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An income from ETFs in retirement (Part 2): Example portfolios

An income from ETFs in retirement (Part 2): Example portfolios post image

Here at Monevator, a frequent request is for a post on leveraging the low costs and in-built diversification of ETFs in order to generate an income in retirement.

And as the resident Monevator writer on all things retirement, it falls to me to respond.

In my previous article I explained why I thought that ETFs weren’t necessarily the proverbial answer to a maiden’s prayer when it came to generating an income in retirement.

In particular, I highlighted the lower yields from traditional total market ETFs, and the travails of the iShares’ FTSE UK Dividend Plus ETF (IUKD). To get the most out of this article, read that article first.

But I also undertook to present two example ETF portfolios.

The first portfolio would be drawn from the very biggest ETF providers. It would boast very low charges. It would aim to deliver a globally-diversified passive income, from equities and fixed income investments, of the same sort you’d expect to get from an alternative strategy such as a global investment trust or fund.

The second portfolio would shop for so-called ‘smart’ income-seeking ETFs – again with a global dimension – and deliberately aim for a diversified spread of ETFs and ETF providers. The strategy – through an element of diversification – would try to minimise the downsides of ETF algorithms blowing up, à la IUKD.

It’s a small world

In this article I’m going to focus on the first of these case studies, the passive market cap index tracking income portfolio. As a bonus, I’ve created not just one portfolio, but two.

That is, two takes on the same thing, but from two different providers. The two 800lb gorillas of the ETF world, in fact: iShares (once owned by Barclays, now part of BlackRock), and Vanguard.

Between them, these behemoths control 55% of the global ETF market. They have used their scale to drive down ETF costs.

One consequence is that while iShares and Vanguard are recording year-on-year net inflows into their funds, customers are deserting the smaller (and usually more expensive) players such as HSBC, Deutsche Bank, Lyxor, UBS, and Amundi.

Both Vanguard and iShares again cut some of their fees in December – in iShares’ case following hefty cuts to its so-called ‘Core’ range of low-cost ETFs in October. Each cut strengthens the theoretical appeal of ETFs to investors wanting a retirement income, by increasing the cost gulf between the actively-managed investment trusts I tend to favour, and passive ETFs.

There’s no reason why a private investor would need or want all their ETFs to come from one fund house, as I’ve done here. Indeed, it might even be considered a small notch up on the risk-o-meter, in that you’d have all your eggs in one basket in the very unlikely occurrence of one of these giants failing.

I’m doing it for comparative purposes. You can roll your own portfolios to suit.

A retirement income using Vanguard ETFs

Let’s start by building a passive portfolio using ETFs from Vanguard.

Owned by its customers rather than a third-party bank or other financial institution, Vanguard has – appropriately enough – been in the vanguard of the push to drive ETF costs down.

I’ve selected six low-cost vanilla ETFs, with a two-thirds equity and one-third fixed income split, as follows:

Ticker ETF OCF Yield
VUKE FTSE 100 UCITS ETF 0.09% 3.83%
VERX FTSE Developed Europe ex UK UCITS ETF 0.12% 2.81%
VAPX FTSE Developed Asia Pacific ex Japan UCITS ETF 0.22%  2.83%
VUSA S&P 500 UCITS ETF 0.07% 1.67%
VGOV U.K. Gilt UCITS ETF 0.12% 1.60%
VECP EUR Corporate Bond UCITS ETF 0.12% 0.38%

Source: Author’s search of provider data.

Clearly, one can play tunes with this.

  • As presented, Japan is missing. Vanguard does not yet appear to have an ETF embracing all of developed Asia Pacific including Japan, so investors wanting exposure to Japan could add Vanguard’s FTSE Japan UCITS ETF.
  • Emerging markets exposure? That would be Vanguard’s FTSE Emerging Markets UCITS ETF (VFEM, on an OCF of 0.25%).
  • The inclusion of Vanguard’s European-focused EUR Corporate Bond UCITS ETF? Simply because Vanguard presently has no UK-only (or even UK-mainly) corporate bond ETF offering.

Readers might also wonder why individual regional ETFs have been chosen, rather than Vanguard’s all-in-one solution, the company’s FTSE Developed World UCITS ETF. (This is denominated in dollars under the ticker VDEV, on a yield of 1.97%, and in pounds on a ticker of VEVE.)

