The Lemon Fool

Aminatidi wrote:I'm playing around on Trustnet and Portfolio Visualiser with various mixes of asset classes and volatility and risk level.

One question I've never actually asked myself is "What return do I need?".

Of course the obvious answer to what I want is "as much as possible".

Playing around with (these are simple examples) blends of an equal mix (to avoid manager risk) of:

* Capital Gearing
* Troy Trojan
* Ruffer Total Return
* Senica Diversified Income

(four defensive options that leap to mind)

10 year average returns are 6.6% so you're doubling your return approx every 10 years with a very smooth ride.

Throw in a portion of Fundsmith or Lindsell Train and of course returns improve with some added risk and volatility.

It has got me thinking how much I need to return vs. how much I want to return.

Anyone care to share how they've worked this out other than a finger in the air?

Want/prefer
- 20% over 15 years (compounded)

Need
- 0% (could even cope with small loss over that period)

Strategy
- Add 20K pa to pension (company scheme - I'm 40% tax). Best guess 10% return. Over 15 years. Self chosen investments
- Consider redistribution of current pension pot to improve annual growth. Target 6.6% growth over 15 years.
- End out of improved pension pot after 15 years = £280K
- Do not exceed 4% draw down on current pension (outwith additional £20K pa)
- Monthly shortfall upon retirement = Nil (noting income from state pension)
- Additional £300K "swamps" my "need" and moves me closer to "want/prefer"

Risk
- My health
- "Overthinking/overestimating" my ability to self invest/help

Plan
- Buy a farm (A Warren Buffett Farm)

AiY

AsleepInYorkshire wrote:Plan
- Buy a farm (A Warren Buffett Farm)

AiY

And then sell it?

TJH

I am 55 and retired - looking for income. Currently my income is split roughly 50/50 between a SIPP in drawdown and dividends. I am seeking 5.5% return after allowing for fees; I then reinvest 2% to cover inflation and keep the remainder. In about 4 years my requirements for income from dividends will reduce slightly as my occupational pension will kick in and I will still be enjoying the SIPP in drawdown.

Thereafter, my next milestone will be when the drawdown income ceases, which should be after the state pension kicks in. I have allowed for the latter to be delayed or means tested given the precarious nature of future proofing our ability to pay state pensions in the future. All my income requirements are based on my current lifestyle and I do not spend the full amount at present.

I do not have a mortgage and my plans involve maintaining my capital at a certain (peace of mind) level with cash reserves - in case of unforeseen issues. However, I do not plan or fret about all possibilities. My main goal is to enjoy life and spend as little time as possible on finances. Life is too short for more than a couple of spreadsheets.

Yell

My HYP (well, largely HYP) has produced 8.8% IRR over the last 16 years.

bluedonkey wrote:My HYP (well, largely HYP) has produced 8.8% IRR over the last 16 years.

CORRECTION: that should read 8.3%.

I’m targeting initial income of 5% from my collection of Investment Trusts, rising with inflation thereafter.

mickeypops wrote:I’m targeting initial income of 5% from my collection of Investment Trusts, rising with inflation thereafter.

I'm pretty much with Mickey, but would add that I'd like to avoid capital depreciation and ideally see modest growth.

BrummieDave wrote:

mickeypops wrote:I’m targeting initial income of 5% from my collection of Investment Trusts, rising with inflation thereafter.

I'm pretty much with Mickey, but would add that I'd like to avoid capital depreciation and ideally see modest growth.

The key to your desire is to avoid fixed interest securities, where you will get no growth in income and your capital can be expected to lag inflation.

TJH

tjh290633 wrote:

BrummieDave wrote:

mickeypops wrote:I’m targeting initial income of 5% from my collection of Investment Trusts, rising with inflation thereafter.

I'm pretty much with Mickey, but would add that I'd like to avoid capital depreciation and ideally see modest growth.

The key to your desire is to avoid fixed interest securities, where you will get no growth in income and your capital can be expected to lag inflation.

