Preferred approach to dealing with a correction/crash

LHW99

Looking at your secure income, once all are in payment, you would only need a relatively low amount to top up to your desired amount (£20k +£8.5k +~£11k = £39.5K) of ~£5.5k pa in today's money (as all those sources are fully index linked).

You could perhaps consider one or more term annuities to top up, followed by drawdown / lifetime annuity at 67.

Linton

Bobziz said:

Many thanks folks, really helpful responses as ever. Much food for thought and some light bulb moments for me.

My situation is as follows:

Ambition to retire at 60 in 7 years with an annual income of £45k and maintain enough capital to provide a reasonable inheritance.
£20k DB uncapped index linked from 60 Inc reduction.
Full SP forecast at 67.
Further DB pension as above of £8.5k from 65.
£400k in DC's, cash, s&s ISA and a GIA.

My limited  4 years investment experience has taught me that my tolerance for risk is low to medium. The opposite of what I thought at the start of my journey. I have no inclination, interest, need or the ability to beat the market, so my strong preference is for passive investments. The one exception to this might be wealth preservers such as CGT.

Question, what kind of return is reasonable from a yielding strategy? And is the preferred approach to this to use a mix of bond ladders and dividend heroes ?

Thank you..

My target for the income portfolio is to start at 6% income when the investments are bought and to remain constant in £  terms, though I expect some increase over time from the equity dividend funds.  In my view this is at the top end of reasonable.

You wont get this income from passive funds.  For good diversification you need focussed equity dividend funds from a wide range of geographies, high yield bond income - corporate bond funds in preference to gilts or a bond ladder, and other niche investments like REITs or infrastructure funds.

Inflation will be an issue so I increase the size of my income portfolio over time with gains from a growth portfolio.  

Although I have found income to be pretty stable over time capital values can vary significantly.  A high income portfolio overall is rather like a long term bond in that income remains constant but capital values can fall significantly when global interest rates rise and vice versa.

On WP funds, they werevery useful when interest rates were close to zero but if I was starting investing now I would not use them. Giltrs would be better.

masonic

Alexland said:

Bobziz said:

Thanks @JohnWinder I've held CGT for a few years and I guess I see it as a bond+ fund. I like the transparency around why the managers do the things they do and the honesty about when they get things wrong. The objective aligns with my own i.e. to preserve and over time grow, without aiming to shoot the light out. They also have skin in the game.

I do wonder to what extent wealth preservation trusts were a popular topic a few years ago because investors couldn't bring themselves to directly buy the underlying bonds given the valuation issues at the time. To my mind they just seem to be a rather active form of a multi asset fund delivered in an IT wrapper.

That's certainly how I viewed them. Interest moved from WP funds to MM funds when interest rates recovered, and this is looking like a good transition point back to conventional bond funds and multi-asset funds.

Bostonerimus1

Bobziz said:

Many thanks folks, really helpful responses as ever. Much food for thought and some light bulb moments for me.

My situation is as follows:

Ambition to retire at 60 in 7 years with an annual income of £45k and maintain enough capital to provide a reasonable inheritance.
£20k DB uncapped index linked from 60 Inc reduction.
Full SP forecast at 67.
Further DB pension as above of £8.5k from 65.
£400k in DC's, cash, s&s ISA and a GIA.

My limited  4 years investment experience has taught me that my tolerance for risk is low to medium. The opposite of what I thought at the start of my journey. I have no inclination, interest, need or the ability to beat the market, so my strong preference is for passive investments. The one exception to this might be wealth preservers such as CGT.

Question, what kind of return is reasonable from a yielding strategy? And is the preferred approach to this to use a mix of bond ladders and dividend heroes ?

Thank you..

Given your DB and SP income sources I think you should stay equity heavy with the rest of your money, but your "low to medium" risk tolerance might make that difficult. Anyway here's what I'd do. I would think of the DB and SP as the fixed income part of your portfolio, put 2 years income requirements above your pensions in an easy access saving account ie ~30k and the rest in a dividend stock index fund. That fund should give you around 3% in dividends each year so another 11k. You should also get some capital gains. With those diverse income sources you'll have a simple portfolio to generate your retirement income. You could also use a more active income fund or CGT in place of the dividend index fund, but you don't have to make things complicated. Also do a detailed budget so you can control your spending and know where you can save money if you need to tighten your belt.

aroominyork

Bostonerimus1 said:

Bobziz said:

Many thanks folks, really helpful responses as ever. Much food for thought and some light bulb moments for me.

My situation is as follows:

Ambition to retire at 60 in 7 years with an annual income of £45k and maintain enough capital to provide a reasonable inheritance.
£20k DB uncapped index linked from 60 Inc reduction.
Full SP forecast at 67.
Further DB pension as above of £8.5k from 65.
£400k in DC's, cash, s&s ISA and a GIA.

