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Suitability of John Baron's Income Portfolio
m crawfy
Posted: 21 August 2017 20:33:37(UTC)
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I hope to retire when I turn 60 in two years time.

To supplement my occupational pension, which will cover my basic day to day living costs, I intend to set up a portfolio with a sum of £300k to generate income.

Being a relative novice to investing and not wishing to constantly monitor any portfolio I set up I had thought of following John Baron's income portfolio which historically has delivered a yield of around 4% which would be more than adequate for my needs.

I'm not averse to some risk and would be able to take a loss of around of 10 %.

I would welcome any comments or advice on this possible course of action.

I should add that I had initially thought about using an IFA but had thought otherwise when told of the exorbitant fees !
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Guest on 22/08/2017(UTC)
Mr Helpful
Posted: 22 August 2017 10:07:49(UTC)
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m crawfy;50070 wrote:
I hope to retire when I turn 60 in two years time.
Being a relative novice to investing and not wishing to constantly monitor any portfolio I set up I had thought of following John Baron's income portfolio which historically has delivered a yield of around 4% which would be more than adequate for my needs.

I'm not averse to some risk and would be able to take a loss of around of 10 %.

I would welcome any comments or advice on this possible course of action.



Firstly, cannot lay my hands on the latest iteration of JB's Income Portfolio, so cannot comment in full. (may later).

In principle sounds a workable idea.
Changes are made from time to time by JB, so it will not be a 'set it and forget it' portfolio.

The idea of limiting losses to 10% is unfortunately flawed. Stocks can lose 50% from time to time, so fluctuations will occur to total capital. Volatiltiy can however be welcomed as an opportunity to rebalance which JB will almost certainly carry out.
For a retiree it can help to concentrate more on the income flow which might well hold up in spite of capital fluctuations, providing it is not intended to draw from capital for day to day needs?
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Tim D on 22/08/2017(UTC), m crawfy on 22/08/2017(UTC)
Mickey
Posted: 22 August 2017 10:22:55(UTC)
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May be worth noting that John Baron likes to stay invested through ups & downs so you would have to hang in there during the bad times. He usually holds only a very small amount of cash so keep a sensible cash buffer elsewhere appropriate to your risk appetite.
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Mr Helpful on 22/08/2017(UTC), m crawfy on 22/08/2017(UTC)
Big boy
Posted: 22 August 2017 11:13:34(UTC)
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I would have concern with just one holding. 4% sounds good but have the expenses been taken from the Income or will they come from capital. In bear market this can have a geared effect. Chasing inflated yields which are taxed is not always the best way to deal with the issue. I would suggest a spread of 10 conventional ITs (preferably on good discounts to NAV). and draw down some capital to supplement income. With tax at 40% an income of £10000 would net £6000 therefor taking just £6000 from capital would save £4000 tax.
Remember you could be looking at a 20/40 year investment.
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Captain Chaos on 22/08/2017(UTC), william barnes on 23/08/2017(UTC)
Money Spider
Posted: 22 August 2017 16:10:41(UTC)
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John Baron's portfolios are usually invested across about 20 different IT's (he focuses only on ITs) and include a mix of corporate bonds, property, equities (mix of geographies, company sizes, income/growth etc.) and commodities. The one that you are considering - Income - I think is also referred to as 'Autumn' and (as the name says) is focused on Income rather than Growth.

I would suggest that you look at the JB portfolios as one (possible) model, rather than an exact plan. Look at how the portfolio is constructed (types and mix of assets) and which assets are chosen. This will be a good education exercise for you and you will be much better informed as a result (use Trustnet and Morningstar, for example, to better understand each specific IT). You can then decide if you want to copy the portfolio per se, or if you want to tweak it by changing the mix or substituting different IT's. Remember, JB will have bought some ITs quite some time ago when they were on higher discounts than they are now. So, if he was making the call today he might not buy some of them (or not so much of them).

Having said all of the above, he does hold some good ITs in his portfolios (my view and from some others here whose postings you can read). So, I would say these portfolios are quite a good place to start, but I wouldn't follow them blindly. You might also want to ensure that you understand how IT's work (versus UTs/OEICs) - there can be a place for both assets. Also, take the trouble to understand the UK tax system so that you can use your allowances such as the 'Starting Rate for Savings' if your earnings (pay/salary/pension) is <£17,500 (for 2017-18).

