Member Info for Meconopsis

“Is it better to hold a basket of shares as lgen aviva with 7/8pc divi and use drawdown !!!!”

It depends on your need for certainty vs appetite for risk.

An annuity gives you a guaranteed income either for a fixed period or for life. It comes complete with FSCS backing that protects 90% of your annuity income.

Investing in dividend shares gives you zero certainty. But may come with higher reward.

“Wisdom” would have it that you secure your minimum required income with as much certainty as possible.

“More” income through dividends is only “better” than a lower paying annuity if you can sleep at night through a big financial shock.

This is not financial advice. Please do your own research. Etc.

Just to clarify the tax situation.

You have your £20k ISA limit. For most people that, currently, can be only deployed into either a single stocks and shares ISA or cash ISA. (The Autumn statement introduced a proposal that, from the next tax year, you’ll be able to split your investments across multiple ISA products.)

Dividends reinvested within an ISA do not count towards that £20k.

All income (interest or dividends) and capital gains received from an ISA are tax free.

So, if you choose to pay the dividends out of your ISA to a bank account then it’s completely tax free.

The general rule with a pension is that money is tax free on the way in and taxed on the way out.

With an ISA the money (has already been) taxed on the way in and is tax free on the way out.

“ Whats your overview on phnx, why buy it when lgen is predictable stable high divi, just asking!”

From The Sunday Times, 14 March 2023 -

“ Pushing through a near-4 per cent rise in the dividend to 50.8p leaves the shares offering a dividend yield of 8.6 per cent...

… How sustainable is that dividend? Phoenix has business generating £12.1 billion of free cash, after the repayment of debt and interest costs. That would cover the present £500 million cost of the annual dividend as it stands for more than 20 years without Phoenix writing any new business or M&A deals.”

Apple News - https://apple.news/A8qC9h5ShQ8ScNEyB27aNyw

Web - https://www.thetimes.co.uk/article/dependable-dividend-a-big-attraction-for-phoenix-group-holdings-xh7xbhq0c

“…white men in senior roles, as set out in their charter.”

The charter doesn't mention race or ethnicity.

It is also supported by nearly every leading financial services company in the UK - https://assets.publishing.service.gov.uk/media/649d8720bb13dc000cb2e367/HMT_Women_in_Finance_Charter_List_of_Signatories_June_2023_.pdf

The charter is actually about working towards senior management representing the breakdown of male/female workers in the industry. If you read it you’d understand that.

In the spirit of the season...

https://www.youtube.com/watch?v=kxjwb5cXTI0

“ She should be fired for racism and neglecting her fiduciary duty to shareholders, bringing the organisation into disrepute, etc.”

None of which is true.

“I sense another Natwest episode coming down the line here.“

In what way do you equate a CEO outlining a perfectly legal policy to a Parliamentary Committee to someone who deliberately shared confidential client details with a journalist?

Ah yes! They’re both women!!!!

“The point is, why does she have to sign off on white males and not anyone else?”

Presumably to make sure that senior leaders ask themselves whether the candidate pool was drawn widely enough.

The key question is in how many roles has she rejected the chosen candidate? Probably none.

The thing is that you get what you measure. And it’s a form of measurement.

That we’re having this discussion itself illustrates the issue.

“I’m a white male, who is being actively shunned for a role - so I’m going to complain about the company’s performance and sell all my shares.”

Nice way to demonstrate the casual misogyny and racism that still pervades the top levels of most companies.

“It’s unreasonable to promote based on colour or gender (whatever that may be nowadays).”

Read what she said. It’s not about promotion based on colour or gender. It’s about making sure that the candidates aren’t from the same, narrow, self-perpetuating demographic - overlooking often better candidates.

Spend just one minute in any senior management meeting in a financial services and you’d spot the lack of diversity.

3-4 levels down in most organisations the demographic split is more representative of society.

Spoken as a straight white male of a certain age.

This isn’t about being “right on” - it’s that diversity has been repeatedly shown to improve performance.

When I was at LGEN the name, sex and age of candidates was removed from CVs before I could review them. It made for a much better process.

"Amanda might have to go now this won't help the share price"

Why's that? IMV it's not an unreasonable thing to do.

In reality, anyone at CxO level is ALWAYS going to get the tacit sign-off of the CEO on a senior hire within their team as they need to know that the CEO is going to have confidence in that person. That often extends to reports of reports at CxO level. As I consultant I've often had to meet with the CEO when being hire within, say, the CFO team.

That looks interesting Redinjun.

There's lots of ways to approach decumulation and I'm sure many would disagree with my approach. The key thing is to have a strategy that you're comfortable with and that you understand.

I am constantly surprised by the number of my friends who have financial advisors and just leave them to it. "What are in invested in?" - "Dunno".

You're most welcome.

I'm too young to get a decent annuity quote - despite the rates now on offer.

My approach FWIW...

At the end of last year I moved from 100% invested in tech funds to now being invested 70% in dividend shares and 30% funds. The shares provide 180% of my income need - so there's plenty of headroom if an individual company fails to pay out or cuts its dividend. I don't need the income yet, but any excess will be reinvested to provide cover against inflation. The funds are there to provide growth. I'll rebalance back to 70:30 once the funds grow to 40%.

