular set of cash payments over time higher than the market average. This can be contrasted with a growth fund with an objective of increasing capital value over the longer term.

Generally capital value is far more volatile over the short and medium terms than income but may lead to higher long term returns.

Which type of fund is most appropriate depends on your objectives.

My post was attempting to get the OP to step back and look at how income is generated. A multi-asset income fund or investment trust is generating income form the usual sources, and then doling it out to the owner. I think of it as a "capacitor" or "reservoir" that takes in various income sources and provides a single stable income stream.

Yes, I agree a multi-asset income fund may be a reasonable option in some circumstances though I have no idea how stable their income is.

One concern is that the assets being allocated may not be best suited for higher income.  For example very safe bonds would probably strongly outweigh corporate bonds and interesting niche options like REITs and Infrastructure would be almost entirely ignored.

Perhaps more research is neded.

Historically you might have had savings, a bond ladder and some utility and dividend stocks. Then financial companies developed ITs and mutual funds with assets focused on income and people also developed portfolios that might include dividend indexes, REITs and bond indexes to manage themselves. More recent retirement "income" generating methods use a total return approach that has more of a capital growth emphasis, while also including dividends and interest etc. Of course the ultimate in stable income would be an annuity.

Linton

Bostonerimus1 said:

Linton said:

Bostonerimus1 said:

Linton said:

Bostonerimus1 said:

What's income? Interest, dividends, capital gains and maybe even spending some capital. So one way to generate those is a balanced portfolio of equities, bonds and cash. Take a look at "Total Return". 

An income fund is one that produces a steady and regular set of cash payments over time higher than the market average. This can be contrasted with a growth fund with an objective of increasing capital value over the longer term.

Generally capital value is far more volatile over the short and medium terms than income but may lead to higher long term returns.

Which type of fund is most appropriate depends on your objectives.

My post was attempting to get the OP to step back and look at how income is generated. A multi-asset income fund or investment trust is generating income form the usual sources, and then doling it out to the owner. I think of it as a "capacitor" or "reservoir" that takes in various income sources and provides a single stable income stream.

Yes, I agree a multi-asset income fund may be a reasonable option in some circumstances though I have no idea how stable their income is.

One concern is that the assets being allocated may not be best suited for higher income.  For example very safe bonds would probably strongly outweigh corporate bonds and interesting niche options like REITs and Infrastructure would be almost entirely ignored.

Perhaps more research is neded.

Historically you might have had savings, a bond ladder and some utility and dividend stocks. Then financial companies developed ITs and mutual funds with assets focused on income and people also developed portfolios that might include dividend indexes, REITs and bond indexes to manage themselves. More recent retirement "income" generating methods use a total return approach that has more of a capital growth emphasis, while also including dividends and interest etc. Of course the ultimate in stable income would be an annuity.

Modern ideas to generate a steady income from volatile growth stocks seem to come from US academia where people may be more concerned about publishing papers and income from the lecture circuit..  I wonder how many of them have actually implemented Guyton-Klinger for themselves.

In the UK retirement significantly funded by investment income  from pension assets has only been practicable for most people since around 2015 because of legal restrictions. So there is very little real experience of how to manage it successfully in a UK environment.  Furthermore since 2015 there has not been a serious equity crash where alternative strategies can be compared,

It would appear from postings that several retirees on this forum actually have an income strategy for ongoing expenditure.  I have yet to hear here or anywhere else about real life experience of a total return approach.  It is not that these people are unaware of "modern developments" but rather they are aware and have fould them unattractive.

Bostonerimus1

Linton said:

Bostonerimus1 said:

Linton said:

Bostonerimus1 said:

Linton said:

Bostonerimus1 said:

What's income? Interest, dividends, capital gains and maybe even spending some capital. So one way to generate those is a balanced portfolio of equities, bonds and cash. Take a look at "Total Return". 

An income fund is one that produces a steady and regular set of cash payments over time higher than the market average. This can be contrasted with a growth fund with an objective of increasing capital value over the longer term.

Generally capital value is far more volatile over the short and medium terms than income but may lead to higher long term returns.

Which type of fund is most appropriate depends on your objectives.

My post was attempting to get the OP to step back and look at how income is generated. A multi-asset income fund or investment trust is generating income form the usual sources, and then doling it out to the owner. I think of it as a "capacitor" or "reservoir" that takes in various income sources and provides a single stable income stream.

Yes, I agree a multi-asset income fund may be a reasonable option in some circumstances though I have no idea how stable their income is.

One concern is that the assets being allocated may not be best suited for higher income.  For example very safe bonds would probably strongly outweigh corporate bonds and interesting niche options like REITs and Infrastructure would be almost entirely ignored.

Perhaps more research is neded.

Historically you might have had savings, a bond ladder and some utility and dividend stocks. Then financial companies developed ITs and mutual funds with assets focused on income and people also developed portfolios that might include dividend indexes, REITs and bond indexes to manage themselves. More recent retirement "income" generating methods use a total return approach that has more of a capital growth emphasis, while also including dividends and interest etc. Of course the ultimate in stable income would be an annuity.

Modern ideas to generate a steady income from volatile growth stocks seem to come from US academia where people may be more concerned about publishing papers and income from the lecture circuit..  I wonder how many of them have actually implemented Guyton-Klinger for themselves.

In the UK retirement significantly funded by investment income  from pension assets has only been practicable for most people since around 2015 because of legal restrictions. So there is very little real experience of how to manage it successfully in a UK environment.  Furthermore since 2015 there has not been a serious equity crash where alternative strategies can be compared,

It would appear from postings that several retirees on this forum actually have an income strategy for ongoing expenditure.  I have yet to hear here or anywhere else about real life experience of a total return approach.  It is not that these people are unaware of "modern developments" but rather they are aware and have fould them unattractive.

Yes agreed. There's almost half a century of experience with retirement funding from DC pension investments in the US since the "401k" was developed in the mid 1970's and naturally most of the dogma comes from US sources and many people successfully use "Total Return" and G-K/4% withdrawal strategies. Lots of Americans also use annuities and income funds like Vanguard's multi-asset Wellesley fund that has 60% government and high quality corporate bonds and 40% dividend stocks.

The difficulty in assessing any approach to retirement income is choosing the criteria for evaluation and the impact of the individual investor on the outcomes. I'm well steeped in the "Total Return" approach and index funds and I'm continuing to get more than 8% average annual return and have a cash spending buffer, however, while I'm pretty sure I could fund my retirement from withdrawals from my investments I went with a  conservative approach to income relying in DB pensions, rental income and eventually state pensions. It will be interesting to see how things develop in the UK.