Good luck.
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Law Man on 22/08/2017(UTC), m crawfy on 22/08/2017(UTC), Tim D on 22/08/2017(UTC), Mr Helpful on 23/08/2017(UTC), william barnes on 23/08/2017(UTC), Mike L on 24/08/2017(UTC)
Gareth Harries
Posted: 22 August 2017 16:12:55(UTC)
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JB is a portfolio of ITs so it is not one holding. Quite agree with previous respondent, capital values will fluctuate depending on Mr Market, so concentrating on the dividend stream is key. A loss is not a loss until you crystallise it, so if you can't sit on your hands when the market does one of its big drops, then equity investing is probably not for you. If you need a constant stream of divi's then would also hold 2 years worth in cash to make sure you have money available when the inevitable market drop comes
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Mr Helpful on 23/08/2017(UTC)
King Lodos
Posted: 22 August 2017 16:35:23(UTC)
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Gareth Harries;50114 wrote:
A loss is not a loss until you crystallise it, so if you can't sit on your hands when the market does one of its big drops, then equity investing is probably not for you.


There are two perspectives on this ...

I'd say a loss is a loss, whether the value's in stocks, bonds, cash, gold – when you own £1m of any asset, and it halves in value, your net worth also halves in value, and you still have to make it back.

Assets only make any sense priced relative to other assets – and they all go up and down .. Even Sterling (of course) can lose half its value overnight without you buying or selling anything - and the effect would be everything else getting more expensive .. So while it's a more technical challenge, some investors go to lengths to play a strong defence and avoid losing value in any asset
Big boy
Posted: 22 August 2017 18:43:22(UTC)
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Have I read it correctly John Barron is an Investment Trust tip sheet charging £160.00 pa.
Gareth Harries
Posted: 22 August 2017 19:02:20(UTC)
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King Lodus

You made my point for me. You refer to a drop in value and equate that as a Loss, but the reality is that is only a drop in value. Until you have to book the asset into cash it has a value but you have no idea whether or not you have made a loss. Mr Market goes up and down every day, sometimes by quite a lot, but until you actually sell the asset you have no idea of its true worth and whether or not you have made a loss or profit. The same as a house, it has a value but you do not know what it is actually worth until you sell it; pick a bad time and you could make a loss, leave it a few years and you could make a profit
Jon Snow
Posted: 22 August 2017 20:39:29(UTC)
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Big boy;50127 wrote:
Have I read it correctly John Barron is an Investment Trust tip sheet charging £160.00 pa.


Yes it is, however you can get a peek at the holdings via IC -

https://www.investorschr...stment-trust-portfolio/

I think someone posts on the forums when the portfolio is updated.

I hold HFEL, SLI and NCYF, also I prefer CTY to MRCH, so I use bits of his portfolio that suit my needs.
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Mr Helpful on 23/08/2017(UTC), dlp6666 on 25/08/2017(UTC)
King Lodos
Posted: 22 August 2017 22:28:42(UTC)
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Gareth Harries;50135 wrote:
King Lodus

You made my point for me. You refer to a drop in value and equate that as a Loss, but the reality is that is only a drop in value. Until you have to book the asset into cash it has a value but you have no idea whether or not you have made a loss. Mr Market goes up and down every day, sometimes by quite a lot, but until you actually sell the asset you have no idea of its true worth and whether or not you have made a loss or profit. The same as a house, it has a value but you do not know what it is actually worth until you sell it; pick a bad time and you could make a loss, leave it a few years and you could make a profit


Your perspective's not really correct ..

Cash is just a tradable form of debt .. Its value changes all the time – just like bonds, stocks and commodities do .. Cash may be what we use to make most of our transactions, but we could just as easily use anything else (Bitcoin, gold, stocks, debt, cows, etc.)

You can say you don't know what the value of your house is until you sell it, but you do if you get it valued .. Likewise, you can see the market value of your stocks every day ... If you're a property $billionaire, it doesn't mean you have a billion in cash – it just means the combined value of your assets come to a billion .. A loss is a loss .. What wealth amounts to is purchasing power, and if your stock portfolio halves, you have lost purchasing power – it doesn't become more 'real' just because you've exchanged stocks for cash
Gareth Harries
Posted: 22 August 2017 23:31:16(UTC)
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King Lodos;50144 wrote:
Gareth Harries;50135 wrote:
King Lodus

You made my point for me. You refer to a drop in value and equate that as a Loss, but the reality is that is only a drop in value. Until you have to book the asset into cash it has a value but you have no idea whether or not you have made a loss. Mr Market goes up and down every day, sometimes by quite a lot, but until you actually sell the asset you have no idea of its true worth and whether or not you have made a loss or profit. The same as a house, it has a value but you do not know what it is actually worth until you sell it; pick a bad time and you could make a loss, leave it a few years and you could make a profit


Your perspective's not really correct ..

Cash is just a tradable form of debt .. Its value changes all the time – just like bonds, stocks and commodities do .. Cash may be what we use to make most of our transactions, but we could just as easily use anything else (Bitcoin, gold, stocks, debt, cows, etc.)

