Help with a decision

[Binlid]

A year ago I got rid of my financial advisor
Since then I've spent a lot of time balancing my portfolio into a robust structure -

- 70% Shares, 30% Bonds
- 50% US, 25% Europe, 25% Asia
- 33% Cyclical, 33% Sensitive, 33% Defensive

The top 10 holdings are -

1. Vanguard LifeStrategy 60% Equity A Inc
2. Vanguard LifeStrategy 40% Equity A Inc
3. Fidelity Select 50 Balanced PI Acc
4. JPM US Select C Net Acc
5. Fidelity Index World P Acc
6. Fundsmith Equity I Acc
7. Rathbone Global Opportunities S Acc
8. Stewart Inv APAC Ldrs Sstby B GBP Acc

I'm at the stage where I need to start taking money out to fund my retirement as I'm 70 years old now
I'd just assumed I would sell off 4% pa and growth would take care of everything else
However my 'wealth manager' suggested (not advised) I should make the funds 'income' and use that instead
The aim being to live off the income and avoid selling assets
I get that but moving everything into high income funds (to gaurantee 4%) upsets my carefully balanced portfolio
I also have a pension fund with enough tax free cash for the next 3 years if I wanted to postphone this decision
This would go against the advice of my previous FI who told me the spend order should be - Cash, Non-ISA, ISA, Pension
Any thoughts/suggestions ?
Many thanks in advance
Binlid

[kempiejon]

I'm at the stage where I need to start taking money out to fund my retirement as I'm 70 years old now
I'd just assumed I would sell off 4% pa and growth would take care of everything else
However my 'wealth manager' suggested (not advised) I should make the funds 'income' and use that instead

How has your growth been going? Would it have taken care of everything else?
Spending cash has some merit, what's its purpose otherwise, it's not an investment is it, it is being eroded by inflation.
If your top ten holdings as per list are unsheltered switching them to INC rather than ACC might generate a tax event, then so would selling. If ISAd swapping your lifestyle 60/40 to INC seems pretty straightforward and wouldn't change your well balanced strategy, would that generate enough to live off?

[DrFfybes]

Are these all sheltered or unsheltered? Is there other taxable income?

I have a similar strategy (albeit with a 30/70 Global Tracker bond/Equity fund) which I sell down each month to generate 'income'. Foolishly I chose Accumulation units which makes CGT a little irksome, but that wasn't going to a problem when the system was set up a couple of years ago as I only draw circa £10kpa so wasn't going to trouble my CGT limit before it ran out.

Oviously within an ISA the strategy is better.

I personally like the "selling down" approach, it is simple, regular stable income, and relatively hand off. However with the number of investments you hold it means selling a different one each month to kind of rebalance, although on the other hand it does mean you'll always be rebalanced.

Natural Divis are fine if you have enough buffer to cope with the fluctuations.

Paul

[Gilgongo]

I'd just assumed I would sell off 4% pa and growth would take care of everything else
However my 'wealth manager' suggested (not advised) I should make the funds 'income' and use that instead

I personally like the "selling down" approach, it is simple, regular stable income, and relatively hand off. However with the number of investments you hold it means selling a different one each month to kind of rebalance,

I think regardless of whether you prefer "natural yield" or to sell down, a reduction in holdings is going to be a good idea (you say the ones you list are just the "top 10"). I'm planning on retiring next month with essentially four investments (albeit one is a 20-share HYP but I'm treating that as one thing).

(As an aside, the point about re-balancing to me is a bit of a negative when it comes to selling down, although that's mostly if you have things like bonds and gold in the mix, which you may not have.)

As to the issue of Cash, Non-ISA, ISA, Pension, that may depend more on your personal circumstances I think (are you single, have decedents and things. You're also relatively young but how's your health, etc...)

[Dod101]

I have always tried to live off the natural income and actually have not had a lot of years when the natural income actually fell except of course over Covid. Obviously I have a cash buffer of about 3 years income which I have never touched. There is a lot to be said for a HYP like portfolio at the moment when you see the yields offered by some quite dependable companies such as Legal and General, HSBC, the renewables and of course the tobacco companies amongst many others. The income varies of course from month to month so you need a buffer account but. I find it works fine. Most of my portfolio is in ISAs so the income is tax free, a wonderful feeling. It saves having to sell and choosing what to sell each month, especially if the markets are volatile. I also have a few growth shares and of course at your age, that is sensible but even high yield shares do usually grow a bit.

