Help - seem to be going in circles on what to do re retirement investing

[tjh290633]

This question will expose my lack of understanding, but there you go, it's an honest approach.

So, I now have £202000 sitting in my SIPP having sold just before the market dipped 2 weeks ago. Given that 40% is going into investment trusts and 40% into a Vanguard LS (or maybe an ETF), my question is one of timing. Does it make a lot of difference if I wait and see if the market tanks in early 2019, or should I just get on with it now and make my purchases? The question is mainly concerned with the investment in the investment trusts.

The remaining 20% is fluid as I haven't made up my mind yet but I am considering the Vanguard Global balanced fund?

What you want from your SIPP is income, which will come from dividends. currently I believe that you can get 4% or more from ITs, while direct investing in shares can easily get you over 5%. Shell and BP, for example, both yield over 6%.

I don't see that the Vanguard LS offerings have anything useful to offer, except for low charges. Likewise ETFs.

I trust that you have been following viewtopic.php?f=31&t=14431&start=20 on the subject of the B7.

Just how much do you want to get from your investments?

TJH

[77ss]

This question will expose my lack of understanding, but there you go, it's an honest approach.

So, I now have £202000 sitting in my SIPP having sold just before the market dipped 2 weeks ago. Given that 40% is going into investment trusts and 40% into a Vanguard LS (or maybe an ETF), my question is one of timing. Does it make a lot of difference if I wait and see if the market tanks in early 2019, or should I just get on with it now and make my purchases? The question is mainly concerned with the investment in the investment trusts.

The remaining 20% is fluid as I haven't made up my mind yet but I am considering the Vanguard Global balanced fund?

Have you thought about a third possibity. Rather than buy all at once, or sit on a lot of cash, you could just drip your funds into the market at, say £20,000 a month. Pound cost averaging. It has its devotees. Personally, I would be nervous about putting the lot into the market right now.

It does have an additional advantage in that you don't have to make all your decisions about what to buy right away.

[sealives]

Summarising:
SIPP
LS 60% £108500
LS 80% £50600
Individual shares such as BP, Royal dutch shell £44000
Cash £135000

ISA 1
Various funds £28200
Cash £45600

ISA 2
Various funds £25000
Cash £22000

Total invested £256300
Total Cash £202600
Total invested+cash £458900

In a perfect world, an income of £5000 from all of the above would be ok. However, it seldom is perfect so I am going to double the income to £10000 - 2.18%. If inflation is running at 2.5%, then that would suggest a real return, net of expenses of 4.68%, so lets say 5%.

[TUK020]

Hi
Due to ill health, I had to take early retirement, age 57. Fortunately, PHI has plugged the income gap, and will continue to do so until I reach 60 early next year.
So, my focus is now all about generating enough income to live on, without using capital. Other investments plug a large part of my income requirements but I am £10000 pa gross short of my target.
In have spoken to an IFA who wanted me to go the route of a discretionary fund manager to look after my investments. I am also looking seriously at a commercial property investment via a syndicate scheme; returns 5.8% net. In the past I also played with a high yield portfolio (which still forms part of my SIPP).
The issue I face is that most of my SIPP (£300,000) is with Vanguard lifestrategy 80% equity Acc funds, and as such I don't see the income. So I am in the process of converting it to income funds via my SIPP platform. In addition, there is £45000 in various high dividend producing stocks. In summary, I have a SIPP worth £345000 and a S&S ISA worth £100,000, from these I want to generate an income of £10000 gross p.a. (2.25% return across SIPP and ISA)
I have already used the cash free lump sum from the SIPP. I am not interested in an annuity.

My current thought is to put half of the SIPP into commercial property, this will generate £10150 gross, but of course there are associated risks. The balance of the SIPP and my ISA would stay invested in S&S; but again is Vanguard now the best place as that was chosen for growth 10 years ago.
I have read about income funds, but would these provide a better return that staying with Vanguard, for example.
My question, and what is keeping me awake at nights is 'is there a better/less risky way to achieve my £10000 p.a. gross along with some capital growth to offset the effect of inflation?
As I stated above, because of my relatively young age, I do not want to access capital at this time.

I would be very interested and grateful for any advice.

Sealives,
I read your latest posting, and then went back and re-read your original post, and then put my thinking cap on.
I think there are several major questions you need to tackle before you get to specific investments, in part because they will determine you investment horizon.
What is your overall asset allocation? (i.e do you have your own home, are you therefore exposed enough to property?)
What will you need to live on?
What is you income tax position? (dricital to decisions on how you harvest income from your investments)
Is it you intent to leave part of your wealth to others when yo depart, or is your primary intent to make sure your remaining days are comfortable? (this last is because the inheritance tax position is very different between ISA & SIPP).

