Maximising Isa income

Luvcricket

I am now retired and have been receiving income from my Isa account for a few years. 
I had a light bulb moment around 5 months ago, where I realised that instead of getting income from just one income fund quarterly, I could switch to other income funds very quickly and get more income!
I am now using 4 different quarterly paying funds, plus 3 monthly funds.  It involves 4 switches every month so as to capture the dividend dates on each fund. 
It works because by catching the dividend at the correct time, you can achieve a return of well over 30% and it is possible to get your capital invested back, as monthly income, in under 3 years! 

eskbanker

Surely the capital value of income-distributing funds decreases by the value of the dividends once paid out, so I don't see how this is a sustainable technique?

Luvcricket

There is a risk to capital if unit prices fall, but the income is so high with switching, that the net gain is on track to more than compensate. 

eskbanker

Luvcricket said:

There is a risk to capital if unit prices fall, but the income is so high with switching, that the net gain is on track to more than compensate. 

But the point wasn't about overall general trends in unit prices, but the fact that such prices intrinsically reduce when dividends are paid, which in turn affects those broader trends for such investments.  I'm not necessarily challenging that you've benefitted from some fortuitously-timed transactions, but simply observing that it isn't sustainable as some sort of way of beating the market....

Luvcricket

Well all I know is that from £215,000 invested, I am due over £7,200 tax free this month.
Therefore I am expecting a possible £85,000 tax free, over the year 2025.
I think that is pretty good income, to add to our pensions!! 

eskbanker

Luvcricket said:

Well all I know is that from £215,000 invested, I am due over £7,200 tax free this month.
Therefore I am expecting a possible £85,000 tax free, over the year 2025.
I think that is pretty good income, to add to our pensions!! 

Although that does sound impressive, the question is really whether or not the returns are actually a result of changing horses regularly - perhaps you'd care to share which funds you've been in and out of over those five months?

Luvcricket

So I am using 3 quarterly funds ( all with a dividend date of the 1st of relevant month)
Schroder Income Maximiser class L - income
Royal London Sterling Extra Yield Bond class Y - income.  } These 3 funds  cover the 12 months yearly. 
Invesco High Yield class Z - income

PLUS  a switch early Feb, May, Aug and Nov. to Artemis High Income class i - income ( divi dates : 8th)

Also Monthly income funds as follows:

Legal & General Active Global High Yield class i - income  ( divi dates 8th each month)  [to use on the 8 months when not using Artemis fund] 

Schroder  High Yield class Z - income ( divi dates 16th each month) 

Legal & General Managed Monthly Income class i - income ( divi dates 22nd each month) 

As switching between funds only takes 2 days, all 7 funds can be used. 

Alexland

Surely the fund unit prices reduce as soon as they go ex-dividend so your capital is reducing unless the assets have a corresponding upwards valuation trend or you were getting lucky when the money is uninvested between switches?
The funds can't just magic money from nowhere and need to be fair to long term investors. The dividend payment has to come from the fund assets which are usually valued daily and so the next unit price would reflect the dividend payment liability that has occurred.
It would only work if a fund manager was incorrectly using the previous day unit price for redemptions, which I have sometimes observed, in which case your gain would be at the expense of other investors and I wouldn't want to rely on that as a repeatable opportunity.

Luvcricket

Well I get what you're saying, but I like tens of thousands of others, are in it for the income.
These are all income funds after all, not accumulation funds. 
Having built up my capital over many years, now in retirement, I want the most income I can get. 
This is what most people want in retirement.
Having received income for a good few years now, only from one fund, it makes sense to switch on a rolling basis to multiple funds.
It makes no difference as far as I can see in an income fund to the unit prices. 
They go up, they go down, but the income more than offsets occasional losses. 
It is the net gain that matters. 
This strategy is not for everyone, but if like me you never intend cashing in the capital invested, the income is a great retirement booster and tax free! 

eskbanker

Luvcricket said:

It makes no difference as far as I can see in an income fund to the unit prices.

Not quite sure what you mean by 'it' makes no difference, but it's self-evident that issuing dividends reduces unit prices, as you can see from a comparison between the income and accumulation variants at the time dividends are declared, such as your Schroder Income Maximiser class L for example:



There's no issue with taking the income if that suits your requirements, but it's important to understand that this is at the expense of capital growth (look at the long term figures above!), and that changing horses regularly can't evade that principle, as you're effectively buying high and selling low when doing so, even though the effect may be masked during rising markets.

Linton

Luvcricket said:

Well all I know is that from £215,000 invested, I am due over £7,200 tax free this month.
Therefore I am expecting a possible £85,000 tax free, over the year 2025.
I think that is pretty good income, to add to our pensions!! 

I have a significant income fund ISA portfolio....

 Switching between funds wont help because to be paid a dividend you must be holding the fund a significant time (eg 2 moinths) before the payment date. ISTM that by the time you get a payout from your switched-to fund you will have missed the chance to switch back again to get the dividend from your original fund. Perhaps you could give a worked example of switching between 2 funds providing a major increase in yield.

 Plus as others have said if you sell immediately after the dividend is paid you will get a lower price.

Mainstream income funds could reasonably be expected to pay out say 4-8% annually.  So I dont believe your claimed  >30% per year.

One other point - rather than  do complicated things to get a steady income over the year it is much easier if you use a provider like II who will automatically pay dividends directly into your current account. You can then easily move cash around into separate portions as you wish.