Share this page:
Stay connected:
Welcome to the Citywire Money Forums, where members share investment ideas and discuss everything to do with their money.

You'll need to log in or set up an account to start new discussions or reply to existing ones. See you inside!

Notification

Icon
Error

What's a [retired] man to do, to generate a decent income?!
Jezzer
Posted: 08 March 2018 15:39:20(UTC)
#1

Joined: 14/06/2010(UTC)
Posts: 134

Thanks: 164 times
Was thanked: 89 time(s) in 51 post(s)
I retired at the end of last summer and leading up to that, I transformed my portfolio from one focused on capital growth to a structure focused more on income. I now have a bunch of high-yielding assets in my portfolio, all of which are probably at risk with interest rates rising: -

- Infrastructure 20% although somewhat diversified within this (FSFL 5%, JLIF 5%, Premier Global Infrastucture 10%)
- Bonds and bond-like 15% (NCYF, HDIV, CMHY - all 5%)
- Commercial property 15% (FCRE 10% and BBOX 5%)
- Other (non-infrastructure) equities 40% (mainly ITs yielding 3-4% except Japan (which comprises 5% of pf) which I bought (again) recently for capital growth potential)
- Private Equity 5% (APAX)
- Cash 5% (to allow for buying dips in the above)

Sold all gold recently - no yield

I have other money (non-SIPP/ISA) in Henderson UK Absolute Return, which has returned about 1% in the past year.

I was pretty comfortable with this pf until rates started to rise, but what now? How's a man supposed to generate a decent income? Moneyweek last week has a feature article re-stating the usual concerns about bonds but offering little in the way of alternatives for income-seekers.

What are others in my situation doing, faced with rising interest rates?

Jez
Micawber
Posted: 08 March 2018 16:50:46(UTC)
#2

Joined: 27/01/2013(UTC)
Posts: 1,797

Thanks: 798 times
Was thanked: 2689 time(s) in 1018 post(s)
Mixed income and growth, the baseline being that both capital and income grow annually by more than the rate of UK inflation. In current circumstances more likely to buy growth than income.

We don't need the income from investments, which is reinvested, but Mrs M's pf is set up for income if I kick the bucket first. Mine is more aimed for growth with the aim of increasing family capital - but still yields about 3% and may help fund the offspring's ISAs through regular gifts out of excess income.

I notice you don't have BRCI and/or BRWM.
2 users thanked Micawber for this post.
Jezzer on 08/03/2018(UTC), sarah b on 10/03/2018(UTC)
Hank Elvis Dobbs (texan)
Posted: 08 March 2018 16:53:34(UTC)
#3

Joined: 19/08/2017(UTC)
Posts: 202

Thanks: 71 times
Was thanked: 207 time(s) in 103 post(s)
Listen to Terry Smith and them two old blokes ..
1 user thanked Hank Elvis Dobbs (texan) for this post.
Jezzer on 08/03/2018(UTC)
Jezzer
Posted: 08 March 2018 17:19:38(UTC)
#4

Joined: 14/06/2010(UTC)
Posts: 134

Thanks: 164 times
Was thanked: 89 time(s) in 51 post(s)
Micawber - my ambition, when I set up the pf, was to try and get enough natural yield that I wouldn't have to sell anything in a down year, to provide money to live on, thus disproportionately affecting my capital by having to sell 'cheap'. In a good year I could sell some capital growth (above inflation) and use it for occasional items like replacing a car, or a decent holiday, or restocking the vintage wine cellar (joking)

This approach has resulted in a mainly income-oriented pf, although as mentioned above, I "gave in" recently and bought some Japan. Just before DT's announcement about steel tariffs as it happens, but there we go. Can't win 'em all.

So combined income and growth is all very well, but what about years when there is negative growth?!