The answer: cost. With an OCF of 0.18%, it’s a pricier option than Vanguard’s FTSE 100 UCITS ETF (0.09% OCF), FTSE Developed Europe ex UK UCITS ETF (0.12% OCF), and S&P 500 UCITS ETF (0.07%) products.

Remember that as with any other unhedged investments you make overseas, you face currency risk with foreign market tracking ETFs.

Currency risk simply describes how the fluctuating level of the pound versus other currencies will in turn cause both income and capital values to vary. This occurs irrespective of what currency your fund is denominated in (and to be clear it’s a factor with most investment trusts and other funds, too).

In general, the ETFs cited in this article and most commonly offered to UK investors are Irish-domiciled1 rather than hailing from the United States.

Irish-domiciled will be most familiar to UK-based investors, but readers should note that there are circumstances where (according to what I’ve read—I’m no tax specialist) United States-domiciled ETFs are subject to a lower overall tax take.

A retirement income using iShares ETFs

Now, let’s now look at building a similar portfolio using ETFs from iShares. Here’s a similar table to the Vanguard table, in identical order, following the same logic of a regional equity focus, and a one-third allocation to fixed income.

Ticker ETF OCF Yield
ISF iShares Core FTSE 100 UCITS ETF 0.07% 3.86%
EUE iShares EURO STOXX 50 UCITS ETF 0.35% 3.36%
IPXJ iShares MSCI Pacific ex‑Japan UCITS ETF 0.60% 3.19%
IUSA iShares S&P 500 UCITS ETF 0.40% 1.35%
IGLT iShares Core UK Gilts UCITS ETF 0.20% 1.85%
SLXX iShares Core £ Corporate Bond UCITS ETF 0.20% 2.91%

Source: Author’s search of provider data.

As with the Vanguard portfolio, there are a few points to note, in addition to the broad principles laid out above.

Chief among these is that iShares’ touted low costs aren’t necessarily all that much use to income investors wanting an easy life, especially when ill or inform in old age. That’s because some of iShares’ lowest-cost ETF products—from its ‘Core’ range—aren’t available on an income-paying basis.

Instead, with the low-cost ‘Core’ range, the income is often (but not always) rolled up into the price – effectively turning them into what the investment fund world calls accumulation units, rather than income units.

iShares’ attractive-looking Core S&P 500 tracker, for instance, is available with an eye-catching OCF of just 0.07%, but if you want an actual income, you’ll have to either periodically sell some of your capital, or buy an iShares ETF under a different ticker that does offer income – in this case, iShares’ IUSA iShares S&P 500 UCITS ETF (not iShares Core S&P 500 UCITS ETF), which comes with a much heftier OCF of 0.40%.

So, in each case above – bearing in mind that this is an article focusing on an ETF-derived natural income in retirement – I’ve listed ETFs that actually do pay out an income.

Diehard ETF proponents of passive investing, of the persuasion that regularly appear in the comment sections on these articles, may not see periodic selling of ETF capital (at the market’s lows, as well as its highs, as required) in order to generate an income to be a problem.

Each to their own, but that strategy is obviously outside the scope of this article – and would render the table above incompatible with the Vanguard one I listed earlier for comparison purposes.

That said, should investors be interested in the ‘sell to create an income’ strategy, here are the ETFs in question:

Ticker ETF OCF
CSSX iShares Core EURO STOXX 50 UCITS ETF 0.10%
CPXJ iShares Core MSCI Pacific ex‑Japan UCITS ETF 0.20%
CSPX iShares Core S&P UCITS ETF 0.07%

Source: Author’s search of provider data.

Passive ETFs in retirement: the bottom line

So what conclusions can we draw from this discussion?

