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What's a [retired] man to do, to generate a decent income?!
Jezzer
Posted: 09 March 2018 09:41:30(UTC)
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Thanks all for excellent thoughts and fund tips, which I'll look at. Some of you have pre-armageddon amounts of cash in your pfs though. I'm wondering what you're expecting to happen, and what if it doesn't? I can't afford to sit on so much cash with no yield. If you can, then I guess you stand to boost your pf enormously IF we get a significant dip from here, in the short term. If it's 2 years before we get another, then you might lose 5%+ through inflation anyway.

I'm feeling a bit better about my pf having had this input. Many of my high-yielding funds are equity-based anyway and some, eg. Chelverton UK Equity Income yield 4%+ and have grown capital significantly too (see chart). Maybe in these times I just have to expect to see a bit more red in my pf than I am used to.

As regards cash, I'm keeping a base of 5% and all dividends are going back into the pf as cash, so at the end of the year I'll have had more like 9-10% some of which I can plough back while rebalancing and some of which covers my income (and hopefully inflation). I realise this will depress capital growth over time but I need to live on something.

An interesting point perhaps is that, despite the apparent diversification in my pf, when I went to rebalance after last month's dip, there was nothing worth doing! Almost everything had fallen by a similar amount, so the pf was still balanced, just 5% smaller (nb. I don't bother trading unless an asset is more than £1000 out of kilter, otherwise trading costs will start to get significant)

What I DON'T know is how much we might expect to see bonds fall when interest rates rise further. The press are predicting armageddon in the bond markets, but no-one is saying whether this means a 5% fall or a 50% fall. Any views on this? Is there a formula relating interest rates to a fall in bond prices?

(ps. can't get Chelverton fund chart to load up)
Tug Boat
Posted: 09 March 2018 09:44:23(UTC)
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Retirement is more about jam today rather than jam tomorrow.

A jar of black cherry jam labelled "do not open until 2028" is not much use.

You do need a number of pots of jam, a jar you can open and get an instant sugar rush and a couple of jars of reliable marmalade you can dip into many times.

I recommend The Total Preserve Approach(TPA) a book by Mr. Tug Boat available from Amazon. This includes a free guide to Cloudberry investing, the Swedish investment approach to retirement.

Errr that's it.
1 user thanked Tug Boat for this post.
Mickey on 09/03/2018(UTC)
Mr Helpful
Posted: 09 March 2018 11:09:26(UTC)
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Jezzer;58446 wrote:

What I DON'T know is how much we might expect to see bonds fall when interest rates rise further. The press are predicting armageddon in the bond markets, but no-one is saying whether this means a 5% fall or a 50% fall. Any views on this? Is there a formula relating interest rates to a fall in bond prices?


"As a general rule, for every 1% change in interest rates (increase or decrease), a bond’s price will change approximately 1% in the opposite direction, for every year of duration. If a bond has a duration of five years and interest rates increase 1%, the bond’s price will drop by approximately 5% (1% X 5 years). Likewise, if interest rates fall by 1%, the same bond’s price will increase by about 5% (1% X 5 years)."
Investopedia

Frank Armstrong and Tim Hale both advocate keeping Bond exposures to short-duration.
I.E. Not to take uneccesary risk on the supposedly defensive side.

IGLT Total Gilts has an effective duration of 11.14 years
IGLS Short-Term Gilts has an effective duration of 2.44 years (but a lousy yield)
IS15 Short-Term Investment Grade UK Corporates has an effective duration of 2.59 years
8 users thanked Mr Helpful for this post.
dyfed on 09/03/2018(UTC), Mike L on 09/03/2018(UTC), Jim S on 09/03/2018(UTC), Peter59 on 09/03/2018(UTC), Jezzer on 09/03/2018(UTC), King Lodos on 09/03/2018(UTC), Alan Selwood on 09/03/2018(UTC), dlp6666 on 12/03/2018(UTC)
King Lodos
Posted: 09 March 2018 17:11:44(UTC)
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Jezzer;58446 wrote:
Thanks all for excellent thoughts and fund tips, which I'll look at. Some of you have pre-armageddon amounts of cash in your pfs though. I'm wondering what you're expecting to happen, and what if it doesn't? I can't afford to sit on so much cash with no yield. If you can, then I guess you stand to boost your pf enormously IF we get a significant dip from here, in the short term. If it's 2 years before we get another, then you might lose 5%+ through inflation anyway.