TJH

It is a not sensible to rule out fixed interest completely. It depends where we are in the cycle. I agree most fixed interest is expensive at the moment although it is still possible to get a 6% yield on some instruments. Over the last few years some of my best capital appreciation has been fixed interest and if one is taking a long view it is surely part of what one should be considering in one's portfolio.

everhopeful wrote:

tjh290633 wrote:

BrummieDave wrote:
I'm pretty much with Mickey, but would add that I'd like to avoid capital depreciation and ideally see modest growth.

The key to your desire is to avoid fixed interest securities, where you will get no growth in income and your capital can be expected to lag inflation.

TJH

It is a not sensible to rule out fixed interest completely. It depends where we are in the cycle. I agree most fixed interest is expensive at the moment although it is still possible to get a 6% yield on some instruments. Over the last few years some of my best capital appreciation has been fixed interest and if one is taking a long view it is surely part of what one should be considering in one's portfolio.

And those securities are all well above their nominal value. If held to redemption you will lose a lot of capital. If you sell to save the capital loss, then you will lose a lot of income.

TJH

BrummieDave wrote:

mickeypops wrote:I’m targeting initial income of 5% from my collection of Investment Trusts, rising with inflation thereafter.

I'm pretty much with Mickey, but would add that I'd like to avoid capital depreciation and ideally see modest growth.

I believe that the capital would appreciate broadly in line with the income growth,otherwise the yield would slowly grow to silly levels.

tjh290633 wrote:

everhopeful wrote:

tjh290633 wrote:The key to your desire is to avoid fixed interest securities, where you will get no growth in income and your capital can be expected to lag inflation.

TJH

It is a not sensible to rule out fixed interest completely. It depends where we are in the cycle. I agree most fixed interest is expensive at the moment although it is still possible to get a 6% yield on some instruments. Over the last few years some of my best capital appreciation has been fixed interest and if one is taking a long view it is surely part of what one should be considering in one's portfolio.

And those securities are all well above their nominal value. If held to redemption you will lose a lot of capital. If you sell to save the capital loss, then you will lose a lot of income.

TJH

Yes of course one has to take a view on when to sell and I have crystallised the capital gain on much of my fixed interest. This did not lead to a loss of income because the proceeds were reinvested in income yielding equities and ITs. All I am saying is that during some periods fixed income securities can give a decent capital gain and of course they can also, again depending on the timing, mitigate against losses in an equity bear market.

tjh290633 wrote:

BrummieDave wrote:

mickeypops wrote:I’m targeting initial income of 5% from my collection of Investment Trusts, rising with inflation thereafter.

I'm pretty much with Mickey, but would add that I'd like to avoid capital depreciation and ideally see modest growth.

The key to your desire is to avoid fixed interest securities, where you will get no growth in income and your capital can be expected to lag inflation.

TJH

Assuming it's not too O/T, in response: as previously posted on other threads I'm 100% in ITs, 90% equities (pretty much 50:50 UK/International), 10% non-equity (Property, Infrastructure, Renewables). Note some of the Equity Income ITs have very small fixed income elements.

Not trying to trigger an O/T debate on relevance of my or any other portfolio, just responding to TJH

As of now this is my HL analysis across the ISA and the General Account.

1 CAPITAL GEARING TRUST 31.4%
2 Fundsmith Equity Class I 14.9%
3 Lindsell Train Global Equity Class D 14.3%
4 RUFFER INVESTMENT CO 13.9%
5 PERSONAL ASSETS TRUST 7.4%
6 Troy Trojan Class X 4.2% Flexible Investment
7 Valu-Trac VT RM Alternative Income Institutional 4.2%
8 Valu-Trac VT Seneca Diversified Income Class B 4.2%
9 CG Asset Management Absolute Return Class M 4.0%
10 Cash 1.6%

My first thought was it looked "light" on equities yet when I run through an X-Ray via MorningStar (HL can't X-Ray Investment Trusts) it I'm 50% equities, 30% bonds and 20% other/cash.