To my mind, there are four:

  • The income to be expected from such a portfolio of passive ETFs is lower than that offered by leading income-centric investment trusts – but so too are the fees.
  • In the case of individual ETFs, it is possible to draw a more favourable comparison between ETFs and investment trusts: Vanguard’s FTSE 100 VUKE ETF, for instance, offers an almost identical yield to that of City of London Investment Trust (one of the lowest-priced on the market), but at a cost that is just one-fifth of City of London’s 0.43% OCF. That said, while their investment universes overlap, they are not identical.
  • ETFs aren’t as simple as is sometimes made out. Which geography or index to track, currency risk, and tax regime – even getting the right ticker – all serve to complicate life. (Investment trusts present some of these challenges too, and they usually won’t insulate you from say currency risk on your underlying holdings. But trust managers can do some of the work for you, and they can use their trust’s income reserves to smooth some of the ups and downs when it comes to the income you receive.)
  • Vanguard’s ETFs are more ‘income-friendly’ than iShares’ ETFs: for investors wanting income and low costs, Vanguard looks like the place to go.

If this route is appealing to you, then you may also want to read up on using cash buffers to stabilize your retirement income from ETFs.

In my next post I’ll see what a basket of Smart Beta-style ETFs might deliver for income seekers.

Note: Data variously sourced from Vanguard, iShares, Morningstar, the Financial Times, and Hargreaves Lansdown. Do catch up on all Greybeard’s previous posts about deaccumulation and retirement.

  1. Then-chancellor George Osborne pledged to abolish stamp duty for shares purchased in exchange-traded funds in 2013 to try to encourage the growth of UK-domiciled ETFs, but so far the industry has failed to respond with new UK-based launches. []

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{ 36 comments… add one }
  • 1 The Rhino April 20, 2017, 2:55 pm

    interesting about the ishares accumulation type etfs – my understanding prior to reading this article was that accumulating etfs were rare. maybe thats changing?
    these would be great for the opposite purpose, i.e. those accumulating rather than seeking an income yet.
    one of the major factors putting me off etfs was the ball-ache of reinvesting income, both in terms of admin and cost. one of the benefits from my perspective is being able to buy an accumulating fund and then just forget about it.

    so the yield from an etf portfolio can afford to be approx 0.4-0.5% lower than the equiv basket of ITs for the two to break even as I’m assuming thats about what the difference in cost is. I don’t spend enough time looking at yields of etfs and ITs to have a feel for whether thats realistically achieved?

  • 2 Grumpy Old Paul April 20, 2017, 3:29 pm

    @Greybeard,
    Thanks for a really interesting post which is likely to be of direct relevance to me in a few months. A few points regarding asset allocation:

    a) Are you assuming equal weighting of each ETF?
    b) Because of the very heavy weighting within the FTSE 100 to the top 10 shares by market cap, would it not be advisable to use a FTSE 250 and/or a FTSE 100 equal-weighted ETF as well for the UK equity portion of the portfolio?
    c) Look at at the difference between the yields of the Vanguard and iShares ETF. I’m not too keen on corporate bond investments (OEICs or ETFs) because they tend to be highly correlated with equities.
    d) As a UK retiree, I’d be minded to look at hedged ETFs (if they exist) for all non-UK investments because, in retirement, one wouldn’t want one’s income to fluctuate wildly with currency movements. I’d be looking at hedged global bond ETFs (if they exist) too.
    e) Would you recommend rebalancing the portfolio? (various of approaches covered in other posts by @Monevator)
    f) What about the elephants in the room: declining intellectual faculties in retirement and/or a partner who is not financially-savvy?

    The final point makes me inclined to go for the nearest possible to a ‘fire-and-forget’ portfolio irrespective of the investment vehicle chosen. At the risk of having my wrists slapped for being off-topic, I’ll state that I’m considering two options as alternatives to ETFs:

    a) A portfolio of venerable investment trusts split between equity and bond trusts. Each trust would have to have an acceptable proportion of UK and overseas holdings. About 20 trusts so as to reduce manager risk. Initial investment either staggered to reduce sequence of returns risk or delayed until the yield on the FTSE 100 index is > 5%. The latter option obviously attempts to lock into a relatively high monetary income.

    b) One of the L&G multi-index income funds or similar offerings as they appear from other managers.

    I look forward to your next post on smart ETFs.

  • 3 Mark April 20, 2017, 4:04 pm

    It would be interesting to back-test, over perhaps 10 years, how the above to ETF strategies performed against a basket of equity income investment trusts. Against received wisdom, my guess is that income would have grown faster and been more consistent, and capital growth been greater, with the ITs.