Jez
1 user thanked Jezzer for this post.
dlp6666 on 09/03/2018(UTC)
Jezzer
Posted: 08 March 2018 17:22:54(UTC)
#5

Joined: 14/06/2010(UTC)
Posts: 134

Thanks: 164 times
Was thanked: 89 time(s) in 51 post(s)
Micawber (again) - thanks for reminding me about BRCI and BRWM. Will consider...
Tony Peterson
Posted: 08 March 2018 17:28:21(UTC)
#6

Joined: 10/08/2009(UTC)
Posts: 1,252

Thanks: 775 times
Was thanked: 1580 time(s) in 649 post(s)
Negative growth years imply opportunity - the opportunity that income collected will enable a decent sized stakeholding to be built more rapidly.

But you will do better with both income and growth if you do not trust others to manage your investments.Be your own fund manager.
2 users thanked Tony Peterson for this post.
Jezzer on 08/03/2018(UTC), Captain Slugwash on 08/03/2018(UTC)
Tug Boat
Posted: 08 March 2018 18:01:51(UTC)
#7

Joined: 16/12/2014(UTC)
Posts: 167

Thanks: 1 times
Was thanked: 239 time(s) in 96 post(s)
I retired the year before with the same conundrum.

I bought quality ITs with moderate yield such as BUT and BNKR. I also bought some equity income ITs and supplemented with high yielders.

A few high yielders: RECI, TORO, TFG, NCYF, EAT

These may also be useful defensives.

Don't forget REITs. BLND is still cheap with a 5% divi.

Don't disregard bonds, they have come off a bit, and I can see bugger all inflaton in the system at the mo.

You can also numb the pain with cheap red wine. Morrisons and Asda have Antipodean red at a fiver. Drink and forget money worries.

9 users thanked Tug Boat for this post.
Jezzer on 08/03/2018(UTC), Keith Cobby on 08/03/2018(UTC), Sara G on 08/03/2018(UTC), dlp6666 on 09/03/2018(UTC), Mike L on 09/03/2018(UTC), sarah b on 10/03/2018(UTC), Rickenbacker Al on 11/03/2018(UTC), Guest on 12/03/2018(UTC), Jpb250 on 12/03/2018(UTC)
Jezzer
Posted: 08 March 2018 18:04:15(UTC)
#8

Joined: 14/06/2010(UTC)
Posts: 134

Thanks: 164 times
Was thanked: 89 time(s) in 51 post(s)
Wine. Excellent idea.
Alan Selwood
Posted: 08 March 2018 18:10:02(UTC)
#10

Joined: 17/12/2011(UTC)
Posts: 2,735

Thanks: 561 times
Was thanked: 4569 time(s) in 1643 post(s)
Ever since around 2007-8, there has been a continual realisation by savers and investors that cash deposits and bonds/gilts would not generate a decent income. They have therefore gone much harder into the equity sector of the market, since dividends have generally held up or increased while interest on cash deposits and bonds for each batch of new buyers has decreased.

It's not easy to know when this trend will come to an end, so many people are still moving their holdings more towards equities, while others are starting to think 'Will this trend reverse? Will interest rates start rising again?'

There is nobody who can tell you the answer to this! Until after the event.

So I suggest you take a balanced approach ( = avoid an all-or-nothing approach by having only some of your portfolio in equities and only some in bonds, so that you win a bit if equities keep going up, and don't lose too much if they now have a down period, while winning on bonds if interest rates fall further while not losing too much capital if interest rates rise).

I would try to avoid any companies where the level of the dividend is at the higher end of the range, especially if the borrowings are high and the quoted level of dividend cover thin, such as 1.5 or less. (2 or more suggests that the dividend is pretty resilient to bad news).

Investment trusts are usually quite reassuring when it comes to affordability of their dividend, since they often have reserves built up in earlier years from which to keep paying the expectd dividend or higher, even in bad years.
City of London is one such example.