You can say you don't know what the value of your house is until you sell it, but you do if you get it valued .. Likewise, you can see the market value of your stocks every day ... If you're a property $billionaire, it doesn't mean you have a billion in cash – it just means the combined value of your assets come to a billion .. A loss is a loss .. What wealth amounts to is purchasing power, and if your stock portfolio halves, you have lost purchasing power – it doesn't become more 'real' just because you've exchanged stocks for cash


Your perspective is not really correct..

Again you make my point, we value things all the time, but actually what they are worth is when you decide to transact with them. Until you decide to transact, they are not worth anything. It does not matter how you make the transaction, it is the worth on the day that you transact. Until that point they are not worth anything as you do not know what someone is prepared to pay for the asset and as always we have the choice of whether we wish to transact or not. If all assets have fallen by 50% then you are no worse off as you can transact for similar assets without a loss. If you read my original post, the clue was advice not to sell out when the market, does what it inevitably does, and drops significantly, as most people do, and crystallise a Loss and then find that it costs you more to buy the same assets back at a later date and lose Purchasing Power.

As Benjamin Graham said about Mr Market and the varying prices quoted daily, do you value your assets based upon someone saying it is worth this or that and sell based upon that or step back and wait for the right price. The varying prices do not make your asset worth any the less, but you have to pick your right time to sell them to get the right value for them
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Mickey on 25/08/2017(UTC)
King Lodos
Posted: 22 August 2017 23:45:25(UTC)
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Gareth Harries;50146 wrote:
Your perspective is not really correct..

Again you make my point, we value things all the time, but actually what they are worth is when you decide to transact with them. Until you decide to transact, they are not worth anything. It does not matter how you make the transaction, it is the worth on the day that you transact. Until that point they are not worth anything as you do not know what someone is prepared to pay for the asset and as always we have the choice of whether we wish to transact or not. If all assets have fallen by 50% then you are no worse off as you can transact for similar assets without a loss. If you read my original post, the clue was advice not to sell out when the market, does what it inevitably does, and drops significantly, as most people do, and crystallise a Loss and then find that it costs you more to buy the same assets back at a later date and lose Purchasing Power.

As Benjamin Graham said about Mr Market and the varying prices quoted daily, do you value your assets based upon someone saying it is worth this or that and sell based upon that or step back and wait for the right price. The varying prices do not make your asset worth any the less, but you have to pick your right time to sell them to get the right value for them


I think this may be beyond my ability to explain to you ..

Things are worth ONLY what someone will pay you for them right now .. That's how Capitalism works – and the Capital Asset Pricing Model.

Whether it's your time at work; the cost of chopping down a tree; what you can get for 1oz of gold .. It's purely defined by what the market will pay right now – and your Net Worth is the combined value of all your assets (i.e. what you can sell them for today) ... Graham talks about intrinsic value ... Well even then, you have to hope the market realises intrinsic value, or you're just as poor as you were the day before ... Nowadays markets are much more efficiently priced – in fact by the 70s, Graham thought all stocks were valued correctly – so when you lose in stocks, you really have lost (unless you know something the market doesn't)
Gareth Harries
Posted: 23 August 2017 00:06:58(UTC)
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King Lodos;50147 wrote:
Gareth Harries;50146 wrote:
Your perspective is not really correct..

Again you make my point, we value things all the time, but actually what they are worth is when you decide to transact with them. Until you decide to transact, they are not worth anything. It does not matter how you make the transaction, it is the worth on the day that you transact. Until that point they are not worth anything as you do not know what someone is prepared to pay for the asset and as always we have the choice of whether we wish to transact or not. If all assets have fallen by 50% then you are no worse off as you can transact for similar assets without a loss. If you read my original post, the clue was advice not to sell out when the market, does what it inevitably does, and drops significantly, as most people do, and crystallise a Loss and then find that it costs you more to buy the same assets back at a later date and lose Purchasing Power.

As Benjamin Graham said about Mr Market and the varying prices quoted daily, do you value your assets based upon someone saying it is worth this or that and sell based upon that or step back and wait for the right price. The varying prices do not make your asset worth any the less, but you have to pick your right time to sell them to get the right value for them


I think this may be beyond my ability to explain to you ..

Things are worth ONLY what someone will pay you for them right now .. That's how Capitalism works – and the Capital Asset Pricing Model.

