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Global equity income in retirement
uhm
Posted: 10 July 2017 18:34:14(UTC)
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Hello to everyone,

I am hoping to invest the proceeds of a house sale in the not too distant future and this will substantially increase my portfolio. After purchasing a cheaper house there should stll hopefully be enough to retire on - that's the plan anyway.

At the moment my portfolio is a bit messy with a mixture of a few shares, some active funds and more passive funds / Etfs. I don't touch my portfolio as I am still working, but maybe that's made me a little too lazy about trying to optimise the income I could achieve from it. Once I am no longer working it will be my only source of income so I should give this a thought now, before I am actually relying on it to live from.

My preferred route is Global Equity income (backed up with a percentage of Global Bonds and Global REITs).

I already have Vanguard Life Strategy 60% Equity and I hear you asking "what's your problem then?" I agree it is excellent and I could sell off some units to supplement the small income yield.

My only reservation about the Vanguard LS is that it is UK biased and therefore not truly global. I'd rather not have that UK bias - I would prefer to go truly global as the rest of the world may not have the sorts of problems we have here (Brexit for example). I'm happy to take the loss if it turns out that Brexit has long term benefits for UK markets, so Global Equity income / growth is what I would feel happiest with.

Any ideas? I already own a small amount of Vanguard Global All Cap Index Fund, but because it is such a new fund, there's no info yet on its income yield etc.

I toyed with the idea of throwing a major portion of it in with Fundsmith Equity, but wondered how long he could keep up the stellar results....
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Tim D on 11/07/2017(UTC)
Sara G
Posted: 10 July 2017 19:56:11(UTC)
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Murray Intermational - MYI - may be of interest: 3.8% yield, 0.68% fee and 12.7% in the UK. It's on a 2% premium at the moment, but over time that won't be too significant.

If you prefer OEICs Artemis Global Income has a good track record and only 7.8% in the UK.

The two may complement each other: MYI has a large cap bias and high exposure to emerging markets compared to other global ITs while the Artemis fund is has a multi-cap approach with bias to developed markets. Both managers are currently value investors but not rigidly so.
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King Lodos
Posted: 10 July 2017 22:06:39(UTC)
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Vanguard LifeStrategy 60's fully global – I count about 28% UK equities and bonds here

https://www.trustnet.com/Factsheets/Factsheet.aspx?fundCode=ACFDQ&univ=O&pageType=portfoliobreakdown

It's basically an All World stocks tracker and a Global bond tracker, with a slight home country bias (Large-Cap UK shares themselves only having 30% exposure to the UK economy).

My only reservation with equity income is that low bond yields have forced lots of investors into these stocks as bond replacements, and lots of managers in the sector are forced into the same stocks .. If this situation were to reverse, I think the chances of these funds beating the market for the next 20 years becomes lower.

I think what Terry Smith does is much less about performance and much more about a simple principle of investing in safe, profitable companies .. The returns have so far been very similar to a Consumer Staples ETFs, and will probably continue to be so .. The unknown is whether high valuations eventually catch up, and whether you'd keep holding it on 5-10 years of underperformance .. Long-term, I think it's a good bet.
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Tug Boat
Posted: 11 July 2017 08:18:35(UTC)
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You are about to do what I've been doing for a couple of years. I have a portfolio which pays divi every month. I don't sell units to generate income as there are income generating forms of most UTs or its. The divi is paid into my bank account each month.

Here's what I have for global equities

UTs

Newton global income
Threadneedle global equity income
Artemis global income
Veritas global equity income

ITs

MYI
BNKR
BUT
HFEL
JEMI
JPGI
AAIF
EAT
STS

ETFs

GBDV

Other

RECI
BBOX
RDI
NCYF
CMHY
RL Sterling extra yield bond


I don't buy many trackers as you get the bad with the good and if you buy at the top of the market, as I always seem to do, you don't get your capital back for yonks

Hope this gives you some ideas
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uhm
Posted: 11 July 2017 09:23:58(UTC)
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Tug Boat -

There is a nice mix of income producing ITs and UTs there. Do you keep so many different holdings to spread out the dividend payments - monthly as you say? Like you, I also have many holdings. I think that finding just a few good ITs or funds might produce the same results over the years as many separate holdings. I understand this might be at the expense of such regular dividend payments. I would keep a cash buffer to draw from and feed the less regular dividends into that maybe.

