Monthly Income from 120K - Monthly Income Funds

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Rymo_2
Rymo_2 Posts: 40 Forumite
in Savings & investments
Hi,

I am working part time due to being a carer. I earn appx £200 - £250 per week from self employment, part time, which bars me from receiving carers allowance payments.

I have a portfolio of monthly income funds (X 8) which I use to provide me a base income.

I have the following funds

Artemis Monthly Distribution
AXA Framlington Monthly Income
HSBC Monthly Income
Invesco Perpetual Monthly Income
Jupiter Monthly Income
Kames Diversified monthly income
Premier Multi Asset Monthly Income
Threadneedle Monthly Extra Income

The funds cost 120K and are now worth 128K and I have been receiving an income for 15 months which I am happy with.

The amounts in each fund are about equal.

88K are held within ISA wrappers and I will move the rest in ASAP.

I am 52 and have 141K in a DC pension which I don't intend to touch till 60. I intend to pay in £2880 each year to top this up so £3600 with tax relief.

I also intend to top up the monthly income funds when I can.

I appreciate markets go up and down and most important for me is that the income continues to be paid. If there was / is long term capital growth it would be a bonus.

Can anybody see any massive problems with my strategy?

Rymo.
«13

Comments

  • bigadaj
    bigadaj Posts: 11,531 Forumite
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    In general seems ok.

    We're obviously well overdue a market correction, but so long as you don't panic and sell out on a 30-40% loss and wait for recovery then should be ok.

    My main concern would be that most of those look uk focused, and many will be targeting a small number of large companies that pay high dividends, so you probably lack diversification and may suffer if a small part if the economy does badly, like the banks in 2008.

    I'd want soem funds that are global equity income, and there are now plenty of funds that focus on Asia, even some in South America, so would look at swapping into some of these for at least part of the portfolio.
  • Audaxer
    Audaxer Posts: 3,508 Forumite
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    I've also been looking at some of these multi asset income funds and just invested in the Artemis Monthly Distribution fund, and that one is well diversified globally although some of the others may have more UK bias.

    My only concern for the strategy would be if there is a market correction or crash, I'm not sure the funds would be able to continue to pay the same level of income that they currently pay.
  • sorcerer
    sorcerer Posts: 878 Forumite
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    Perhaps consider some investment trusts as well, many of which have paid a growing dividend for years. Such as City of London, Murray International and Scottish American.


    Also you don't always have to buy just funds that pay monthly, you could consider quarterly payers, that pay at different quarters.


    But in general I would agree with others too much in the UK big companies, be good to diversify your portfolio.
  • Malthusian
    Malthusian Posts: 10,944 Forumite
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    Even if you are unconcerned about the capital, the main risk to you is that we have a prolonged recession and UK companies either cut their dividends on a large scale (or even go bust) or fail to grow their dividends in line with inflation. Having so many funds is probably giving you a false impression of how diversified you are. Most of them are probably invested in largely the same kind of companies and when the market falls they will all fall together.

    Some companies pay out their surplus income, others reinvest it within the company, others do a bit of both. The choice to take the "natural" dividend income is therefore rather arbitrary and simply leaves the decision of how much income to take entirely in the hands of the management of the underlying companies.

    The alternative is to decide how much you actually need and then set up a monthly fixed withdrawal. Obviously if your chosen income is higher than the dividends you will be eating into the capital, but on the other hand if it is lower than the dividends, they can be reinvested to build up the capital. The advantage of this is that you are no longer restricted to funds which pay income out on a monthly basis and you are free to spread your investments far more widely.

    There is only a long-term problem if you choose a higher level of income than can be sustained, and to avoid this problem by letting the company and fund managers choose how much income you get is putting the cart before the horse. Classically speaking you should decide how much income you need and based on that decide suitable investments, not let the investments pick how much income you get. Unless you don't trust yourself with that decision.
  • Audaxer
    Audaxer Posts: 3,508 Forumite
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    Malthusian wrote: »
    Even if you are unconcerned about the capital, the main risk to you is that we have a prolonged recession and UK companies either cut their dividends on a large scale (or even go bust) or fail to grow their dividends in line with inflation. Having so many funds is probably giving you a false impression of how diversified you are. Most of them are probably invested in largely the same kind of companies and when the market falls they will all fall together.