You can get 2.2% on up to £1m with NS&I – and it should be safer than money in the bank, and quite accessible.

It's a real dilemma – how much cash to hold .. Especially when markets are this expensive .. You could say: what's the worst outcome you'd be willing to accept?

I use Japan's Nikkei 225 .. From 1990 it lost 80% over the following 20 years – and that's without Japan becoming a dystopia .. It's just what a recession can do .. Stocks dip, people buy, but fundamentals keep getting worse.

On bonds .. The last time they got almost this expensive, they spent the next several decades returning nothing after inflation – TIPS are basically priced for that.

Coming back to cash .. While I've held some short-duration bonds and absolute return funds (like Henderson, Ruffer), a lot of these have only returned 1% over the year – throw in a platform fee on top .. Look at Standard Life GARS losing money .. Even RIT Capital Partners had a weak year.

Cash earning 2.2% has beaten a lot of 'diversifiers' in the past year .. and if volatility and rising rates are here, that might be the story going forwards .. I probably wouldn't have less than 25% cash .. Ben Graham said 'Never more than 75% in the market' – and at the moment, most bonds and diversifiers I hold are *really* stock market risk
3 users thanked King Lodos for this post.
Jezzer on 09/03/2018(UTC), sarah b on 10/03/2018(UTC), dlp6666 on 12/03/2018(UTC)
Jeff Liddiard
Posted: 09 March 2018 17:33:45(UTC)
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King Lodos;58465 wrote:
Jezzer;58446 wrote:
Thanks all for excellent thoughts and fund tips, which I'll look at. Some of you have pre-armageddon amounts of cash in your pfs though. I'm wondering what you're expecting to happen, and what if it doesn't? I can't afford to sit on so much cash with no yield. If you can, then I guess you stand to boost your pf enormously IF we get a significant dip from here, in the short term. If it's 2 years before we get another, then you might lose 5%+ through inflation anyway.


You can get 2.2% on up to £1m with NS&I – and it should be safer than money in the bank, and quite accessible.

It's a real dilemma – how much cash to hold .. Especially when markets are this expensive .. You could say: what's the worst outcome you'd be willing to accept?

I use Japan's Nikkei 225 .. From 1990 it lost 80% over the following 20 years – and that's without Japan becoming a dystopia .. It's just what a recession can do .. Stocks dip, people buy, but fundamentals keep getting worse.

On bonds .. The last time they got almost this expensive, they spent the next several decades returning nothing after inflation – TIPS are basically priced for that.

Coming back to cash .. While I've held some short-duration bonds and absolute return funds (like Henderson, Ruffer), a lot of these have only returned 1% over the year – throw in a platform fee on top .. Look at Standard Life GARS losing money .. Even RIT Capital Partners had a weak year.

Cash earning 2.2% has beaten a lot of 'diversifiers' in the past year .. and if volatility and rising rates are here, that might be the story going forwards .. I probably wouldn't have less than 25% cash .. Ben Graham said 'Never more than 75% in the market' – and at the moment, most bonds and diversifiers I hold are *really* stock market risk


It's just been reduced to 1.95%.issue 57. I was lucky enough to get a chunk of money into the issue 56 at 2.20% last week. They have another type at 2.20% but only up to £3K.
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King Lodos on 09/03/2018(UTC)
King Lodos
Posted: 09 March 2018 17:42:34(UTC)
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Jeff Liddiard;58466 wrote:
It's just been reduced to 1.95%.issue 57. I was lucky enough to get a chunk of money into the issue 56 at 2.20% last week. They have another type at 2.20% but only up to £3K.