I intend drip feeding some more into the General Account next week.

I don't plan on going further into 100% equity funds right now and with it being a drip feed my rough plan was to feed the OEICs until they grow to an amount where there is enough to justify the trading fees on switching into the Investment Trust equivalent.

The funds I'd be drip feeding into are in bold.

Any thoughts would be welcome as everything above represents around £115K as of today with around the same spread between the bank as literal cash plus some NS&I linkers.

Basically I'm past it being play money

Aminatidi wrote:As of now this is my HL analysis across the ISA and the General Account.

1 CAPITAL GEARING TRUST 31.4%
2 Fundsmith Equity Class I 14.9%
3 Lindsell Train Global Equity Class D 14.3%
4 RUFFER INVESTMENT CO 13.9%
5 PERSONAL ASSETS TRUST 7.4%
6 Troy Trojan Class X 4.2% Flexible Investment
7 Valu-Trac VT RM Alternative Income Institutional 4.2%
8 Valu-Trac VT Seneca Diversified Income Class B 4.2%
9 CG Asset Management Absolute Return Class M 4.0%
10 Cash 1.6%

My first thought was it looked "light" on equities yet when I run through an X-Ray via MorningStar (HL can't X-Ray Investment Trusts) it I'm 50% equities, 30% bonds and 20% other/cash.

I intend drip feeding some more into the General Account next week.

I don't plan on going further into 100% equity funds right now and with it being a drip feed my rough plan was to feed the OEICs until they grow to an amount where there is enough to justify the trading fees on switching into the Investment Trust equivalent.

The funds I'd be drip feeding into are in bold.

Any thoughts would be welcome as everything above represents around £115K as of today with around the same spread between the bank as literal cash plus some NS&I linkers.

Basically I'm past it being play money

FWIW I don't like it. On the surface it would appear you are positioning for an apocalypse, just missing a comment that you have some Gold squirreled under your bed. That being said you are pretty long bonds and GBP currency and paying chunky management fees on top. Surely would be cheaper to go for a 40/60 Vanguard life strategy and cash if that is the position you want rather than paying management frees to all those wealth preservation trusts. Or just pick one?

That being said it obviously depends on your goals, but seems pretty defensive if you are looking for growth?

Aminatidi wrote:
My first thought was it looked "light" on equities yet when I run through an X-Ray via MorningStar (HL can't X-Ray Investment Trusts) it I'm 50% equities, 30% bonds and 20% other/cash.

I don't plan on going further into 100% equity funds right now and with it being a drip feed my rough plan was to feed the OEICs until they grow to an amount where there is enough to justify the trading fees on switching into the Investment Trust equivalent.

Any thoughts would be welcome as everything above represents around £115K as of today with around the same spread between the bank as literal cash plus some NS&I linkers.

What's your time horizon and goal? I've done some snipping, and summarising what you've written you appear to be 25% equities, 15% bond and 60% cash/other/NS&I index linked.

Certainly it doesn't look like an asset mix that is going to generate either income, or growth significantly exceeding RPI (especially as the NS&I linkers move over to CPI). Do you want very low headline volatility for some reason?

xeny wrote:

Aminatidi wrote:
My first thought was it looked "light" on equities yet when I run through an X-Ray via MorningStar (HL can't X-Ray Investment Trusts) it I'm 50% equities, 30% bonds and 20% other/cash.

I don't plan on going further into 100% equity funds right now and with it being a drip feed my rough plan was to feed the OEICs until they grow to an amount where there is enough to justify the trading fees on switching into the Investment Trust equivalent.

Any thoughts would be welcome as everything above represents around £115K as of today with around the same spread between the bank as literal cash plus some NS&I linkers.

What's your time horizon and goal? I've done some snipping, and summarising what you've written you appear to be 25% equities, 15% bond and 60% cash/other/NS&I index linked.