My limited  4 years investment experience has taught me that my tolerance for risk is low to medium. The opposite of what I thought at the start of my journey. I have no inclination, interest, need or the ability to beat the market, so my strong preference is for passive investments. The one exception to this might be wealth preservers such as CGT.

Question, what kind of return is reasonable from a yielding strategy? And is the preferred approach to this to use a mix of bond ladders and dividend heroes ?

Thank you..

Given your DB and SP income sources I think you should stay equity heavy with the rest of your money, but your "low to medium" risk tolerance might make that difficult. Anyway here's what I'd do. I would think of the DB and SP as the fixed income part of your portfolio, put 2 years income requirements above your pensions in an easy access saving account ie ~30k and the rest in a dividend stock index fund. That fund should give you around 3% in dividends each year so another 11k. You should also get some capital gains. With those diverse income sources you'll have a simple portfolio to generate your retirement income. You could also use a more active income fund or CGT in place of the dividend index fund, but you don't have to make things complicated. Also do a detailed budget so you can control your spending and know where you can save money if you need to tighten your belt.

I don't think there are any global equity index funds available in the UK. Do you have them in the US, Boston?

Alexland

aroominyork said:
I don't think there are any global equity index funds available in the UK. Do you have them in the US, Boston?

Maybe he means something like VHYL that tracks the FTSE All-World High Dividend Yield Index?

masonic

aroominyork said:

Bostonerimus1 said:

Bobziz said:

Many thanks folks, really helpful responses as ever. Much food for thought and some light bulb moments for me.

My situation is as follows:

Ambition to retire at 60 in 7 years with an annual income of £45k and maintain enough capital to provide a reasonable inheritance.
£20k DB uncapped index linked from 60 Inc reduction.
Full SP forecast at 67.
Further DB pension as above of £8.5k from 65.
£400k in DC's, cash, s&s ISA and a GIA.

My limited  4 years investment experience has taught me that my tolerance for risk is low to medium. The opposite of what I thought at the start of my journey. I have no inclination, interest, need or the ability to beat the market, so my strong preference is for passive investments. The one exception to this might be wealth preservers such as CGT.

Question, what kind of return is reasonable from a yielding strategy? And is the preferred approach to this to use a mix of bond ladders and dividend heroes ?

Thank you..

Given your DB and SP income sources I think you should stay equity heavy with the rest of your money, but your "low to medium" risk tolerance might make that difficult. Anyway here's what I'd do. I would think of the DB and SP as the fixed income part of your portfolio, put 2 years income requirements above your pensions in an easy access saving account ie ~30k and the rest in a dividend stock index fund. That fund should give you around 3% in dividends each year so another 11k. You should also get some capital gains. With those diverse income sources you'll have a simple portfolio to generate your retirement income. You could also use a more active income fund or CGT in place of the dividend index fund, but you don't have to make things complicated. Also do a detailed budget so you can control your spending and know where you can save money if you need to tighten your belt.

I don't think there are any global equity index funds available in the UK. Do you have them in the US, Boston?

What about Vanguard Global Equity income and the equivalents from several other fund houses? There are also 16 options listed on justETF. The yield on these is a bit under 3% at current valuations, hence I wouldn't think passive would be appealing to an income investor. Especially as we are spoilt in the UK for this type of company paying out more of their profits rather than reinvesting in growth.

Bostonerimus1

Alexland said:

aroominyork said:
I don't think there are any global equity index funds available in the UK. Do you have them in the US, Boston?

Maybe he means something like VHYL that tracks the FTSE All-World High Dividend Yield Index?

Yes that's an example. Basically companies with a history of paying good dividends. The OP's pensions are equivalent to the fixed income part of the portfolio so I would go 100% equity (with some cash for convenience). They don't need much extra income to meet their needs so using dividends would work and they can sit on the capital gains. But many dividend/income funds will distribute around 3% and you could go with a more managed income fund that will pay you more...but you'll be getting some capital gains, maybe bond interest if it's a mult-asset fund and even capital in those extra amounts. There's no free lunch.

The OP has plenty of options because they have good DB/SP income sources and a nice DC/ISA nest egg too and a sensible income goal given their finances. So they could buy an annuity, a bond heavy income fund, an equity heavy income fund, a dividend index or simple global equity tracker or a combination of any of them and succeed.

Hoenir

Alexland said:

Bobziz said:

Question, what kind of return is reasonable from a yielding strategy? And is the preferred approach to this to use a mix of bond ladders and dividend heroes ?

To my mind they just seem to be a rather active form of a multi asset fund delivered in an IT wrapper.

Theren lies the benefit of not having to liquidate holdings to fund redemptions. Sizable positions can be held in more illiquid investments. 

Alexland

Hoenir said:

Theren lies the benefit of not having to liquidate holdings to fund redemptions. Sizable positions can be held in more illiquid investments. 

In practice if the IT becomes unpopular they end up liquidating investments to buyback shares to control the discount. Or they don't and end up with a massive discount.