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Income from ISA ?
Posted: 06 April 2012 10:39:16(UTC)

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Folks - please help !
We've got a couple of cash ISA s maturing - total c. £ 20k...for management reasons want to move into Self managed Stocks and Shares ISA (Barclays capital) this coupled with new tax years investments will total £ 42k new investment which will take total ISA value to c. £ 200k.
Currently mostly in UK equities, bit of Gold ETF, fixed interest bond (Provident Financial 7%)

I am 65 and have my base income requirements covered (very poor rate RPI linked annuity)

My requirement for this new investment is for inflation + (say) 1% or 2%... as I will want occasionally to take some tax-free income ... new car / holiday etc.
So relatively low-risk 5% - 6% p.a. average return.....20 year view (longevity in the family)

Currently I have no UTs or ITs in the ISA but lots in a SIPP.

Suggestions please !
Joe Soap
Posted: 06 April 2012 11:55:22(UTC)

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I believe that you could be in danger of depleting your ISA if you draw ~6% a year for 20 years. That may not matter to you though. Myself, I'd invest in equity income funds which are yielding ~4% a year at the moment (in fact I am, in my SIPP). Without portfolio growth you would be slowly depleting your ISA of capital, but you may choose to ignore that.
Posted: 06 April 2012 14:07:39(UTC)

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Joe Soap
Thank you for main consideration is to preserve value - i.e. achieve growth inline with inflation...i.e. currently c. 4% (although God only knows how this will go when all the QE effect bites us in the bum ??) Any growth ABOVE inflation I will take out as tax-free spend on some of the fripperies of life...
Any equite income funds you would favour ?
Joe Soap
Posted: 06 April 2012 16:35:29(UTC)

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Sure, Trojan Income, Unicorn Income, JO Hambro Income, Walker Crips Income are a good place to start, I hold these funds. Others to consider include Artemis, Threadneedle and the Invesco Perpetual Income funds, though the yield is a bit low on the IP funds.
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Riskyb on 07/04/2012(UTC)
David 111
Posted: 10 April 2012 11:14:54(UTC)

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Rather than income funds, you might be better investing in investment trusts - slightly lower charges and some chance of benefiting from gearing. Better still might be to invest in a portfolio of blue chips (e.g. Shell B, Vodafone, Glaxo etc) as there are no management charges at all and the dividend level is currnetly about 4% - 5% and dividends (and share value) are likely to increase over the years with inflation.
Rob Walker
Posted: 10 April 2012 12:30:20(UTC)

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There are various high-return Bond funds about paying between 6-9%. Currently some are well below their highest value in the last year. so may not be seen as such a risk. (eg. Royal London, Henderson Strategic bond and Newton Global High Yield bond. Alternatively there are new issues of individual corporate bonds from time to time that can be bought, without commission, in tranches of £1000. Recently Tesco (5.2%) and National Grid (I think, 1% or 2% above RPI) were very popular. You have to be quick off the mark when these are announced though as the recent ones were quickly over-subscribed.
Posted: 10 April 2012 13:29:04(UTC)

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I'd second David 111 on his suggestion of ITs. There are a number of IT which have a number of years of continued increasing dividends.

Longest record (as of April 11)
Company Sector Number of consecutive years dividend Increased
City of London Investment Trust UK Growth & Income 44
Alliance Trust Global Growth 44
Bankers Investment Trust Global Growth 43
Caledonia Investments Global Growth 43
Albany Investment Trust UK Growth 41
F&C Global Smaller Companies Global Growth 40
Foreign & Colonial Investment Trust Global Growth 40
Brunner Investment Trust Global Growth 39
JPMorgan Claverhouse Investment Trust UK Growth 38
Witan Investment Trust Global Growth 36
Scottish Mortgage Investment Trust Global Growth 28
Merchants Trust UK Growth & Income 28
Murray Income UK Growth & Income 27
Scottish Investment Trust Global Growth 27
Temple Bar UK Growth & Income 27
Value & Income UK Growth & Income 23

Hugo First
Posted: 10 April 2012 15:54:16(UTC)

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Some other thoughts for you.
1. As you are very sensibly targeting only modest rates of return from your ISA, the issue of costs becomes very relevant. If you invest in actively managed unit trusts then you can expect to pay management charges of between 0.8% and 1.75% per annum. If markets are only delivering 5 - 7% per annum returns, these costs will eat into your returns significantly. Costs on investment trusts do tend to be lower. However, I have given up investing in stocks and shares via actively managed trusts because the average returns over time are no better than the performance of the underlying indices. Yes, someone can always point to a series of actively managed funds that beat the index over the past one or three or five years. This is irrelevant. The issue for investors is, can you select those funds that will beat their indices in the future? If you cannot, and I certainly cannot, then I think you are better to go for index trackers where the annual fees are of the order of 0.25% - 0.5% per year. Also consider exchange traded funds, such as ishares. These have very low annual and dealing costs.
2. I would not personally put all my investments in one asset class. At your age, and given your investment goals, a mix of 50% bonds and 50% equities would be sensible, or even 60:40. The equity funds should also be spread across different markets - say UK, USA, Europe and emerging markets. That will tend to increase your returns and reduce their volatility.