Whether it's your time at work; the cost of chopping down a tree; what you can get for 1oz of gold .. It's purely defined by what the market will pay right now – and your Net Worth is the combined value of all your assets (i.e. what you can sell them for today) ... Graham talks about intrinsic value ... Well even then, you have to hope the market realises intrinsic value, or you're just as poor as you were the day before ... Nowadays markets are much more efficiently priced – in fact by the 70s, Graham thought all stocks were valued correctly – so when you lose in stocks, you really have lost (unless you know something the market doesn't)


I think this may be beyond my ability to explain to you .. Take a step back and follow my logic as opposed to your own. I think this may be beyond my ability to explain to you, what Is someone prepared to pay you, that can change in an instant, the market efficient pricing has been debated endlessly, the minute a takeover is announced a stock can shoot up in value instantly, North Korea says we can launch missiles at USA, market falls, but nothing happens, terrorist attacks in Spain, market falls, nothing has really changed, so we never know what we are really worth as we never know what is around the corner and the price changes. So Value does not come out until you decide to exchange one asset for another
and then decide whether or not you have received good value. As to your last comment, when you lose in anything you lose, irrespective of whether it is Stocks, bonds, commodities, housing etc.
King Lodos
Posted: 23 August 2017 01:37:04(UTC)
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I think I'd need a head injury to fully understand you..

But no .. the current market price is the price you can buy and sell at (unless you're a multi-billionaire like Tony P, in which case selling does actually have an impact on the market), and that is what you're worth right now.

There's no such thing as 'crystallising' a loss .. Some people just trade currencies, and you don't say they're crystallising every trade
Mr Helpful
Posted: 23 August 2017 06:53:40(UTC)
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Fascinating debate posters.
Please keep it going.
(As always firmly undecided on this question.)

Did say in earlier post :-
"For a retiree it can help to concentrate more on the income flow which might well hold up in spite of capital fluctuations, providing it is not intended to draw from capital for day to day needs?"

That proviso might apply to the debate?

Petula sharply lifts her head from the FT.
"Oh my God! ..... 23 Yew Tree Close is down 10% this week!
Should we sell our house ?"
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AJW on 23/08/2017(UTC)
AJW
Posted: 23 August 2017 09:32:18(UTC)
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Absolutely, keep it civil because this is good debate
Recently Redundant and Retired
Posted: 23 August 2017 10:27:00(UTC)
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King Lodos;50150 wrote:
I think I'd need a head injury to fully understand you..

But no .. the current market price is the price you can buy and sell at (unless you're a multi-billionaire like Tony P, in which case selling does actually have an impact on the market), and that is what you're worth right now.

There's no such thing as 'crystallising' a loss .. Some people just trade currencies, and you don't say they're crystallising every trade


Every trade affects a share price. The beat of a butterfly's wing etc.
Every currency deal crystallises a profit or loss otherwise they're pointless, semantics don't come into it.
Whether thinking as an investor or trader, you will at some point wonder how many loaves of bread or Aston Martin cars your net worth could have bought and can now buy.
Tim D
Posted: 23 August 2017 11:02:42(UTC)
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Enjoying this. I think I can see both sides, even if each side's strongest advocates can't see across the divide. My philosophy is simply to use whichever viewpoint will make me happiest at the time. Portfolio up? Happy days! Portfolio down? Bah, it's just a sentiment-driven number until you sell; I still own just as big a share of some great companies as I did before!

Been a long time since I did an "xray" of my holdings down to individual company level but it'd be quite interesting to have that as the default view of your portfolio. So you log on to your platform and instead of telling you that you have this fund worth £X and that fund worth £Y it just tells you that in aggregate you own 0.00000X% of this company and 0.0000Y% of that company. I suspect those numbers would be quite a bit more stable than the monetary values quoted (especially for those of us neck deep in cap-weighted trackers); could possibly be quite a reassuring view when the £ values are plummeting (at least so long as there wasn't a surge of new equity issuance diluting all your holdings too).

While I'm on the topic of investing mindgames: in recent years I've come to really appreciate the psychological value (out of all proportion to their financial returns) of a couple of things:

1. My gold miners, which have a pretty strong track record of going in the opposite direction to everything else when the markets get jittery.

2. Investments paying income monthly (like Mr Helpful said, focusing on income is can be good generally, but I've found there's something disproportionately pleasing about having it arrive monthly rather than getting the same amount as big semi-annual or quarterly payments. Completely irrational I know.).

Both have proven useful as a bright spot to focus on (ok, distract me) when there's little else to. Works for me.
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Mike L on 24/08/2017(UTC)
PaulSh
Posted: 23 August 2017 12:48:42(UTC)
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You may know the market value of a stock on a daily basis, but you don't know for sure its value in terms of future dividends, which is all that really matters to an income investor. The market will effectively have factored in the expected dividends into the value, but that's only one of many different elements that make up the price. Also, suppose I own, say, an investment trust trading on a stupidly high premium and that premium suddenly collapses, have I actually lost anything? Well, as long as the dividend stream is unaffected then the answer is "no".

To go back to the housing metaphor, although you may be able to get a valuation of a house at any time, if you were letting it out then how can you find out how much rent will you get from it in the next 12 months? Of course you can't know for sure. But just supposing the housing market collapses and the value of the house halves, that doesn't mean your tenants can pay half the rent due.
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Tim D on 23/08/2017(UTC)
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