6 users thanked Alan Selwood for this post.
Jezzer on 08/03/2018(UTC), Sara G on 08/03/2018(UTC), dlp6666 on 09/03/2018(UTC), Mike L on 09/03/2018(UTC), Powerful Pierre on 10/03/2018(UTC), Rickenbacker Al on 15/03/2018(UTC)
King Lodos
Posted: 08 March 2018 18:11:34(UTC)
#11

Joined: 05/01/2016(UTC)
Posts: 3,052

Thanks: 722 times
Was thanked: 4780 time(s) in 1853 post(s)
Just on BRCI and BRWM ..

I know they're popular, and potentially nicely uncorrelated .. But they're probably not negatively correlated enough to improve risk or returns – for me, it's a case of cyclical companies not being very good at growing your investment, and this kind of diversification would more likely add risk and drag on returns.

https://i.imgur.com/9FJThQO.png
6 users thanked King Lodos for this post.
Jezzer on 08/03/2018(UTC), dlp6666 on 09/03/2018(UTC), North Star on 09/03/2018(UTC), satish mittal on 09/03/2018(UTC), Law Man on 09/03/2018(UTC), sarah b on 10/03/2018(UTC)
King Lodos
Posted: 08 March 2018 18:19:52(UTC)
#12

Joined: 05/01/2016(UTC)
Posts: 3,052

Thanks: 722 times
Was thanked: 4780 time(s) in 1853 post(s)
My recommendation would be dividend stocks that behave like growth stocks (or vice versa, if you like).

Unilever and Diageo (to pick the obvious examples) don't yield very much – 2 to 3% – but if your initial £10,000 turns into £25,000 over 10 years, that 2.5% yield is a 6.3% yield on your initial investment .. and more likely to be a 10% yield eventually

https://i.imgur.com/fiI1zjC.png
3 users thanked King Lodos for this post.
Jezzer on 08/03/2018(UTC), Captain Slugwash on 08/03/2018(UTC), sarah b on 10/03/2018(UTC)
Tug Boat
Posted: 08 March 2018 18:39:48(UTC)
#13

Joined: 16/12/2014(UTC)
Posts: 167

Thanks: 1 times
Was thanked: 239 time(s) in 96 post(s)
You would starve to death.
Keith Cobby
Posted: 08 March 2018 18:41:48(UTC)
#9

Joined: 07/03/2012(UTC)
Posts: 598

Thanks: 385 times
Was thanked: 943 time(s) in 379 post(s)
Jezzer;58417 wrote:
Wine. Excellent idea.


Is it that time already!
1 user thanked Keith Cobby for this post.
Jezzer on 09/03/2018(UTC)
Mr Helpful
Posted: 08 March 2018 19:11:56(UTC)
#14

Joined: 04/11/2016(UTC)
Posts: 680

Thanks: 766 times
Was thanked: 920 time(s) in 427 post(s)
Jezzer;58400 wrote:
I retired at the end of last summer and leading up to that, I transformed my portfolio from one focused on capital growth to a structure focused more on income. I now have a bunch of high-yielding assets in my portfolio, all of which are probably at risk with interest rates rising: -

- Infrastructure 20% although somewhat diversified within this (FSFL 5%, JLIF 5%, Premier Global Infrastucture 10%)
- Bonds and bond-like 15% (NCYF, HDIV, CMHY - all 5%)
- Commercial property 15% (FCRE 10% and BBOX 5%)
- Other (non-infrastructure) equities 40% (mainly ITs yielding 3-4% except Japan (which comprises 5% of pf) which I bought (again) recently for capital growth potential)
- Private Equity 5% (APAX)
- Cash 5% (to allow for buying dips in the above)
I was pretty comfortable with this pf until rates started to rise, but what now? How's a man supposed to generate a decent income? Moneyweek last week has a feature article re-stating the usual concerns about bonds but offering little in the way of alternatives for income-seekers.
What are others in my situation doing, faced with rising interest rates?
Jez


Portfolio seems to be :-
45% Risk = Stocks (incl PE)
50% Defensives
5% Cash

All fairly reasonable.
Our own defensives are similar, but as Adaptive Value Investors, some say 'Market Timers', we are today 27/26/47.