Ah, I did think that was a bit of a free lunch, considering where bond yields are.

I wish I'd got some of the index-linked saving certificates – I think they'd be more efficient than short-duration inflation-linked bonds (with fees, etc)
3 users thanked King Lodos for this post.
Jezzer on 09/03/2018(UTC), Jeff Liddiard on 09/03/2018(UTC), Martina on 09/03/2018(UTC)
Paul Gulbrandsen
Posted: 11 March 2018 16:42:16(UTC)
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Twentyfour Income (TFIF) yields 6% & according to their website “Due to the predominantly floating rate nature of the portfolio, returns are expected to increase as interest rates rise“.
3 users thanked Paul Gulbrandsen for this post.
Mr Helpful on 11/03/2018(UTC), Jezzer on 12/03/2018(UTC), dlp6666 on 12/03/2018(UTC)
Mr Helpful
Posted: 11 March 2018 19:09:27(UTC)
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Paul Gulbrandsen;58537 wrote:
Twentyfour Income (TFIF) yields 6% & according to their website “Due to the predominantly floating rate nature of the portfolio, returns are expected to increase as interest rates rise“.


Thanks for bringing to attention.
TFIF gets mentioned from time to time, and is worth considering in the present income starved environment.

Quote referred to ?
" A large majority of the securities are also floating rate, thereby offering investors upside to future rate rises"

+ That floating rate "majority" definitely a plus for minimising 'interest rate risk'.

What might be the possible downsides ?
- 59% of portfolio is non-investment grade (aka junk) debt with associated higher 'credit risk'
- Fund shows historic +ve correlation with Stocks, typical of non-investment grade.

This last may not be an issue with a well constructed portfolio which
recognises TFIF may zag as Stocks zag.
So a definite maybe for the watch-list ?
2 users thanked Mr Helpful for this post.
Paul Gulbrandsen on 12/03/2018(UTC), Mike L on 23/03/2018(UTC)
Paul Gulbrandsen
Posted: 12 March 2018 02:36:46(UTC)
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Mr Helpful;58540 wrote:
Paul Gulbrandsen;58537 wrote:
Twentyfour Income (TFIF) yields 6% & according to their website “Due to the predominantly floating rate nature of the portfolio, returns are expected to increase as interest rates rise“.


What might be the possible downsides ?
- 59% of portfolio is non-investment grade (aka junk) debt with associated higher 'credit risk'
- Fund shows historic +ve correlation with Stocks, typical of non-investment grade.

This last may not be an issue with a well constructed portfolio which
recognises TFIF may zag as Stocks zag.
So a definite maybe for the watch-list ?


TFIF has comfortably outperformed the FTSE 350 since launching in March 2013. Also, it’s on a small discount compared to a 12 month average premium of 2.58.

As a retiree relying on investment income to top up my meagre pension I hold a portfolio of high yielding ITs including TFIF. Like you I also have concerns about rising interest rates & the effect they’ll have on my portfolio. The big advantage we income seekers have is that we can ignore share price falls as long as dividends are maintained. Unfortunately ITs like EAT which pay out a %age of NAV will cut their dividends during a bear market but the so called dividend heroes like CTY & MRCH should be ok. ITs with inflation linked income such as INPP will hopefully maintain payouts as well.
3 users thanked Paul Gulbrandsen for this post.
Mr Helpful on 12/03/2018(UTC), dlp6666 on 12/03/2018(UTC), Mike L on 23/03/2018(UTC)
Mr Helpful
Posted: 12 March 2018 09:33:12(UTC)
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Paul Gulbrandsen;58561 wrote:

The big advantage we income seekers have is that we can ignore share price falls as long as dividends are maintained. Unfortunately ITs like EAT which pay out a %age of NAV will cut their dividends during a bear market but the so called dividend heroes like CTY & MRCH should be ok.