I have a number of points/suggestions to make, not necessarily in any coherent order(and please bear in mind that I am not qualified to offer investment/financial advice):
a) You have approx 0.5m betwixt SIPP & ISAs. This should be enough to generate about 20k income per year growing in line with inflation. 4% is reasonable, provided you keep a couple of years cash reserve. This last point is essential. Your primary risk is sequence of returns. You do not want to be selling assets in a market downturn in your first couple of years.
b) you should think about your income tax position. Anything you take from your SIPP is liable for income tax. From age 60-67, you should be pulling a minimum of 12.5k/yr from your SIPP, unless you have other taxable income. Even if you are not spending it all. After 67 you perhaps need to take the delta between state pension, and income tax allowance. Remainder, if there is any to leave to spouse/dependents (not counted as part of your estate).
c) from a medium term perspective, keep shovelling as much as possible into ISAs
d) if the above statements are relevant to your position, you might want to think about higher yield assets in you SIPP (individual HYP stocks + Basket of ITs?), plus retain an emergency cash reserve of at least £25k. Longer term investment horizon for your ISAs.
e) I have about 4% of my financial assets in a physical gold ETF. Insurance purposes only. Think Kim Jong Un rearranging Seoul/Toyko with nukes. It would be worth having an asset that is uncorrelated with most stocks/bonds, so that you can take advantage of the crash.

Please think of the above as interesting ideas to play with, rather than advice
tuk020
(apologies if I have just made the exercise more difficult)

[BrummieDave]

I think your logic is sound TUK although would, myself, drop your final point e) on the basis that 4% isn't much of an insurance if nukes are falling.

Don't want that minor opinion to detract from what I think is a very good post and a sensible approach for the OP to consider.

[sealives]

Hi Tuk020
You have asked some very pertinent questions; ones which I have considered, but probably not in as much depth as I should.

Having been in retirement now for 2.5 years I know exactly how much we spend each year - it's £47000. Without changing lifestyle, that is the amount our investments + wife's income need to generate, net.

Income from BTL (owned) and wife's job is £41000 Net. I also have a small interest in a commercial property syndicate of £30000 which returns 5.8%, or £1392 Net. So I am looking to generate 47000-41000-1392=4608 Net from the ISA's and or SIPP's. My wife will stop work in 5 years, so I drop £10k, but 1 year later my state pension kicks in, so almost cancels out. 6 years later wife will claim her state pension.

Tax wise it is all optimised. If I can I would want to leave the SIPP in growth and pull the income from the ISA's.

We are very heavily exposed to property, to the tune of £1.31m (includes our own owned residence). However, I like having BTL's as we don't use any agents, I do all the maintenance and so far, we have had very good tenants and a reliable return.

From an IHT perspective, I believe the threshold is due to increase soon, but that aside, it is our intention to gift the rented properties to our children in about 10 years time, reducing the value of our estate in todays money by 770k; at which time I don't think IHT will be an issue.

My concern with the income streams above is that there is little room for error, against our income requirement; property left vacant, wife stops work early etc. So I need an alternative income stream I can tap into if required. I guess the SIPP fits the bill. As you suggest I should have some cash reserves so I don't have to sell at an inopportune moment, which I have.

So I think it boils down to this.
1) How can I generate approximately £5000 from my ISA investments of £128000 (4%) + inflation allowance of say 2.5% = 6.5%.
2) Where should I invest my SIPP for the next 10 years for growth but allowing me to withdraw if required.

Realistically, I don't think I will be able to get 6.5%, so I will probably need to use some of the SIPP returns to generate a small top up, as required.

I am still unsure as to the best way to achieve 1 and 2 above - Basket of IT's/ETF's/Vanguard LS, and which one's where and in what percentages?

Very grateful to all those members who have commented so far.

[TUK020]

So I think it boils down to this.
1) How can I generate approximately £5000 from my ISA investments of £128000 (4%) + inflation allowance of say 2.5% = 6.5%.
2) Where should I invest my SIPP for the next 10 years for growth but allowing me to withdraw if required.

Realistically, I don't think I will be able to get 6.5%, so I will probably need to use some of the SIPP returns to generate a small top up, as required.

I am still unsure as to the best way to achieve 1 and 2 above - Basket of IT's/ETF's/Vanguard LS, and which one's where and in what percentages?

Very grateful to all those members who have commented so far.

Investments
I would tend to re-phrase 1) as you need to generate 4% yield, but have that income stream grow in line with inflation.

A basket of ITs should be able to do that comfortably, and with some built in smoothing/protection from market crashes.
You could invest with the dividend option set to automatic re-invest. This would give you clear visibility of the actual yield, and how it is growing. When you want to harvest, just switch the dividend option to cash.

