Income generating assets

[Gnome_parody]

As an alternative to BTL, what would you suggest to someone who is looking to maximise income, subject to a 'sensible' level of risk?

Thanks

[Groat]

What about an annuity, Sid??

Oh! I forgot! You're Not_an_IFA!!



(couldn't resist)

Edited by Groat on Sunday 20th October 16:34

[FredClogs]

Depends on what level of income you want and what you think is an acceptable level of risk.
Ftse tracker will yield ~3%, global equity tacker less but less risk of short term capital loss.

Adventurous well manged corporate bond fund could yield 4 to 5% but increased risk of capital loss. Junk bond fund 6 to 7%. Venture capital fund, a tax efficient way to take more risk for more return.

There's not a lot of free money out there, if you can beat inflation without taking any serious risk you'll do well.

[Gnome_parody]

FredClogs said:

Depends on what level of income you want and what you think is an acceptable level of risk.
Ftse tracker will yield ~3%, global equity tacker less but less risk of short term capital loss.

Equity risk is too high for this person. Global tracker will be more diversified but not necessarily less risky.

FredClogs said:

Adventurous well manged corporate bond fund could yield 4 to 5% but increased risk of capital loss. Junk bond fund 6 to 7%.

Which corporate bond funds are you thinking about? Blackrock IG corporate fund is yielding 2.1%
But corporate bonds would be much less risky than equities from a capital security perspective.

FredClogs said:

Venture capital fund, a tax efficient way to take more risk for more return.

Venture Capital is very high risk, so totally inappropriate.

FredClogs said:

There's not a lot of free money out there, if you can beat inflation without taking any serious risk you'll do well.

Thanks for your input - agreed that beating inflation without significant risk is difficult. I think BTL might be the most appropriate approach for my friends.

[Gnome_parody]

Groat said:

What about an annuity, Sid??

Oh! I forgot! You're Not_an_IFA!!



(couldn't resist)

Moronoic trolling as ever, groat. How boring.

[Derek Chevalier]

Gnome_parody said:

As an alternative to BTL, what would you suggest to someone who is looking to maximise income, subject to a 'sensible' level of risk?

Thanks

When you say maximise income, are you able to accept erosion of capital?

https://www.timelineapp.co/blog/retirement-income-...

BTW it would be useful to hear the arguments for BTL for retirement income.

[Gnome_parody]

Derek Chevalier said:

When you say maximise income, are you able to accept erosion of capital?

https://www.timelineapp.co/blog/retirement-income-...

BTW it would be useful to hear the arguments for BTL for retirement income.

Thanks, but that isn't a relevant article for my friend's situation - this isn't retirement income and therefore they aren't in the position of trying to fund their retirement using income & capital growth for their remaining lifetimes.

The priority here is to use capital to generate income, trying to maintain the value of that capital so that it is available to be used elsewhere in the future.

[Derek Chevalier]

Gnome_parody said:

Derek Chevalier said:

When you say maximise income, are you able to accept erosion of capital?

https://www.timelineapp.co/blog/retirement-income-...

BTW it would be useful to hear the arguments for BTL for retirement income.

Thanks, but that isn't a relevant article for my friend's situation - this isn't retirement income and therefore they aren't in the position of trying to fund their retirement using income & capital growth for their remaining lifetimes.

The priority here is to use capital to generate income, trying to maintain the value of that capital so that it is available to be used elsewhere in the future.

Can't see why you can't use the same approach - might just need to accept a lower withdrawal rate in an attempt to avoid eroding the capital.

[FredClogs]

Gnome_parody said:

FredClogs said:

Depends on what level of income you want and what you think is an acceptable level of risk.
Ftse tracker will yield ~3%, global equity tacker less but less risk of short term capital loss.

Equity risk is too high for this person. Global tracker will be more diversified but not necessarily less risky.

FredClogs said:

Adventurous well manged corporate bond fund could yield 4 to 5% but increased risk of capital loss. Junk bond fund 6 to 7%.

Which corporate bond funds are you thinking about? Blackrock IG corporate fund is yielding 2.1%
But corporate bonds would be much less risky than equities from a capital security perspective.

FredClogs said:

Venture capital fund, a tax efficient way to take more risk for more return.

Venture Capital is very high risk, so totally inappropriate.

FredClogs said:

There's not a lot of free money out there, if you can beat inflation without taking any serious risk you'll do well.

Thanks for your input - agreed that beating inflation without significant risk is difficult. I think BTL might be the most appropriate approach for my friends.

Here is an interesting investment I found with the HL app: https://www.hl.co.uk/funds/fund-discounts,-prices-...

[Groat]

Gnome_parody said:

Groat said:

What about an annuity, Sid??

Oh! I forgot! You're Not_an_IFA!!



(couldn't resist)

Moronic trolling as ever, groat. How boring.

Now now sid! Remember abusive quarreling is why you're banned.

[Gnome_parody]

Derek Chevalier said:

Can't see why you can't use the same approach - might just need to accept a lower withdrawal rate in an attempt to avoid eroding the capital.

Sure but, by definition, if you're trying to extract income that exceeds the yield on the portfolio then you're reducing the value of the capital, even if capital values are stable.

Regardless, it's the underlying strategy I'm trying to find ideas for - 2.1% yield on IG corporates isn't that appealing. I should probably be looking at illiquidity risk rather than credit risk to enhance returns.

Edited by Gnome_parody on Sunday 20th October 17:24

[Gnome_parody]

FredClogs said:

Here is an interesting investment I found with the HL app: https://www.hl.co.uk/funds/fund-discounts,-prices-...