  • 4 The Greybeard April 20, 2017, 4:06 pm

    @Grumpy Old Paul: I’m not assuming anything about weighting — I think people need to make their own decisions. But yes, as listed, weights are equal. I did think about the FTSE 250 angle. iShares offer a 250 ETF (MIDD); Vanguard don’t (yet), and I did want comparability. That said, the FTSE’s dividend behemoths are mostly in the FTSE 100, so the FTSE 250’s yield is lower, and one might asume that retirees would want to maximise yield. Re: your point (f), as I have said many times, this is where ITs come in, and why my own SIPP portfolio is becoming geared towards them.

  • 5 The Rhino April 20, 2017, 4:13 pm

    @GOP – thankfully (f) no longer an elephant in a room – http://www.bbc.co.uk/news/health-39641123

  • 6 Grumpy Old Paul April 20, 2017, 5:16 pm

    @The Rhino,
    We can live in hope! But DBM is ‘being tested’ in cancer patients and the list of side-effects of trazodone given on Wikiedia is lengthy with 7 having an incidence of > 10%.
    Any really effective drug for neurodegenerative diseases has to be safe for hundreds of millions of people to take for decades. It also has to be or become cheap!
    Probably OK for you youngsters to plan on the assumption that you will remain compos mentis until you shuffle off but for a sixty-six year old bloke like myself it is probably advisable to be less sanguine.

  • 7 Andy April 20, 2017, 7:34 pm

    @Greybeard

    VMID is a Vanguard FTSE 250 tracker ETF.

  • 8 Mark April 20, 2017, 8:02 pm

    @ Grumpy Old Paul, re the investment trust option, I’d be tempted to make the portfolio all-equity rather than including bonds. This is partly because bonds are at such a high point within the historical valuation range, impacting yields and threatening capital values, but also because investment trusts carry such sizeable revenue reserves that the income from them is a lot less volatile than that from ETFs or individual stocks.

    If the portfolio is diversified as you suggest, by fund manager, geography, sector (maybe include some commercial property, infrastructure and, crucially, private equity) and style, the prospects of a robust cinema that grows ahead of inflation over the medium term should be good.

  • 9 The Greybeard April 20, 2017, 9:50 pm

    @Andy,
    Well I never! Dunno how I missed that one — I have HSBC’s HMCX ETF in a couple of ISA growth-centric portfolios, and have sorely missed a Vanguard equivalent. That said, I see it was introduced in the last couple of years, so perhaps that explains it. The yield, however, is significantly lower than the FTSE 100’s yield, so I don’t think that it really changes the overall picture. From a personal perspective, though, a VERY big “thank you”. That’s the power of this reader-to-reader interaction.

  • 10 Andy April 20, 2017, 9:53 pm

    No probs, I’m a fan of the FTSE 250 and invested into VMID last year.

  • 11 Alex P April 20, 2017, 10:16 pm

    Amazing article. Can’t believe I don’t have to pay for this!

  • 12 Optimistic April 20, 2017, 10:33 pm

    It I worth bearing in mind that the ‘accumulation’ ETF’s if held in a taxable account are not quite as straightforward as dividends or accumulation units in an OEIC or Unit trust. I am not a tax expert but my understanding is that the following applies.

    The income is deemed to be paid 6 months after the end of the ETF’s financial year, you look up the excess reportable income figure and there is no equalisation, if you hold the shares at the end of the accounting period you are deemed to receive the income 6 months later, whether you still own the shares or not. This may well fall into a different tax year. It is an additional complication, albeit it might offer tax planning opportunities.

    The excess reportable income may effect, to a lesser extent, the conventional income paying ETF’s, better held in a tax sheltered account if you want an easy life…..

  • 13 Troy @ Market History April 20, 2017, 11:05 pm

    I invest only in ETF’s, but I do so for the capital gains and not the dividends. Most ETF’s are really good at tracking underlying markets that you otherwise can’t invest in (e.g. indexes, commodities, currencies).

  • 14 The Rhino April 21, 2017, 7:58 am

    @O – good knowledge. And i thought the situation for reporting dividends on acc type OEICs was hard!