    Some companies pay out their surplus income, others reinvest it within the company, others do a bit of both. The choice to take the "natural" dividend income is therefore rather arbitrary and simply leaves the decision of how much income to take entirely in the hands of the management of the underlying companies.

    The alternative is to decide how much you actually need and then set up a monthly fixed withdrawal. Obviously if your chosen income is higher than the dividends you will be eating into the capital, but on the other hand if it is lower than the dividends, they can be reinvested to build up the capital. The advantage of this is that you are no longer restricted to funds which pay income out on a monthly basis and you are free to spread your investments far more widely.

    There is only a long-term problem if you choose a higher level of income than can be sustained, and to avoid this problem by letting the company and fund managers choose how much income you get is putting the cart before the horse. Classically speaking you should decide how much income you need and based on that decide suitable investments, not let the investments pick how much income you get. Unless you don't trust yourself with that decision.
    Malthusian, I know what you mean, but are you saying there is no place for portfolios that just generate income? I think a lot of retirees and others that need income are happier to rely on ITs and funds that pay natural income than having to make capital withdrawls from a fluctuating growth portfolio.
  • atush
    atush Posts: 18,726 Forumite
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    sorcerer wrote: »
    Perhaps consider some investment trusts as well, many of which have paid a growing dividend for years. Such as City of London, Murray International and Scottish American.


    Also you don't always have to buy just funds that pay monthly, you could consider quarterly payers, that pay at different quarters.


    But in general I would agree with others too much in the UK big companies, be good to diversify your portfolio.


    This.

    You are neglecting income investment trusts, some of whom have been paying increasing dividends for decades (in crash times and good times).
  • Malthusian
    Malthusian Posts: 10,944 Forumite
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    Audaxer wrote: »
    Malthusian, I know what you mean, but are you saying there is no place for portfolios that just generate income?

    There is a place - for people who don't trust themselves to choose a level of income that won't deplete the portfolio.
    I think a lot of retirees and others that need income are happier to rely on ITs and funds that pay natural income than having to make capital withdrawls from a fluctuating growth portfolio.

    Bit old-fashioned now that it is easy to set up a fixed withdrawal from your portfolio with a modern fund platform. Expensive as well as you can access the same investments via index tracker funds.
  • ColdIron
    ColdIron Posts: 9,052 Forumite
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    Audaxer wrote: »
    Malthusian, I know what you mean, but are you saying there is no place for portfolios that just generate income? I think a lot of retirees and others that need income are happier to rely on ITs and funds that pay natural income than having to make capital withdrawls from a fluctuating growth portfolio.

    Depends on your circumstances, resources and objectives but there are many ways to skin a cat

    I use the 3 bucket or waterfall strategy split across several portfolios (SIPP, ISAs and unwrapped) in 3 layers. 1) Several years of cash 2) Income 3) Growth. I spend from 1 which is replenished monthly/quarterly etc by natural income from 2 which in turn is periodically supplemented by 3 when valuations or requirements suit me (every year or two or whatever). Resilient, low maintenance and copes well with my fluctuating incomings and outgoings

    You could jam it all in one mixed portfolio but keeping them separate helps me focus on the job of each portfolio and take advantage of different platform charging structures for ITs, funds and EFTs

    Works for me, but horses for courses and all that
    Rymo wrote: »
    Can anybody see any massive problems with my strategy?
    The addition of a cash buffer, if possible, would widen your choice of investment to quarterly or biannually paying ones. It seems a tad knife edge to me. If you have a buffer, do you need to restrict yourself to the small selection that pay monthly?
  • Sue58
    Sue58 Posts: 288 Forumite
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    atush wrote: »
    This.

    You are neglecting income investment trusts, some of whom have been paying increasing dividends for decades (in crash times and good times).

    Do you think global investment trusts would be more useful such as Bankers, Caledonia, Brunner etc instead of just having UK IT's?
  • ColdIron
    ColdIron Posts: 9,052 Forumite
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    With only 27% UK I wouldn't call Bankers a UK IT
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