Don't think anything obvious is missing other than BRCI or equal, although duly noted KL not keen on this option.

Presumably Residential Rental Property not on the menu, with the extra work and research, plus valuations not currently appealing?
In any case difficult today to breach the 5% yield, whereas in the golden era of the late 90s 10-12% could be achieved.

P.S. Take a look at the deeply unpopular Ground Rents GRIO.
It may or may not behave as a substitute for IL Gilts going forward, but with better yield. But not the kind of yields being sought?
2 users thanked Mr Helpful for this post.
Jezzer on 08/03/2018(UTC), dlp6666 on 09/03/2018(UTC)
King Lodos
Posted: 08 March 2018 21:07:23(UTC)
#15

Joined: 05/01/2016(UTC)
Posts: 3,052

Thanks: 722 times
Was thanked: 4780 time(s) in 1853 post(s)
So what I'd do is invest 95% in the most profitable, highest total return investments .. My core portfolio is three quarters Lindsell Train Global and Fundsmith, one quarter L&G Global Tech Index and Vanguard Emerging Mkts index.

Maintain the other 5% in cash .. Rebalance quarterly or annually.

That would mean you've always got 5% cash to spend .. Sometimes stocks will fall, but sometimes stocks fall while paying dividends, so the idea dividends somehow protect you is probably fairly illusory .. (If you wanted a little more protection, you could maintain 10% in cash, and have half ring-fenced off that you spend, and the other half there so you can always buy more stocks on falls)
8 users thanked King Lodos for this post.
Jezzer on 09/03/2018(UTC), Keith Cobby on 09/03/2018(UTC), Law Man on 09/03/2018(UTC), Patzer on 09/03/2018(UTC), Alan M on 10/03/2018(UTC), sarah b on 10/03/2018(UTC), Rickenbacker Al on 11/03/2018(UTC), Jpb250 on 12/03/2018(UTC)
Alan Selwood
Posted: 08 March 2018 21:50:53(UTC)
#18

Joined: 17/12/2011(UTC)
Posts: 2,735

Thanks: 561 times
Was thanked: 4569 time(s) in 1643 post(s)
John Lee made the throwaway comment recently that based on his original investment in PZ Cussons, he is now getting a 90% annual return in dividends.

No help to starving Tug Boat, but it does show how sometimes a long term investor can slowly benefit from gradual rises in dividends to the extent that some phenomenal annual returns are possible if a company grows and prospers. A bit like the recent quote by Foreign and Colonial IT that in the 160 years it has been running, the original investment would now be up by some staggering % figure (was it 16 million %?)
6 users thanked Alan Selwood for this post.
King Lodos on 08/03/2018(UTC), Narendra Dhariwal on 09/03/2018(UTC), Jezzer on 09/03/2018(UTC), dlp6666 on 09/03/2018(UTC), North Star on 09/03/2018(UTC), satish mittal on 09/03/2018(UTC)
philip gosling
Posted: 08 March 2018 23:02:30(UTC)
#16

Joined: 06/01/2013(UTC)
Posts: 153

Thanks: 35 times
Was thanked: 199 time(s) in 96 post(s)
King Lodos;58428 wrote:
So what I'd do is invest 95% in the most profitable, highest total return investments .. My core portfolio is three quarters Lindsell Train Global and Fundsmith, one quarter L&G Global Tech Index and Vanguard Emerging Mkts index.

Maintain the other 5% in cash .. Rebalance quarterly or annually.