For the dividend shares I've tried to only buy stuff I understand; believe is well managed; and I think is undervalued. Saying that, I have strayed into buying shares off the back of recommendations in Questor - and invariably regretted it and sold. Overall, my shares are up 6% with dividends reinvested, which represents a loss of around 1.5% on the original capital (but also includes losses I've made on investments I've regretted and exited). I'm now comfortable that I understand why I'm invested in everything I own.

I rotated out of funds because I realised that I was going to be psychologically uncomfortable selling down funds to provide an income. I'm happier following the maxim that "a Southern gentlemen never sells his capital". Even though, intellectually, I know that staying invested in funds will give more money overall.

My realisation was that certainty of income trumps overall size of wealth. And that I'm, anyway, much more likely to die with an excess of money than not. (No, you can't have any!)

I am trying to follow Buffett's hamburger wisdom with regards the capital value of my shares - https://www.roywalkerwealth.com/2018/01/warren-buffett-on-hamburgers.html#

I did look at income funds, but couldn't find one that was "passive" enough for me at the time. My general experience with actively managed funds has been negative as I've never believed that the fees reflect performance. I've subsequently realised that there are some higher yield indexes, such as the FTSE 350 Higher Yield Index, and some funds that track the index (L&G has one for the FTSE 350 one).

I'm not recommending my approach as I'll have no idea whether it's a good idea for another five years!

Gwm121 - one thing I've realised as I've repositioned my SIPP to take an income is that accumulating is far easier to strategise than decumulation. And made even more complicated if you potentially want to leave money to children.

A good place to start for annuity quotes is https://www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/compare-annuities

It's run by UK government and will give you quotes from a good range of companies.

One thing to remember is that drawdown vs annuity isn't a binary option. You could use part of your pension to buy an annuity and create a minimum income floor - then use the rest for drawdown.

You can also now buy fixed term annuities where you get some/most/all your money back after the annuity period. IMV this is particularly useful if you need to bridge the gap between stopping work and getting your state pension.

You could also go for drawdown whilst you can be bothered to actively manage what's going on - and then buy an annuity at the point in your dotage where managing stuff becomes a chore (and at which point you'll probably get very good value).

There is a horrendous lack of self-help information on HOW to drawdown. Not helped by much of it being based on a reliance on bonds, which hasn't worked out too well recently.

I'm too cheap to want to pay for an IFA. Particularly as every piece of "independent" financial advice I've ever received has been unbelievably self-serving - even when I've been lucky enough for my company to be paying for it.

I've also take the view that if I don't want to listen to the advice of a young financial adviser. And am suspicious that anyone still working as a financial adviser when they're old enough that I want to listen to them frankly isn't very good. They should be retired!

A couple of books that are worth a good read:

- Beyond the 4% rule, which is one of the few books on withdrawal rates written by a Brit

- Living Off Your Money: The Modern Mechanics of Investing During Retirement with Stocks and Bonds, which is a worthwhile but VERY difficult read

There's good review of the latter book at https://monevator.com/review-living-off-your-money-by-michael-mcclung/

Clicking links off that article is also worthwhile and there's lots of good thinking on that site.

"Well robleo mate, this is not just your problem. It's almost everyone's problem including myself. "

Well put and +1.

My view is that you sell if:

- something has negatively changed in why you chose the shares

- you don't believe that the price will realistically recover

- it's keeping you up at night and you can afford to exit

I don't believe that a single management mistake is enough to exit - unless I no longer understand what the management team is doing. It's interesting to note that Buffett usually patiently waits for bad news before buying a target company - as long as he believes that it's a one time error. It's good to look up his history with Amex.

My stinker this year has been DEC. Bought for a high yield and because I read (and understood) the (clever) business model. I ended up -30%. The business model was unchanged and the sector out of love. But I no longer understood what the management team were doing. It got to the point where the first thing I did every morning was check the share price. I exited at -35%.

I've been sat on a large, negative position on a -25% position in PHNX for most of the year. I understand the business and respect the management team. Friends work there and tell me that the place is well run. So, there's nothing in the business that scares me and my view is that most of the share price is because of the macro environment (interest rates and SVB) and because the whole sector has been unloved. I'm currently at -15% and happy to hold.

I've also been largely sat on a -20% position in BDEV, which I bought because at one point it was trading at 35% discount to asset value; sat on lots of cash in hand; sat on a large land bank and well run. I also bought BDEV because it operates at the more premium end of the housing market - so has the ability to go "lower" cost if it chooses. It's much harder to "go premium" if you operate at the cheap end of a market than the other way around. I'm now +30% because the interest rate outlook is better.

I'm currently -20% in ART and buying more. They've just had a profits miss, which will pass and is thinly traded - so every piece of news results in a share price overreaction.

All of which makes me sound like a loser(!). Overall, the UK shares in my portfolio are up 6% this year in what has been a pretty rubbish year. So, I've won more than I've lost, which is all you can ask for.

