vrdiver wrote:Whilst dividends can and do "crash", I don't think you're comparing apples with apples here!
To compare a HYP, dividend paying investment with an annuity, you need an annuity that will rise with inflation and pay out 100% of income on first death. I'll ignore that a HYP will return the capital.
At age 55 (relevant to me!) the best annuity I can find pays 2.4% and reduces to 1.2% on first death whilst capping increases to 3%. Compared to my HYP paying over 4% and continuing to pay 4% on first death with escalation (lumpily) in line with inflation. Accepting that dividends do crash, keeping a cash reserve and only drawing 3% whilst re-investing the remaining cash gives me an above-inflation growth and a protection against a dividend drought.
How do they (bonds) help me protect my income over a 30 - 50 year timescale? (and possibly eternal timescale if my heirs apply the same philosophy to their inheritance of my HYP.)
You can buy a 100% spouse's pension, if that is what you want:https://www.pensionsandannuities.co.uk/ ... uities.htm
You can also buy index linked annuities that do not cap increases. You can also leave an index linked capital sum on death, if that is what you want. Another index linked bond investment would do the trick. Nonetheless, certainty is expensive, particularly at the present time.
Keeping a cash reserve is, in principle, the same as keeping a percentage in bonds. However, bonds pay more interest than cash. Long dated government bonds also tend to rise in value during a stock market crash, whereas cash does not.
With equities, you have no certainty that the capital or dividends will rise with inflation. Bonds pay income and provide a capital reserve when the stock market falls. Bonds also allow more equities to be bought when the their dividends and capital values fall.
Certainty is expensive, and risk reduction comes at a price. If you are happy to see the capital value of your life savings fall to a quarter of their original value, and not recover in your lifetime, then by all means hold 100% equities. That will maximise your expected return, but the return that you will actually get is very uncertain, and it could be very bad.