+1
May be noticed that EAT has already begun to reduce dividends.
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Paul Gulbrandsen on 12/03/2018(UTC)
Jezzer
Posted: 12 March 2018 09:43:15(UTC)
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Paul Gulbrandsen;58561 wrote:


TFIF has comfortably outperformed the FTSE 350 since launching in March 2013. Also, it’s on a small discount compared to a 12 month average premium of 2.58.

As a retiree relying on investment income to top up my meagre pension I hold a portfolio of high yielding ITs including TFIF. Like you I also have concerns about rising interest rates & the effect they’ll have on my portfolio. The big advantage we income seekers have is that we can ignore share price falls as long as dividends are maintained. Unfortunately ITs like EAT which pay out a %age of NAV will cut their dividends during a bear market but the so called dividend heroes like CTY & MRCH should be ok. ITs with inflation linked income such as INPP will hopefully maintain payouts as well.


Thank you. I shall certainly give TFIF a look, perhaps as an alternative to APAX, which has lost almost 10% since I bought it a few months ago and (more importantly) I've lost a certain degree of confidence in, since their business model is rather dependent on cheap debt, which looks likely to become less cheap.

On INPP, isn't there an issue with political risk, if Labour gets in and re-nationalises public-private partnership assets? Although they are "International", I see that 71% of their assets are still in the UK.
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Paul Gulbrandsen on 12/03/2018(UTC)
Paul Gulbrandsen
Posted: 12 March 2018 09:53:01(UTC)
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Mr Helpful;58571 wrote:

May be noticed that EAT has already begun to reduce dividends.


Actually the dividend for 2018 will be €0.88 compared with $0.7884 for 2017 but certainly not reliable.
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dlp6666 on 12/03/2018(UTC), Mr Helpful on 12/03/2018(UTC)
Paul Gulbrandsen
Posted: 12 March 2018 10:37:16(UTC)
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Jezzer;58572 wrote:

On INPP, isn't there an issue with political risk, if Labour gets in and re-nationalises public-private partnership assets? Although they are "International", I see that 71% of their assets are still in the UK.


You’re right there is political risk, however INPP has relatively low exposure to PFI contracts @ 29% of which 18% are schools & hospitals which are the ones considered most at risk. INPP is on a small premium against the 30/6/17 NAV & their annual results come out next week so we might find they are actually on a discount against their year end NAV. Normally they’re on a double-digit premium.

Not sure if this is relevant but last week Numis Securities described INPP as a core recommendation. A presentation of the annual results is due to take place on 21 March at ........... Numis Securities!
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Jezzer on 12/03/2018(UTC)
Jezzer
Posted: 12 March 2018 10:40:17(UTC)
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Just been having a look at TFIF. While its past performance looks attractive, some of its underlying investments look a little racy. While the yield from the underlying asset classes may rise as interest rates rise, existing assets (eg. credit-card debt, which is hardly asset-backed!) could be affected by ability to pay. I remember talk of the "next sub-prime crisis" being in credit-card debt. We haven't seen that yet, as interest rates haven't yet moved much. There are fairly stark warnings in the KID for TFIF about the potential for capital loss. All-in-all, I am wondering whether the risk is worth 6% return...

Thoughts?
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Mr Helpful on 12/03/2018(UTC), Paul Gulbrandsen on 12/03/2018(UTC), Mike L on 23/03/2018(UTC)
Keith Hilton
Posted: 12 March 2018 10:59:48(UTC)
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I'm in a similar position to yourself, except 12 months further down the line. Your pf breakdown is not dissimilar to my own, except that the only bond fund that I currently hold is TwentyFour Select Monthly Income (SMIF).

I hold a mix of IT's and individual shares, mostly (expensive?) defensives, with a small amount of growth stocks to, hopefully, increase the pf value over time. My current yield is 4.7% (theoretically), which should give me more than enough income for my needs.

One area that seems absent from your pf is renewable energy. This sector can give some good inflation linked returns, although a recent trend to cut subsidies may make newer ventures less profitable. Currently, I hold The Renewables Infrastructure Group (TRIG). Bluefield Solar Income Fund (BSIF) also looks interesting to me.