A good example is CTY:
https://www.hl.co.uk/shares/shares-sear ... st-ord-25p
Currently yielding 4.62%. Dividend income has risen in nominal terms every year for the last 50. Not sure that this has beaten inflation every year, but it is there or thereabouts.

I would probably keep a portion in index tracker ETFs as well: L&G Global 100, etc

SIPP
Take a look at the Monevator site to compare SIPP platforms and fees
https://monevator.com/category/investing/

[BrummieDave]

Sealives, I was half way through drafting a response very similar in content to TUK's clarifying the same point. It's the income in £s not the % that needs to track inflation to maintain the same purchasing power to meet your expenditure needs.

I would read the mandates of the various Equity Income ITs and likewise, any ETFs or Vanguard Funds you are interested in and then post your thoughts back again on this thread to solicit responses about anything you wish to have clarified or confirmed.

From an Investment Trust perspective, City of London IT is indeed a good example of an an equity income trust as TUK says, and is easily understandable in terms of mandate, historical performance etc. In addition to the websites suggested in TUK's response, I would add that you may wish to use the Association of Investment Companies website to investigate more about individual ITs, look at their average annual dividend growth over the past 5 years (how well the dividend income has kept pace with inflation), and other key metrics. There are also very useful comparison tools within the site too.

The main site is https://www.theaic.co.uk/

An example page, using CTY as the example again is https://www.theaic.co.uk/companydata/335

Other approaches are equally valid for some investors, like a total returns approach and taking your required income from this growth approach. Again, the websites suggested will help you play with the different ways to reach your very achievable (IMHO) goals.

[Hariseldon58]

In respect of the income requirement from ISA’s , I would take a look at the John Baron portfolios , a collection of Investment Trust portfolios covering income growth etc. The Autumn portfolio might appeal, the site is behind a paywall but you can have a free week if you register.

Plenty of useful commentary and performance stats from the real world portfolios.

I have been living off my investments for the last 11 years and a couple of years older than yourself. The investment Trust route to a good yield , which goes up in line with inflation is well proven and the capital tends to rise in line with inflation and then some over the long run.

Whilst I have followed the Investment Trust route for growth, often using income investments and simply reinvesting dividends, I did move to passives, not unlike your Vanguard Life Strategy investments for the last few years.
That strategy worked well and over time it will continue to work well and you can draw income by sellling investments but thats hard when markets are falling !

I have gone back to Investment Trusts largely since the summer as I think there are excellent opportunities looking forward. The John Baron site is very useful and the Luni B7 Portfolio would work very well too. If you invest in Investment Trusts there is a good chance that you sell Life Strategy sets ar par but could reinvest in Investment Trusts at a discount.

The reliability of the Investment Trusts income stream can be very reassuring in difficult markets and held up well in the downturns of 2007-2009, 2000-2003 and the upsets of 1998. Well worth consideration, personally I would probably invest the SIPP in the same way and simply reinvest income streams.

[Avantegarde]

Hi
In have spoken to an IFA who wanted me to go the route of a discretionary fund manager to look after my investments.
I would be very interested and grateful for any advice.

Under no circumstances should you employ a "discretionary fund manager". They will charge you about 1% of your funds just for looking after them, every year, and will churn your portfolio unnecessarily, incurring trading costs along the way. Don't do it. If you want to invest in investment trusts or tracker funds, open a cheap share account with an online firm such as the Share Centre (I use them and they are very good) and you can do it all yourself easily, for less than £100 a year in account fees. Trading costs will come on top of that. If all this is a mystery, read two good books: The FT guide to Investment Trusts, by John Baron; and "The Long and the Short of It" by the economist John Kay (the first edition is much better than the second one).

[sealives]

I have been looking closely at the B7 and also John Baron's portfolios. One is free, the other is not. Also JB's requires many more initial purchases. Is the B7 managed in the sense that someone is keeping a weather eye on its performance and tweaking as and when required?

The aic website was very helpful and filled in a lot of gaps in my understanding. Thank you all again for your comments.

[tjh290633]

I have been looking closely at the B7 and also John Baron's portfolios. One is free, the other is not. Also JB's requires many more initial purchases. Is the B7 managed in the sense that someone is keeping a weather eye on its performance and tweaking as and when required?

The aic website was very helpful and filled in a lot of gaps in my understanding. Thank you all again for your comments.

The B7 was formulated some years ago as a method of obtaining dividend income in retirement which needed little or no management. It had a companion B8 which had a slightly different emphasis. Put together you have the B15, which combines both options.

As far as I am aware, there has been no tweaking, although doubts have arisen about one or two of the selected trusts. However the performance has been monitored regularly and you can find those on other more relevant boards.

TJH