King Lodos -

I agree with you that Vanguard LS60 is global, but with 28% UK exposure it is UK biased (the FTSE All World index is just over 6% weighted to the UK, for example). It is my largest holding and has done well since I first invested six years ago - as have the markets generally. A properly global -including small cap stocks - version of LifeStrategy would be ideal. Vanguard just need to tweek the existing weightings and it would be there. Vanguard say it's UK biased because, according to them, that's what most UK investors want. I don't know whether that's what UK investors actually want or if that's what they end up with for the sake of convenience.
Other than this minor flaw, you have a ready made balanced international portfolio for minimal effort.
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Tug Boat
Posted: 11 July 2017 10:59:01(UTC)
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I've been swapping UTs for ITs over the past year, however, the global UTs and the RL bond fund I am keeping.

BUT and BNKR are there as growth funds that kick out a divi

I wanted exposure to Asia and EM and wanted more than one trust.

The REITS and bond funds are there to kick out divi as well as diversification

GBDV is there as I succumbed to the chants of the "you must have trackers brigade". It has done well though.

Star performers are Veritas and Newton globals

I did not plan to get a divi every month, but that's how it worked out

I don't think there are too many, as they are split over two ISAs and a SIPP which I wanted to be stand alone cash generators. I also have a few UK specific trusts too.

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Law Man
Posted: 11 July 2017 12:44:10(UTC)
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UHM: You do not say how long you have before you stop working. The significance is that, while working, you continue to put in new money; while from retirement you take money out.

If you have 20 years to retirement, you can have a large proportion in equities; after retirement a 50/50 balance is more appropriate.

Asset allocation is far more important than stock selection. Assume your total is 100%, and then set out:

X% in mainstream equities, of which a% in UK, b% in US, etc

Y% in bonds, spread over fixed rate, index linked, etc

Z% in infrastructure, wealth preservation

N% in REITS of which a% in UK, b% overseas, c% in specialists such as GP surgeries, etc.

Only then choose your particular ITs, ETFs, etc.

Consider selling individual shares to reduce risk.
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Frenchman 96
Posted: 11 July 2017 14:36:54(UTC)
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Sarah g

Can you buy direct from Murray to get that .68% fee? or do I have to use a platform
uhm
Posted: 11 July 2017 15:42:43(UTC)
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Law Man:

Thanks for your reply. I don't know exactly when I'll be stopping working as it depends on first the house sale and then disposal or closure of a business.
The time frame could be 6 to 18 months at a guess, hopefully not much longer.

I last did a check in earlier this year and I had the following allocation:

46% Equities (Not broken down by region - my next task, thanks for prompting it)

22% Bonds (Again not broken down, but all types are there)

29% Cash accounts, ISAs and bonds

3% REITs (Global, UK and even the specialist GP surgeries)

The above does not include the house sale value, so if I took that into account I would be over 50% in (residential) property alone.

I'm thinking of ideas for the money left over after downsizing the house. I should look to allocate so I end up with a 50 / 50 bond / equity split, after a cash buffer. My concern with bonds is the poor yield, so I was inclined to decrease the proportion slightly.

Maybe I have kept an excessive cash buffer, but that has always been due to being self employed and not having a guaranteed income.

I will look at the remaining individual shares too and consider selling - there are some that should have gone years ago, with a stop-loss had I put one in place.
Keith Cobby
Posted: 11 July 2017 16:51:35(UTC)
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I am about 8-10 years from needing to access income from my portfolios. I am about 2/3 growth and 1/3 income at present. I expect this will be reversed on retirement. My income funds are about 70% global and 30% UK. I am and will remain 100% equities because they are the only investments which provide income growth.
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Sara G
Posted: 11 July 2017 18:34:14(UTC)
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Frenchman 96;48716 wrote:
Sarah g

Can you buy direct from Murray to get that .68% fee? or do I have to use a platform


Yes I think so - it is an Aberdeen vehicle so should be available via their Investment Trust Centre:

http://www.invtrusts.co....trusts/?localeHidden=en

Law Man
Posted: 16 July 2017 08:51:23(UTC)
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UHM: re yours #10 11/07/17 15:42.

So, you have a further 12-18 m to pay your way from earnings, and perhaps put more in a SIPP - definitely if 40% income tax.

Also you will put in ISA or SIPP the £p from the house.