Thanks - it is mainly high yield (70% sub-investment grade and the rest BBB). Plus the income yield is higher than the gross redemption yield, so clearly a capital loss is expected on many of these bonds.

That said it, could certainly form part of a solution.

Thanks

[Gnome_parody]

Groat said:

Now now sid! Remember abusive quarreling is why you're banned.

How would you know why someone had been banned?

[kiethton]

Is it the diversification from property that you’re looking for - else some of the listed REITs in defensive sectors e.g GP centres may fit the bill?

[Gnome_parody]

kiethton said:

Is it the diversification from property that you’re looking for - else some of the listed REITs in defensive sectors e.g GP centres may fit the bill?

Good idea, thanks.

[Derek Chevalier]

Gnome_parody said:

Derek Chevalier said:

Can't see why you can't use the same approach - might just need to accept a lower withdrawal rate in an attempt to avoid eroding the capital.

Sure but, by definition, if you're trying to extract income that exceeds the yield on the portfolio then you're reducing the value of the capital, even if capital values are stable.

Regardless, it's the underlying strategy I'm trying to find ideas for - 2.1% yield on IG corporates isn't that appealing. I should probably be looking at illiquidity risk rather than credit risk to enhance returns.

Edited by Gnome_parody on Sunday 20th October 17:24

You're not necessarily reducing the capital as you would hope to get long term growth on the underlying portfolio. Depends how much income is required and how much capital (inflation adjusted?) is acceptable, if at all.

It's not clear why you'd want or need to take on illiquidity/unnecessary credit risk.

Multi asset portfolios from Vanguard et all are typically a mix equities for growth and IG bonds for dampening portfolio volatility in a mix to suit your objectives/appetite. Does it need to be any more complicated?

[Gnome_parody]

Derek Chevalier said:

You're not necessarily reducing the capital as you would hope to get long term growth on the underlying portfolio. Depends how much income is required and how much capital (inflation adjusted?) is acceptable, if at all.

It's not clear why you'd want or need to take on illiquidity/unnecessary credit risk.

Multi asset portfolios from Vanguard et all are typically a mix equities for growth and IG bonds for dampening portfolio volatility in a mix to suit your objectives/appetite. Does it need to be any more complicated?

Typical multi-asset portfolios have more significantly more mark-to-market risk than IG corporate bonds, but less mtm exposure than equities. They do still have significant drawdown risk and if you need to liquidate capital after a drawdown, then your achievable future income will be at risk even if over the long term such strategies might achieve decent returns.
Given where credit spreads and yields are at the current time, significant capital appreciation is unlikely.

Taking second last point, if you don't need liquidity, then getting paid for illiquidity is an obvious way of efficiently increasing returns.

[Derek Chevalier]

Gnome_parody said:

Derek Chevalier said:

You're not necessarily reducing the capital as you would hope to get long term growth on the underlying portfolio. Depends how much income is required and how much capital (inflation adjusted?) is acceptable, if at all.

It's not clear why you'd want or need to take on illiquidity/unnecessary credit risk.

Multi asset portfolios from Vanguard et all are typically a mix equities for growth and IG bonds for dampening portfolio volatility in a mix to suit your objectives/appetite. Does it need to be any more complicated?

Typical multi-asset portfolios have more significantly more mark-to-market risk than IG corporate bonds, but less mtm exposure than equities. They do still have significant drawdown risk and if you need to liquidate capital after a drawdown, then your achievable future income will be at risk even if over the long term such strategies might achieve decent returns.
Given where credit spreads and yields are at the current time, significant capital appreciation is unlikely.

Taking second last point, if you don't need liquidity, then getting paid for illiquidity is an obvious way of efficiently increasing returns.

I'm not sure why you've mentioned drawdown when you said HY and REITS were a possibility? Both got caned in the GFC.

You mentioned the potential need to liquidate capital but then mentioned illiquidity - I'm really confused now

[Gnome_parody]

Derek Chevalier said:

I'm not sure why you've mentioned drawdown when you said HY and REITS were a possibility? Both got caned in the GFC.

I mentioned either could be part of a solution, You appeared to be suggesting that it was as simple as using a multi-asset strategy.
Drawdown is more of a risk if you have to liquidate capital / sell units to achieve your yield target, which you were suggesting previously (assuming i understood your previous post).

Derek Chevalier said:

You mentioned the potential need to liquidate capital but then mentioned illiquidity - I'm really confused now

sorry for the confusion - the intention is to liquidate capital at some distant future point, hence plenty of time to benefit from illiquidity risk.

Edited by Gnome_parody on Sunday 20th October 18:59

[Derek Chevalier]

Gnome_parody said:

Derek Chevalier said:

I'm not sure why you've mentioned drawdown when you said HY and REITS were a possibility? Both got caned in the GFC.

I mentioned either could be part of a solution, You appeared to be suggesting that it was as simple as using a multi-asset strategy.
Drawdown is more of a risk if you have to liquidate capital / sell units to achieve your yield target, which you were suggesting previously (assuming i understood your previous post).

Derek Chevalier said:

You mentioned the potential need to liquidate capital but then mentioned illiquidity - I'm really confused now

sorry for the confusion - the intention is to liquidate capital at some distant future point, hence plenty of time to benefit from illiquidity risk.

Edited by Gnome_parody on Sunday 20th October 18:59

Why don't you give some concrete numbers

E.g.

Starting capital?
Income required per year (inflation adjusted)?
When will capital be needed (soonest date)?
Do you want capital to grow with inflation?