If you have time, you might find Malkiel's book, "A random walk down Wall Street" interesting and stimulating.

Good luck with it.
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Interceptor on 11/04/2012(UTC), DGL on 11/04/2012(UTC)
Posted: 01 May 2012 20:26:14(UTC)

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We live in uncertain times.
Interest rates surely will go up in the near to medium future, so conventional Gilts at present prices with low yields are a pretty bad bet. Ironically, what has always been regarded as one of the safest and most conservative forms of investment has now been turned into a very high risk investment, even without considering the possibility of the UK facing the same sort of solvency crisis as Greece, Ireland, Portugal, Spain etc.
Fixed coupon Gilts look like a particularly bad bet from that point of view. Index Linked gilts still have some merit and deserve a place in the portfolio. No prospect of significant real gains, but a good protection against total destruction of real value. Other bonds present a mixed picture. The best grade bonds now have total returns on purchase price which struggle to match inflation. Higher risk bonds encompass the risk, but do offer a possibility of real returns above the level of inflation. But such investments need to be heavily diversified because the liklihood is that there will some bad apples in the packet!
I agree that some Investment Trusts are worth considering. The advantage here is that even if you manage a large part of your portfolio you can benefit by diversifying your investment judgement also by buying into the judgement of a limited number of IT fund managers. When choosing ITs it is worth also considering ITs like the Ruffer IT where the whole rationale of the Trust involves balancing of risks. The Ruffer IT has been extraordinarily successful in this over the recent years, providing reasonable growth and good downside protection. No guarentee that this will continue, but worth a slot in a diversified portfolio.
ETFs are also worthwhile, particularly where they enable one to take a position in foreign markets which are otherwise difficult for a UK investor to participate in.
They can also provide a low cost entry and exit to bond markets and offer advantages in liquidity and ease of dealing that is not available for direct Bond or Gilt purchases.
The industrial world has been turned on its head in recent years, and assumptions about growth of equity markets, of the future prospects of the UK market etc. should not be based too much on historical experience. Holding a significant proportion of a equities in a portfolio should buy a margin of inflation protection, but it carries no guarentees.
The aim for any kind of long term investment needs to be the protection and enhancement of real value (rather than nominal value which needs to increase just to match inflation).
Well thats my take on the problem.! Hope that it helps!

Posted: 02 May 2012 06:25:54(UTC)

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Some sage advice here, but anyone investing for income over the next 20 years should surely have some exposure to Asian and / or emerging markets, whether in a dedicated income fund such as Newton Asian Income, or in a cautious growth fund / IT that pays a respectable income, e.g. Utilico Emerging Markets (which invests mainly in infrastructure such as ports, airports, utiiities... and currently pays over 3%). That way the likelihood of capital gains will, over time, boost the real value of dividends and so your income, particularly when drawn in GBP.
Dennis .
Posted: 02 May 2012 08:33:13(UTC)

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I am a pensioner and have stopped putting shares into my ISA, the dividends are taxed at source anyway and I am not a 40% tax payer, I don't want to pay "platform fees" and there is no IHT benefit. The only benefit is in CGT.
Posted: 02 May 2012 10:05:32(UTC)

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But, I understand, there is an Isa benefit in relation to fixed interest investments as the 10% tax credit is reclaimed by the fund manager?
And that would be the theme of my contribution to this discussion, i.e. in addition to income funds (and whatever else you choose), include some fixed interest, such as M&G Corporate/Strategic/Optimal bond funds, or Kames High Yield which is always getting mentioned - there's plenty of others.
I also agree with whoever advised adding some global/asian/emerging income to give diversity - very sensible.
Investment Trusts - great idea, but more complicated to get to your mind around (in my opinion) and choose which is best for you, what with premiums, discounts, gearing etc.
Whatever you do, If you do choose to go with funds, stick with highly regarded and highly rated managers and over the long term you stand as much chance as any of us of doing okay.
Best of luck.
Posted: 02 May 2012 10:35:42(UTC)

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An afterthought, if you decide to go for several income funds, be careful of the possible risk of overlap in case you end up investing in the same share several times over. This can be avoided depending on which funds you choose i.e. Unicorn is small(er) cap and I believe JOHCM is more mid cap (?), while the likes of Perpetual and Artemis are more large cap I believe.
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