Then you start the retirement period of drawing income out of your ISA/ SIPP; but consider what other income you will have, and when, e.g. state pension. Try not to draw out more than the natural yield.

Your current and proposed allocation looks good to me; although consider how much cash you hold. Perhaps phase in the proceeds of house over a period say 2 years.

CASH: This is not per se a bad thing. You take a guaranteed real loss of 2% p.a. rather than risk a greater loss. For the last 12 months I have held in my SIPP significant cash for the first time - currently 13% of total. However, if we are looking at a period of 5-10 years or more then cash is wealth destroying compared with other assets.

I wish you well. It is very interesting, and rewarding, to manage your own money.
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Guest on 20/07/2017(UTC)
uhm
Posted: 16 July 2017 21:19:44(UTC)
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Law Man:

Your mention of SIPP contributions attracting tax relief has prompted me to finally transfer at least one cash account into my SIPP - even if I just leave it there in cash, at least I will get the tax relief. I have been thinking of doing this for some time but never made the move. I also have a cash ISA maturing later in the year which is still paying 2% - it seemed paltry at the time, but not so bad now - so I'll wait that out and then transfer it into equities within an ISA.

I also like and use the idea of phasing in cash over a time period - 'pound cost averaging'. This may not have worked to anyone's advantage over recent years with a steady bull market, but as no-one can predict the start of the next crash, I will stick with it.

Now which global equity income fund / trust to purchase with these cash accounts? The Vanguard Global All Cap has been running under one year so does not have any past records of dividend payments.

There is also a Vanguard Global Equity Income fund which is actively managed (with a 0.60% ongoing annual charge). Does anyone have any opinions on this fund? Again it is very new and seems to have kept up with its benchmark during its first year, but there is no info on the annual dividend payout.

https://www.vanguardinve...ion-shares/overview-tab

Thanks very much for your good wishes and for commenting
Spartacus
Posted: 18 July 2017 17:28:50(UTC)
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Just to add a couple more global funds to the mix,

HINT & SOI are well worth looking at. HINT's quite new but an impressive record..
King Lodos
Posted: 18 July 2017 18:15:47(UTC)
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uhm;48699 wrote:
King Lodos -

I agree with you that Vanguard LS60 is global, but with 28% UK exposure it is UK biased (the FTSE All World index is just over 6% weighted to the UK, for example). It is my largest holding and has done well since I first invested six years ago - as have the markets generally. A properly global -including small cap stocks - version of LifeStrategy would be ideal. Vanguard just need to tweek the existing weightings and it would be there. Vanguard say it's UK biased because, according to them, that's what most UK investors want. I don't know whether that's what UK investors actually want or if that's what they end up with for the sake of convenience.
Other than this minor flaw, you have a ready made balanced international portfolio for minimal effort.


Just on this – don't forget 70% of the earnings on those UK equities are coming from overseas.

So UK equities *themselves* aren't much of a play on the UK – they're mostly a play on the cyclical trade (banks, oil and miners – many of which have most of their operations and earnings outside the UK; many in Emerging Mkts).

I've just checked, I've got 7% in UK equities .. But the argument you can be globally diversified just in UK stocks is perfectly valid .. My own feeling is that apart from political risk, geographical diversification is mostly a distraction .. When banks do well, they're generally doing well everywhere – even more so energy and miners .. I think we create UK and European benchmarks just so we invent more funds .. The only benchmark should be the FTSE World – which would make it A LOT harder for most active funds to outperform.
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Spartacus
Posted: 18 July 2017 19:05:23(UTC)
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King Lodos;49001 wrote:
[quote=uhm;48699] .. The only benchmark should be the FTSE World – which would make it A LOT harder for most active funds to outperform.


HSBC have the ETF for you...check out HMWO.

It's linked to MCSI world rather than FTSE world, but should be a very close match
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Guest on 20/07/2017(UTC)
King Lodos
Posted: 18 July 2017 19:34:29(UTC)
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Looks like that would do that job.

College endowments often use a benchmark like 65% MSCI World, 25% Global Bonds, 10% REIT index .. and it takes some good academia and skilled managers to beat that on a risk-adjusted basis.

