The impact of inflation - yikes!

mrklaw

but similarly not all companies in a diversified growth portfolio will suffer the same impact of market turmoil. I don’t know how or why dividend companies would be protected any more than growth companies from market forces. And a market weighted index is mechanically driven - by market weight. Whereas an income index is at least partly actively selected surely - because you’re filtering for income? its not necessarily driven by company performance, its driven by yield in part.

so arguably they are less diverse - but also (potentially) by not being market weighted they may be smaller and less impacted by turbulence, but at that point its almost stock picking isn’t it (albeit by a fund manager), which has its own risks

MK62

https://forums.moneysavingexpert.com/discussion/comment/82110481#Comment_82110481

My view is that your goal is the key factor here……..if that's to maximise income over a period, then a growth portfolio statistically offers the best chance of that happening…..BUT, it's also a higher risk approach, in that if you hit a period of market stress, especially in the early years of the plan, there's a much higher probability of you having to reduce your income, in some cases quite substantially……or else take on much increased shortfall risk.

If the goal is to maintain a steady income, (loosely/roughly indexed linked) with the best chance of maintaining that level of income no matter what happens in the market, then an income portfolio statistically offers the higher chance of that…..relative to a pure growth portfolio. Of course, there's no rule saying you can't mix the two approaches……it just depends on your goal and attitude to risk (ie how much annual income variation can you accept)

OldScientist

https://forums.moneysavingexpert.com/discussion/comment/82111032#Comment_82111032

I was going to make a similar remark about investment trusts (ITs) during COVID (which was perhaps an unusual crisis in that it was relatively short lived and had a smallish effect on prices) since many income based ITs smooth their dividends by withholding a portion during the good times to maintain them during the bad times (their ability to borrow, i.e., gearing, is also useful). However, in real terms at least some will have suffered from reduced income. However, other crises (e.g., the UK stock market crash in the 1970s) did lead to many ITs cutting income in both nominal and real terms.

I also note that, like many actively managed funds, ITs come and go. For example, at the end of May 2026 there remained 38 ITs that had existed in 1973, while there were over 300 ITs in existence in 1970. In other words, about 90% of the ITs that existed in the early 1970s were liquidated or merged over the following 5 decades. This is a continuous process, e.g., since 2023, four of the hitherto longer lived ITs have been closed or merged and so no longer exist. Therefore, while there are some ITs on the AIC's dividend hero list that have performed excellently in the past, it is an example of survivorship bias writ large.

Linton

https://forums.moneysavingexpert.com/discussion/comment/82110960#Comment_82110960

Volatile share prices do not make any practical difference to the operation of companies in the short term, they only really matter should the company wish to issue more shares.

Companies pay dividends from their profits. They do so because the owners, the share holders, want them to. The directors can cut the dividend at any time. The market would take it as a signal that the company could be in financial difficulty and the share price could collapse. Both the cut and the fall in share price are likely to seriously upset the shareholders possibly leading to the directors finding themselves on the dole. So there are strong disincentives for the directors to cut the dividend unless the company really is in financial difficulty.

Yes, because of external circumstances individual companies or companies in a whole sector (banks in 2008) could run into financial difficulty and stop paying dividends, but this is different to the stock markey crashing due to lack of confidence as in current circumstances. The potential for a sector to fail is why diversification is essential for income investing. If a large number of companies in a range of sectors across the world cease to be profitable at the same time you are talking about an "end of the world as we know it" scenario where any equity investing would fail..

Linton

https://forums.moneysavingexpert.com/discussion/comment/82111075#Comment_82111075

The key benefit of income investing is that market turbulence of itself does not affect the amount of income. Dividends are paid as £/share, not as a yield %, so the market price is irrelevent.

mrklaw

the only reason I find some of this discussion a little confusing - is the lack of discussion about dividend stocks as a fundamental core component of a retirement fund. If they were better as a stable income source (less SORR etc) then surely they’d be more widely discussed vs growth stocks and simple total return approach with some combination of equities/bonds and selling to gain income?

Pat38493

https://forums.moneysavingexpert.com/discussion/comment/82111378#Comment_82111378

Maybe have a read of this

https://earlyretirementnow.com/2019/02/13/yield-illusion-swr-series-part-29/

The folks on this thread who swear by dividend investing will probably be fine, and may well have less volatility, but their overall long term returns will probably be lower, and the belief that they are shielded against all crises needs to be born out - most investors won’t need it do so so as they won’t hit the worst case SORR scenarios anyway, so it probably becomes an issue of confirmation bias for many because whichever approach they are following is working just fine. This article seems to raise, and provide evidence for, many of the points being raised here.

To put it another way there is no free lunch - whatever a company pays out in dividends cannot be reinvested in growth.

LHW99

I began building an income biased SIPP portfolio around 15 years ago. I didn't look for particularly "high" dividend income funds, but neither did I go for growth / index funds that would provide <2%. Now it's a little looser, in that ~10% is now in a >6% yield fund, and about the same in a <2% one.

Over the years, with the majority of the holdings at least 7 years old, and added to over time, it provides (end 2025) just over 3% dividend income, with overall average (unitised) growth of 7%+pa, leaving plenty of room for a blended approach to taking income.

I have aimed to keep a geographiical spread of ~25% UK & US, with ~15% Europe, ~10% Asia and the the remainder bonds / property / other.

Perhaps, as with many things, a "little of everything does you good"

michaels

https://forums.moneysavingexpert.com/discussion/comment/82111384#Comment_82111384

Finally someone who understands, the cost of lower volatility is lower absolute returns. Bonds held to maturity are also less volatile but there is still capital risk and inflation risk.

As above, the only place this strategy makes sense is to draw 'income' from an ISA for gifting purposes.

Ibrahim5

Vanguard FTSE UK Equity Income Index 5 year return 106.88%

Vanguard FTSE global all cap 68.5%