That would mean you've always got 5% cash to spend .. Sometimes stocks will fall, but sometimes stocks fall while paying dividends, so the idea dividends somehow protect you is probably fairly illusory .. (If you wanted a little more protection, you could maintain 10% in cash, and have half ring-fenced off that you spend, and the other half there so you can always buy more stocks on falls)


KL
L&G Global tech Index is in reality an American Index as over 82% in American mostly large Cap - high risk for a buy and forget.Vanguard returned 3.16 percent over the past decade though did well over past year - These are not buy and forget and seem high risk. Having 75% active and 25% passive is also high risk strategy especially starting from 'scratch today" with markets very high. I would have thought more trackers with Fundsmith and Lindsell train at least 50% and I would go for Vanguard Life strategy 100% though for some reason the Life Strategy 80% seems to be doing much better .
1 user thanked philip gosling for this post.
sarah b on 10/03/2018(UTC)
King Lodos
Posted: 08 March 2018 23:09:10(UTC)
#19

Joined: 05/01/2016(UTC)
Posts: 3,052

Thanks: 722 times
Was thanked: 4780 time(s) in 1853 post(s)
Alan Selwood;58433 wrote:
Foreign and Colonial IT that in the 160 years it has been running, the original investment would now be up by some staggering % figure (was it 16 million %?)


That's how Tony Peterson did it too .. Caught the dip after the post-Napoleonic depression
3 users thanked King Lodos for this post.
Jezzer on 09/03/2018(UTC), dlp6666 on 09/03/2018(UTC), Jim S on 09/03/2018(UTC)
King Lodos
Posted: 08 March 2018 23:24:35(UTC)
#17

Joined: 05/01/2016(UTC)
Posts: 3,052

Thanks: 722 times
Was thanked: 4780 time(s) in 1853 post(s)
philip gosling;58435 wrote:
KL
L&G Global tech Index is in reality an American Index as over 82% in American mostly large Cap - high risk for a buy and forget.Vanguard returned 3.16 percent over the past decade though did well over past year - These are not buy and forget and seem high risk. Having 75% active and 25% passive is also high risk strategy especially starting from 'scratch today" with markets very high. I would have thought more trackers with Fundsmith and Lindsell train at least 50% and I would go for Vanguard Life strategy 100% though for some reason the Life Strategy 80% seems to be doing much better .


It's not *really* an American index .. Take Apple's revenue by geography:

http://o.aolcdn.com/hss/storage/adam/3235f6da9d09613579b9dfcf3b24eff5/iphone%20money%20location%202014.png

You can be completely globally diversified in US or UK Large-caps – it just happens the US is home to most of the world's best companies.

And markets don't really 'get' high – markets are always making new highs, or they're correcting .. It's relatively rare prices drift far from where they're supposed to be.

Emerging Mkts index is an easy buy-and-hold .. LifeStrategy holds the exact same fund .. But EM is a long-term investment .. 10 years isn't long enough – but over 20-30:

http://envisionwealthplanning.com/wp-content/uploads/2015/09/112781.png


5 users thanked King Lodos for this post.
wydffart on 09/03/2018(UTC), Jezzer on 09/03/2018(UTC), Alan M on 10/03/2018(UTC), sarah b on 10/03/2018(UTC), Jpb250 on 12/03/2018(UTC)
Mickey
Posted: 09 March 2018 09:39:12(UTC)
#20

Joined: 21/06/2010(UTC)
Posts: 558

Thanks: 1503 times
Was thanked: 580 time(s) in 278 post(s)
King Lodos;58436 wrote:
Alan Selwood;58433 wrote:
Foreign and Colonial IT that in the 160 years it has been running, the original investment would now be up by some staggering % figure (was it 16 million %?)


That's how Tony Peterson did it too .. Caught the dip after the post-Napoleonic depression

That sort of comment is what turns me off this forum. i.e. your repeated dismissal of posters you don't agree with. Tony is not the only one to suffer your barbs. Of the two portfolios, I tend to have more belief in Tony than someone who appears to have bought and sold most things at the right time.

Not meaning to offend but please can we be reasonable with each other?
3 users thanked Mickey for this post.
Guest on 09/03/2018(UTC), Tony Peterson on 12/03/2018(UTC), derek millington on 12/03/2018(UTC)
3 Pages123Next page
+ Reply to discussion

Markets

Other markets