I still say income is just earnings companies can't find anything better to do with – so invest in the most efficient portfolio possible and draw whatever income you need .. It amounts to the same thing, but is probably more likely to give you a good outcome.
Simon Owen
Posted: 18 July 2017 21:07:35(UTC)
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Hi KL

If an investor were to decide to keep things simple & follow this allocation, the world index tracker is a fairly obvious choice, then presumably the Vanguard Global Bond index, REITs - I think Ishares run a tracker in this space?

Do you have 10 year discrete & cumulative historic performance figures for this allocation?

Would you tweak this allocation slightly by the inclusion of private equity & gold?

Cheers
Tim D
Posted: 18 July 2017 21:20:11(UTC)
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Spartacus;49002 wrote:
King Lodos;49001 wrote:
[quote=uhm;48699] .. The only benchmark should be the FTSE World – which would make it A LOT harder for most active funds to outperform.


HSBC have the ETF for you...check out HMWO.

It's linked to MCSI world rather than FTSE world, but should be a very close match


Bear in mind that "MSCI World" would actually be better named "MSCI Developed World" as it actually only comprises ~89% of the "MSCI All Countries World Index" (MSCI ACWI), and the ACWI is probably a better equivalent to the FTSE All-World than "MSCI World" is.

Basically the difference is you get some extra emerging market exposure if you buy an MSCI ACWI or FTSE All-World tracker. May or may not be what you want. (Personally, I certainly do want an EM component to my "world" trackers).

JustEtf's screener lists 4 ETFS tracking MSCI ACWI; I have no direct experience of any of those but do hold some of Vanguard's FTSE-All World tracking "VWRL".

Vanguard's info on VWRL shows it (and its benchmark) is 2.4% China, 1.4% Taiwan, 1.1% India, 0.8% Brazil, 0.8% South Africa plus some other small fry each 0.4% or less for a total of ~9% in EM markets.

Links:

  • https://www.msci.com/world
  • https://www.msci.com/acwi
  • https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-all-world-ucits-etf/portfolio-data-tab
  • https://www.justetf.com/uk/find-etf.html?groupField=index&index=MSCI%2BAll%2BCountry%2BWorld%2B%2528ACWI%2529

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King Lodos
Posted: 18 July 2017 21:51:29(UTC)
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Good point about EM .. I think it would be important to hold close to the actual market's allocation to EM .. Or overweight with a separate EM tracker.



Simon Owen;49004 wrote:
Hi KL

If an investor were to decide to keep things simple & follow this allocation, the world index tracker is a fairly obvious choice, then presumably the Vanguard Global Bond index, REITs - I think Ishares run a tracker in this space?

Do you have 10 year discrete & cumulative historic performance figures for this allocation?

Would you tweak this allocation slightly by the inclusion of private equity & gold?

Cheers


You can try it out on Portfolio Visualizer:
https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=2&startYear=1972&endYear=2017&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&portfolio1=Custom&portfolio2=Custom&portfolio3=Custom&TotalStockMarket1=35&IntlStockMarket1=30&GlobalBond1=25&REIT1=10

I actually wouldn't say it's a very balanced portfolio .. It's the right benchmark for the risk exposures
of a typical college endowment, but I'd hedge a lot more, factor tilt a bit more, and not go over 50%
stocks (just personally), at least without more hedging/cash.

This is the kind of portfolio I like on principle.

25% US Stock Market (I would use EM instead, but the data doesn't go back as far)
25% US Small-Cap Value
30% Long-term Treasuries
20% Gold

https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=2&startYear=1972&endYear=2017&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&portfolio1=Custom&portfolio2=Custom&portfolio3=Custom&TotalStockMarket1=25&SmallCapValue1=25&LongTreasury1=30&Gold1=20

Only 50% stocks, but returns the same as 100% stocks, since the 70s, with a tiny fraction of the
volatility, and no big down years or bad points to invest. (So you could have added Private Equity
– maybe 25% – or leverage, and really beaten 100% stocks by some way.)

It's a little trickier now, because Long-term Treasuries are very expensive .. Some say you should
still hold them – or maybe do as Ruffer and Troy do and hold inflation-linked bonds .. I've also
never held as much as 20% gold, but you could just go 5% gold, 5% gold miners as a leveraged
play on gold.

Getting the right asset allocation today is very tricky .. Partly because nothing looks cheap, apart
from select EM regions – maybe a few select sectors, like European banks .. I'd be holding more
EM, more cash.
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Mike L on 19/07/2017(UTC)
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