Certainly it doesn't look like an asset mix that is going to generate either income, or growth significantly exceeding RPI (especially as the NS&I linkers move over to CPI). Do you want very low headline volatility for some reason?

Horizon is 10-20 years and goal is grow but cautiously as until a year ago this was just money sitting in the bank i.e. my life savings.

I'm not sure where you're getting those numbers from as it simply cannot be 25% equities as Lindsell Train and Fundsmith alone are 30% ish of the pot so far so I'm a bit confused by that analysis.

Or are you're taking the cash still in the bank as a holding then yes, I get it

Part of the dilemma is how quickly to deploy that and to where, rough intention was above for some of it, but as I'd hope you can imagine I'm not going to go from £200K into the bank to £200K in anything overly risky

So long as I'm employed there should be around £2k/month of additional going in between the ISA allowance and the General Account.

I guess we all have our levels of risk, my main thing was whether there's anything appears outright "wrong".

It does make me wonder what kind of cash balance in the bank is sensible.

With a 10/20 year time horizon, I think you are being far too cautious. If nothing else you ought to have some international ITs such as Scottish Mortgage or Monks, Murray International, and maybe something like Henderson Far East or an emerging markets IT. Then Caledonia and/or RIT or an old standby, F & C.

I do not know about the 3 funds you list so maybe they cover it but Capital Gearing, Ruffer and Personal Assets will most likely protect your assets but there are much better ways of giving yourself the opportunity of getting good total returns which is what you want.

Dod

Aminatidi wrote:It does make me wonder what kind of cash balance in the bank is sensible.

What's the money in the bank "for"? If you've got short term commitments then it's entirely appropriate to have it, and it's entirely appropriate to have a fund for the roof needing replacing. Beyond that, what is it buying you?

Apologies for the poor structure below.

This post on drip feeding vs lump sum may be worth reading, and https://ofdollarsanddata.com/how-to-invest-a-lump-sum/

Consider if you're losing say 3% a year to inflation. That means over 20 years you'll have .97^20 =54% of the original value left. Cash long term is itself remarkably risky - it offers you a _guaranteed_ loss.

Let's say you're looking at 10 years of £2000 a month - that's £240,000 (or about half a million if you work 20 rather than 10 years) which you're inevitably going to be drip feeding.

Remember that the longer money is in equities, the lower the risk of losing money on it. That makes the money you've go now particularly valuable - you can afford to take risks with it, as there's time for it to experience a couple of market cycles.

I'd strongly recommend a spreadsheet with your entire portfolio (so yes, including the cash) totalled, and that total used to put a % of the overall portfolio by each asset. Then for each asset put down an estimate of the likely "real" return on that asset, and use the % of the portfolio to work out the overall expected portfolio return. Do the figures you've listed include any pension you may have?

The two things that push back on this reasoning are:

a) presuming you're investing internationally exchange rate movement could be wince worthy over the next few months. Remember though that it could move in either direction, and if the pound weakens then you'll lose on what you haven't invested, and all your further investments from income. Obviously if it strengthens then yes, you'll lose on what is currently invested, but you'll gain on all your future investments.

b) we're a long way in to this market rally - true, but there's no good idea when the end is, and if it all falls over in a months time, you'll at least get your investments from current income at a better price.

Penultimately, personally I dislike absolute return funds - they seem to never do that well when the market is going up, they still seem to drop when the market falls. Hopefully you're at least not paying that 5% initial fee the KIIID mentions on the GC Absolute return fund.

Finally, in my experience, total return from funds aimed at income with those dividends reinvested always seems worse than total return from lower yield funds which are targeting growth. The future of course is not the past my experience was formed in, but I feel it is worth being aware of.

I would concur with the idea of a generalist IT like Witan or F&C.

I've been putting money into those regularly for my grandchildren, and they are giving a return in excess of 10% over the last 16 to 18 years. Alliance is slightly lower, but still over 10%.

Forget bonds, they have done well because of falling interest rates, but they cannot fall much further.

TJH