[xxd09]

Living of dividends from an investment portfolio is ideal
Most investors don’t have a big enough portfolio to carry out this investment plan
They therefore go for Total Return policy -usually with their funds in Accumulation mode ie funds reinvest dividends automatically
The investor then sells required number of fund units once a year to top up a cash account -I keep 2-3 years living expenses in cash
When selling fund units also maintain your chosen asset allocation ie you sell from the best perfomers every time
I am aged 78 and have been doing this for 21 years -retd at 57
It is obviously easier (and cheaper ) if you have less funds -I have 3 funds only
I have used 3-3.5% withdrawal rate
Worked since so far
xxd09

[tjh290633]

A year ago I got rid of my financial advisor
Since then I've spent a lot of time balancing my portfolio into a robust structure -

- 70% Shares, 30% Bonds
- 50% US, 25% Europe, 25% Asia
- 33% Cyclical, 33% Sensitive, 33% Defensive

The top 10 holdings are -

1. Vanguard LifeStrategy 60% Equity A Inc
2. Vanguard LifeStrategy 40% Equity A Inc
3. Fidelity Select 50 Balanced PI Acc
4. JPM US Select C Net Acc
5. Fidelity Index World P Acc
6. Fundsmith Equity I Acc
7. Rathbone Global Opportunities S Acc
8. Stewart Inv APAC Ldrs Sstby B GBP Acc

I'm at the stage where I need to start taking money out to fund my retirement as I'm 70 years old now
I'd just assumed I would sell off 4% pa and growth would take care of everything else
However my 'wealth manager' suggested (not advised) I should make the funds 'income' and use that instead
The aim being to live off the income and avoid selling assets
I get that but moving everything into high income funds (to gaurantee 4%) upsets my carefully balanced portfolio
I also have a pension fund with enough tax free cash for the next 3 years if I wanted to postphone this decision
This would go against the advice of my previous FI who told me the spend order should be - Cash, Non-ISA, ISA, Pension
Any thoughts/suggestions ?
Many thanks in advance
Binlid

If your objective is at least 4% income after tax, that should be no problem, as getting over 5% from a decent portfolio of UK quoted equities is easily possible. You also need a growing income to at least keep pace with inflation. The life strategy concept has been shown many times to be ineffective in this respect.

In my view you would be better off with a more income oriented portfolio, bearing in mind that many UK shares are involved in overseas markets. Have you ever looked at the HYP forums? If you haven't, then I suggest that you do. If you use Investment Trusts as your medium, you can still get exposure to US investments through FCIT or ATST, for example, albeit at the expense of some income. Probably better than lifestyling

TJH

[JohnW]

That's a bold assertion, so could you be clear on whether the life strategy is ineffective at getting 4% drawdown or inflation matching, and where this has been shown in a comparison with the approach you're suggesting, please.

[tjh290633]

That's a bold assertion, so could you be clear on whether the life strategy is ineffective at getting 4% drawdown or inflation matching, and where this has been shown in a comparison with the approach you're suggesting, please.

All it does is reduce the return which you are getting. The theory used to be that you start moving from equities into fixed interest as you neared retirement. Inflation has a relentless hold on those whose investments do not keep pace. The same applied to fixed annuities. An initial better return is gradually eroded and index linked annuities overtake them. The lifestyling approach was discredited many years ago.

TJH

[JohnW]

you start moving from equities into fixed interest as you neared retirement.’

That sounds like a ‘lifestyling’ investment approach:
‘Lifestyling is an investment strategy that reduces the risk of your pension savings as you approach retirement age.’ https://www.unbiased.co.uk/discover/pen ... ifestyling
Indeed you do reference ‘lifestyling’ as a discredited approach without any evidence.
The original question stated that Vanguard Lifestrategy funds were held, and there was nothing about using a lifestyling (reducing equities, increasing fixed income). We're confusing life strategy and lifestyling, and me.
So might we disregard your first post here as not relevant to the question posed however interesting it might be elsewhere?

[JohnW]

Now, whether you should turn over a whole portfolio to go HPY. There seem to be taxation relevant obstacles do doing this, but that’s beyond me.
Would you get a better portfolio? Watch this video to see why dividends don’t matter to the quality of your portfolio, other than ‘going for dividends’ will probably reduce your diversification (bad), require stock/fund picking (hazardous). and cost you more (bad).
https://www.youtube.com/watch?app=desktop&v=f5j9v9dfinQ

[kempiejon]

There are only 8 holdings in your top 10.