My view on "paper losses" is that they're only that if you're still within your envisaged holding period. So, if I bought to hold for 10 years+ then it's a paper loss. If I bought in the expectation of a "quick" profit then it's a loss.

This is worth a read if you've not read it before. Warren Buffett on hamburgers - https://www.roywalkerwealth.com/2018/01/warren-buffett-on-hamburgers.html#

My understanding of the Ferovinum deal is that it’s essentially a deal where SMWS can choose to sell stock at a discount of 30% to the agreed B2B trade value. It provides fast access to £15m of cash flow without raising debt or having to fire-sale stock.

It’s not the retail value, which includes VAT, duty, bottling, shipping.

Just to provide confusion, the agreed valuations look to be above the asset values in the accounts - suggesting the stock has been “prudently” valued.

“Dogs.. why is aviva best income share in your opinion... isnt leg n gen higher divi and more stable? What about vodafone 10 pc and ripe for takever as it bottoms out.”

I wouldn’t argue you Av. over LGEN (over PHNX over MNG) - each has their own merits and each are surprisingly different businesses under the hood.

But, IMV, all of them are way better propositions than VOD, which is laden with debt; IMV poorly led; and struggles to impose a corporate culture over the various national cultures in its operating entities. The amount of duplicated effort within the operating entities is horrendous.

There is the oft-repeated Buffett quote that “It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

Having variously worked in Av., LGEN, PHNX and VOD (across four countries), my view is that the first three are good, well-run companies that have latterly been out of favour; whereas VOD doesn’t quite make my hurdle rate for “fair”.

VOD is great if you want to take a punt on a takeover. But, IMV, a company in decline that is more dividend trap than ‘value’ income share.

"If the index-linked bonds are being held to pay for index-linked annuities, then LGEN's receipts on those bonds and payments on the corresponding annuities will rise about equally. So no gain from inflation."

Remember that only circa 30% of annuities are index-linked. And most of those have a cap (IIRC of 6%) on index-linked increases.

Whilst it's easy to get focused on bonds and gilts, the significant change of direction that Nigel Wilson brought with his "inclusive capitalism" agenda has been the buying of hard assets that provide (almost always) inflation-linked returns on assets with asset lives far greater than the likely annuities they back.

This £1bn+ commitment to redevelopment in Cardiff is a great example of what's being done - https://group.legalandgeneral.com/en/newsroom/press-releases/legal-general-brings-total-real-assets-investment-in-cardiff-to-1-billion-as-regeneration-continues-with-200m-build-to-rent-scheme

As is the £350m+ commitment to Bristol - https://group.legalandgeneral.com/en/newsroom/press-releases/bristol-city-council-secures-350m-investment-from-legal-general-for-bristol-temple-island-regeneration

And regeneration of Sunderland - https://group.legalandgeneral.com/en/newsroom/press-releases/legal-general-and-landid-top-out-in-sunderland

Whilst it's been the case that pension funds have owned hard assets for years, it was much less common for life insurance companies to own them. A (in my view) Nigel Wilson has been very clever about how the investment has been targeted. If you look at those schemes you'll see:

- (good quality) build to rent housing - giving (generally) inflation-linked returns

- secure, long-lease lettings to central and local government, which will have an inflation linkage on rent reviews

- good quality office space, but only if there is a proven local shortage

- hotels

- a lack of retail(!)

[Hotels might seem a little odd, but come with a huge tax perk that 100% of the build cost can be written off in the first year.]

Taken at 65, an annuity will typically pay out for 20 years. Meanwhile those hard assets will be paying out for much longer.

As an example - student accommodation built for the University of the Creative Arts and then let for 35 years on a full repairing basis - https://group.legalandgeneral.com/en/newsroom/press-releases/legal-general-secures-student-blocks-at-university-of-the-creative-arts-farnham

Personally, I think Mr Wilson has been much more canny than people currently give him credit for.

“In my experience, when companies say that they 'benefit' from higher inflation…”

Life insurance companies prosper on high inflation; high interest rates and high morbidity.

Only around (IIRC and I used to work for L&G) 30% of annuities are index linked. So high inflation erodes the value for the annuitant whilst high interest rates (relatively) protect the annuity provider. Higher morbidity rates (thanks COVID) reduce life expectancy - reducing overall payouts.

All of this will take 10 years+ to feed through - which is why investors get less excited about it than they should.

The 30% of annuitants with index linked annuitants generally overpay for the index linking in the first place (see below).

[Three, fun fact sidebars…

People who voluntarily opt to buy an annuity are statistically likely to live longer than those forced to buy an annuity - so get penalised in the rate they get.

Similarly, people who voluntarily opt to index link their pension are statistically likely to live longer than those who don’t. So get a worse rate.

The people who index link their annuity effectively shift their income from their “healthy” years when they can spend the money, to their “longevity” years when their poor health prevents them from spending it. So end up paying a greater proportion of their oen wealth on care costs.]

“I’d have preferred another dividend reinvested sub 500 before it’s rise”

It’s the case that we all want the share price to go up - except for our dividend reinvestments.

"Funny how Porchyboy rarely posts during rallies."

They are currently baiting peeps on VOD, BATS and BRBY.