Some other IT's that I hold for reasonable yield, but with the expectation of some growth, are Henderson International Income (HINT), JPM Asian (JAI), JPM Global Emerging Markets Income (JEMI).

Like you, I'm hoping that the yield holds up reasonably well during any periods of turbulence.
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Mr Helpful on 12/03/2018(UTC), Mike L on 23/03/2018(UTC)
Mr Helpful
Posted: 12 March 2018 11:22:06(UTC)
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Paul Gulbrandsen;58573 wrote:
Mr Helpful;58571 wrote:

May be noticed that EAT has already begun to reduce dividends.


Actually the dividend for 2018 will be €0.88 compared with $0.7884 for 2017 but certainly not reliable.


Struggling to reconcile those figures.
EAT dividends seemed to peak Dec 16 @ 94.29c followed by Dec 17 @ 82.20c.
and taking note of recent first interim 22.00c (26.28c) then on a rolling basis we are at 77.92c
Has 88.00c been promised somewhere?

If we attempt to smooth by winding the clock back to Dec 15 (77.43c), and consider Dec 16 an exceptional glitch, then trend smoother so maybe less of an issue.
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Paul Gulbrandsen on 12/03/2018(UTC)
Slink
Posted: 12 March 2018 11:34:21(UTC)
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Don't forget that high-yield bonds incorporate two key risk elements. The first, as people have mentioned is interest rate risk; the higher the duration of the portfolio the greater the risk of loss to an increase in interest rates. The second factor, which shouldn't be ignored is credit risk, which is the risk that individual issuers fail to pay the underlying interest and principal of the bond leaving the investor with a loss of income and capital. The risk of holding high-yield bonds is that a spike in credit spreads (which are still historically very low), regardless of underlying interest rates, can leave you with hefty negative returns.


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Mr Helpful on 12/03/2018(UTC)
Paul Gulbrandsen
Posted: 12 March 2018 12:07:38(UTC)
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Jezzer;58572 wrote:

Thank you. I shall certainly give TFIF a look, perhaps as an alternative to APAX, which has lost almost 10% since I bought it a few months ago and (more importantly) I've lost a certain degree of confidence in, since their business model is rather dependent on cheap debt, which looks likely to become less cheap.


Have you considered PEY as an alternative to APAX? Invests in PE & yields 5.5%. I’ve held it for almost 4 years & it’s my best performer.
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Jezzer on 12/03/2018(UTC), Mike L on 23/03/2018(UTC)
Paul Gulbrandsen
Posted: 12 March 2018 12:23:00(UTC)
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Mr Helpful;58579 wrote:

Struggling to reconcile those figures.
EAT dividends seemed to peak Dec 16 @ 94.29c followed by Dec 17 @ 82.20c.
and taking note of recent first interim 22.00c (26.28c) then on a rolling basis we are at 77.92c
Has 88.00c been promised somewhere?


The figures are from EAT’s website:
EAT dividends
The dividend is calculated as 6% of the NAV in Euros @ 31 December so they’re able to declare the dividend at the start of the calender year. The most recent dividends:
2016 - €0.912
2017 - €0.7884
2018 - €0.88 (proposed)
Decidedly choppy!
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Mr Helpful on 12/03/2018(UTC)
Jezzer
Posted: 12 March 2018 14:42:34(UTC)
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Paul Gulbrandsen;58585 wrote:


Have you considered PEY as an alternative to APAX? Invests in PE & yields 5.5%. I’ve held it for almost 4 years & it’s my best performer.


@Paul - thank you, I will take a look. I've just become a bit more bearish on PE as a whole more recently, since it was pointed out that most recent PE returns have come about from high leverage with cheap debt, which is beginning to evaporate. I know from personal experience that most PE firms don't roll up their sleeves and help transform their portfolio companies, instead choosing to sit in darkened rooms and pull financial levers.

Having said that, they are smart guys and most of them sit in Mayfair offices, so they must be generating some decent returns. Whether enough of that return comes to us is another matter :)
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Paul Gulbrandsen on 12/03/2018(UTC)
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