[tjh290633]

you start moving from equities into fixed interest as you neared retirement.’

That sounds like a ‘lifestyling’ investment approach:
‘Lifestyling is an investment strategy that reduces the risk of your pension savings as you approach retirement age.’ https://www.unbiased.co.uk/discover/pen ... ifestyling
Indeed you do reference ‘lifestyling’ as a discredited approach without any evidence.
The original question stated that Vanguard Lifestrategy funds were held, and there was nothing about using a lifestyling (reducing equities, increasing fixed income). We're confusing life strategy and lifestyling, and me.
So might we disregard your first post here as not relevant to the question posed however interesting it might be elsewhere?

Lifestyling or lifestrategy, both amount to the same thing. The old argument was based on preserving your capital because the objective then was to buy an annuity. Since the mid 1990s, a portfolio of higher yield shares has beaten an annuity hands down. That was why PYAD put forward the HYP approach, to get similar income while retaining your capital.

The Vanguard funds are aimed at those who believe in the discredited advice. As far as I can see, people buy them without looking at the consequences. When I retired in 1998 I looked at fixed interest stocks. They were not then and never have been since competitive with high yield shares. Rising interest rates made some available below par, offering the potential for capital gains, assuming that you bought at the bottom. Otherwise you had an unrealised capital loss which would resolve itself as maturity neared.

TJH

[Adamski]

Agree with your previous adviser, spend cash, unsheltered first, then ISA, then Pension. However I'd keep plenty of emergency funds in cash. Its your money drawdown as you see fit.

You can get c 5% in best savings vs inflation 4.2%. So actually cash not bad right now. Stocks arguably in correction territory.

I'd consider simplifying your holdings and consolidate, not hold anything less than 5% total. Most people hold far too many small investments. Just make things easier to manage.

[DrFfybes]

Now, whether you should turn over a whole portfolio to go HPY. There seem to be taxation relevant obstacles do doing this, but that’s beyond me.
Would you get a better portfolio? Watch this video to see why dividends don’t matter to the quality of your portfolio, other than ‘going for dividends’ will probably reduce your diversification (bad), require stock/fund picking (hazardous). and cost you more (bad).
https://www.youtube.com/watch?app=desktop&v=f5j9v9dfinQ

I started a post on this, but decided not to bother, however... I'm becoming more and more convinced that once you start taking more than 4% dividend income, the capital performance suffers long term, especially for ITs or companies that are so focussed on increasing the divi each year that it trumps other decisions.

I chose mainly High Income funds for mum between 2009 and 2021, looking for ones that didn't overlap their major holdings. She got a good income of 4.5-5%, with a capital balance that fluctuated massively but rested on 22% up over the 12 years.

There is a lot to be said for a HYP like portfolio at the moment when you see the yields offered by some quite dependable companies such as Legal and General, HSBC, the renewables and of course the tobacco companies amongst many others

Look at the 5 year capital perfomance of these choices (Google ony goes back 5 years).
LGEN, BAT, IMB, HSBC, ex HYP darling Direct Line (still down 40% after a 25% rise last week and now zero divi rather than 8%), CTY (high income IT), and then the Greenies - Gresham House GRP, UKWind, GRID, NESF, ORIT (Octopus), Greencoat. You'll find the divis are high, but none have exhibited any capital growth above 2-3% and most have capital drops of 25-45% over the last 5 years.

Compare that to Global ETF / ITs like FCIT, VEVE, and ATST with their 45-65% capital growth. Even VHYL with a 3.5% divi (was higher last year) is up 24%

Now overall there may have been little difference in total return over 5 years, but that's short term if you retire early. If I'd stuck £10k into VHYL and IMB 5 years ago I'd currently get £559pa from Imperial (8.6% of £6500) and £434 from VHYL (3.5% of £12400) but I'd be six grand better off for perhaps £1k less income. And in another 3 or so years I'd expect VHYL to be the bigger payer.

When dad died in 2009 I put the same amount into ATST and CTY in our ISAs, divi reinvested. When I ditched CTY a few years ago the ATST income was higher than that from CTY due to a 4 fold increase in shareprice rather than circa 50% from the UK focussed Dividend driven CTY.

