floyd3592 wrote:I'm recently 'mainly retired' and currently struggling with constructing an income generating portfolio from my cash savings, cash ISAs and tracker ISAs I've built up over the years.
i.e. Do I convert everything into index trackers, a dividend tracker fund, a basket of ITs, Vanguard life strategy funds, plump for some fund managers like Train, construct a HYP? or go for a mixture of some / all of them?
Regarding ur own HYP: -
1. why do u say "Active management of a HYP portfolio could well reduce your returns over time" and what would u suggest is an alternative therefore?
2. How do u re-balance ur portfolio to remove 'losers' for replacing by potential 'winners' (the 'holy grail' of an HYP I guess)
3. Could u give examples of the 'companies which don't make front page news' that u refer to?
I think that the things to remember before you decide are:
1. Directly held shares (ideally in an ISA) incur minimal management fees, because you are the fund manager.
2. Managed funds and ETFs take their fees out of the dividend income, so a 1% fee on what would be a 4% yield without it means that the income is reduced by 25%.
3. Some take fees out of capital, so that your capital is reduced by that and the dividend income is on a slightly reduced amount of capital.
If income is your objective, then my priority would be a DIY HYP, followed by income generating ITs, followed by all other sorts of funds or managed products. Life strategy is for the birds. If you want exposure to non-UK equities, ITs can be a good way to go.
Street66 can answer for himself, but regarding your second question, I indulge in a modest degree of portfolio management, by limiting the weight of any one holding, limiting the contribution to income of any one holding, and limiting the share of portfolio cost of any one holding. Those going overweight are trimmed back by about 25%, those up against other limits are disqualified from being topped up when dividends are reinvested.
I also cull holdings where the dividend yield falls below about half that of the market, usually due to the share price rising, but also if dividends are cut with little prospect of resumption. I have also sold to avoid having shares which are not UK-listed or shares which delist.
New shares to replace those removed will always have a yield at or above the market average. Overweight shares have usually got a lower yield, and the capital released is then reinvested in shares with higher yields, ideally about twice that of the sold shares. My definition of overweight depends on the number of holdings in the portfolio. Under 20 shares, my limit would be 10% of the portfolio value. Between 20 and 30 holdings, twice the median holding value. Above 30 holdings, then I reduce it to 1.5 times the median. You can decide on your own limits, of course.
Having tight limits will increase the amount of intervention that is needed to keep relative balance in the portfolio. If they are too tight, then excessive intervention may arise, leading to accusations of trading. Ideally you can just sit and watch, and enjoy the flow of dividend income. If you don't want a DIY HYP, then a small selection of suitable ITs is probably the way to go.
Good luck with whichever route you decide to pursue.