There are plenty of HYPs out there, with the founders generously detailing all the decisions and changes, ups and downs, and lots of comment on relative performance. If income is the route you want to take then fine, but I'm sure glad I ignored them 10 years before I retired. I just wish I'd stuck with trackers instead of tinkering.

Paul

[JohnW]

‘Lifestyling or lifestrategy, both amount to the same thing.’

’The question is,’ said Alice, ‘whether you can make words mean so many different things.’ Lewis Carroll.
The Vanguard Lifestrategy funds the OP holds do not change their stock/bond mix, and that was the objection to them, ie that they move you to more and more bonds as you get older. They don’t. I’m up for a discussion about whether a retirement portfolio should hold any bonds, as the OP does, but that’s not the issue anyone has expressed concern about yet.

‘The old argument was based on preserving your capital because the objective then was to buy an annuity….That was why PYAD put forward the HYP approach, to get similar income while retaining your capital.’

It’s useful to know some history, certainly, and that’s an interesting bit of it. But an increasing bond holding into retirement does not have to be based on anticipating annuitising. People, with no intention of annuitising choose more bonds as retirement approaches because it reduces their risk; it’s standard practice in USA where annuities haven’t enjoyed popularity or obligation by government regulation. We need so stop hearing because annuities are not the product we want in UK, that we should ditch the old ‘more bonds as time passes’ idea; it just doesn’t capture reality well.

‘When I retired in 1998 I looked at fixed interest stocks’

Love to know what sort of stock pay a fixed interest. If ‘bonds’ is meant, write ‘bonds’ or I’ll get confused.

[DrFfybes]

Lifestyling or lifestrategy, both amount to the same thing.

Prehaps in your usage, but Lifestyling and Vanguard Lifestrategy (tm) are 2 completely different things which leads to the confusion.

Vanguards "Lifestrategy" (tm) Funds are just a fixed bond/equity mixed portfolio. Lifestyling is what Zeneca offered me - the portfolio moved from Equities towards Bonds and Finally to Gilts and Cash as you approach a retirement date, the intention being to reduce capital risk as you get closer to buying an annuity. Which was fine back in the days when that was a requirement, and Kwarteng was a Backbencher.

Vanguard also do a Lifestylng type of investment, called "Target Retirement" (tm), where you set your retirement date and "It does this by maturing with you. As you get closer to retirement, we'll start switching you out of higher-risk, higher-reward investments and into more stable ones."

Paul

[ursaminortaur]

‘Lifestyling or lifestrategy, both amount to the same thing.’

’The question is,’ said Alice, ‘whether you can make words mean so many different things.’ Lewis Carroll.
The Vanguard Lifestrategy funds the OP holds do not change their stock/bond mix, and that was the objection to them, ie that they move you to more and more bonds as you get older. They don’t. I’m up for a discussion about whether a retirement portfolio should hold any bonds, as the OP does, but that’s not the issue anyone has expressed concern about yet.

‘The old argument was based on preserving your capital because the objective then was to buy an annuity….That was why PYAD put forward the HYP approach, to get similar income while retaining your capital.’

It’s useful to know some history, certainly, and that’s an interesting bit of it. But an increasing bond holding into retirement does not have to be based on anticipating annuitising. People, with no intention of annuitising choose more bonds as retirement approaches because it reduces their risk; it’s standard practice in USA where annuities haven’t enjoyed popularity or obligation by government regulation. We need so stop hearing because annuities are not the product we want in UK, that we should ditch the old ‘more bonds as time passes’ idea; it just doesn’t capture reality well.

‘When I retired in 1998 I looked at fixed interest stocks’

Love to know what sort of stock pay a fixed interest. If ‘bonds’ is meant, write ‘bonds’ or I’ll get confused.

Preference shares.

[Alaric]

As to the issue of Cash, Non-ISA, ISA, Pension, that may depend more on your personal circumstances I think (are you single, have decedents and things. You're also relatively young but how's your health, etc...)

If there's any personal tax allowance available then utilising it by taking taxable income from a Pension could be worthwile. It's most relevant for those below State Pension Age.

[tjh290633]

‘When I retired in 1998 I looked at fixed interest stocks’

Love to know what sort of stock pay a fixed interest. If ‘bonds’ is meant, write ‘bonds’ or I’ll get confused.

Government stocks, i.e. Gilts.

TJH