  • 15 FIREin' London April 21, 2017, 8:08 am

    As always, thanks for the great read! I didn’t realise there were some ETFs that acted as acc. type units, I may need to think some of my allocation now! I have some of the iShares MIDD for 250 – the yield isn’t great but I am still in accumulation mode so I don’t mind too much.
    Cheers,
    FiL

  • 16 The Rhino April 21, 2017, 10:22 am

    @O – does the broker do any of the work for you re: income from acc type etfs in the annual tax certificate?
    I kind of rely on that broker tax cert. for my tax return dividends w.r.t my acc type OEICs – I’ve tried computing it myself a few times and never got the right no.s out
    I feel it is a branch of bistro-mathics that is beyond my cognitive capacity (https://en.wikipedia.org/wiki/Technology_in_The_Hitchhiker%27s_Guide_to_the_Galaxy#Bistromathic_drive)

  • 17 Sally Morris April 21, 2017, 11:15 am

    Table shows 2 Jap etfs with same code different charges
    Ticker ETF OCF
    CSSX iShares Core EURO STOXX 50 UCITS ETF 0.10%
    CPXJ iShares Core MSCI Pacific ex‑Japan UCITS ETF 0.20%
    CPXJ iShares Core MSCI Pacific ex‑Japan UCITS ETF 0.07%

  • 18 The Greybeard April 21, 2017, 11:41 am

    @Sally,
    Good spot. The text in the paragraph is correct, but gremlins hit the table. The third line should have read “CSPX iShares Core S&P UCITS ETF 0.07%”. I will get The Investor to change it.

  • 19 L April 21, 2017, 11:53 am

    Sorry if I’ve missed it, but what would the indicative yields be for these portfolios at the time of publishing?

  • 20 The Greybeard April 21, 2017, 11:58 am

    @L
    Assuming equal weightings, it’s a simple arithmentic average.

  • 21 Naeclue April 21, 2017, 10:49 pm

    So what conclusions can we draw from this discussion?
    I would add one more:
    – if you are determined to match “natural income” with drawn income in retirement then cap weighted ETFs are not the way to go unless you find the distributions sufficient and don’t mind leaving behind a large legacy.

    Personally I could not care less what the distribution yields of my various investments are (largely cap weighted ETFs/OEICs + gilts ladder + cash) and I simply draw what I choose to from my portfolio.

    Even though I am in retirement (at least I think I probably am) I still quite like the iShares accumulator ETFs and hold EMIM, CPJ1 and SJPA. Similar Vanguard ETFs pay out income in dollars. Brokers then charge a fee to convert to sterling. This fee can be quite high, for example Hargreaves Lansdown charge 1.7% to convert foreign currency distributions. On an ETF yielding 3%, that is equivalent to an additional 0.05% on the TER. OEICs are better than ETFs in this respect as the fund managers convert the foreign currency income to pounds at inter bank rates and then pay their distributions in pounds.

  • 22 Optimistic April 21, 2017, 11:25 pm

    @Rhino
    The broker does not assist, in my experience, re tax figures, the providers web site provides the figures.

    For the income type, the Excess Reportable Income above the level of dividends distributed is typically just a small percentage of the income and for more modest holdings, since the broker does not tell you, then I guess most retail investors are blissfully unaware and HMRC are probably not worried either…

  • 23 Blacksmith April 22, 2017, 1:02 am

    Interesting article and a reminder of the challenges of tax-optimisation for international portfolios. Does your analysis take into account non-dividend income distribution in the form of stock buybacks? See this recent article from US WSJ. Unsure about UK practices and of course the tax treatment may differ.

    https://www.wsj.com/articles/how-to-get-5-income-from-broad-index-funds-1492787140

  • 24 John B April 22, 2017, 8:14 am

    Something I’ve never understood, do you need to worry about equalisation when reporting tax liability? Is it just an accounting issue, or is is real income?

  • 25 Chris B April 22, 2017, 9:08 am

    You mention UK domiciled ETFs.
    I’m yet to find any. Can you identify them please?

  • 26 The Investor April 22, 2017, 12:38 pm

    @Chris — Good point which I should have caught in editing. From memory, a couple launched after Osborne changed the tax treatment of would-be UK-domiciled ETFs, but that’s about it. Will likely tweak the article, unless anyone comes along to say we’re missing something!

  • 27 Milind April 22, 2017, 11:02 pm

    Really good article which I was waiting for.
    Since iShares got a lot of Dividend ETFs focused on all geographies, why not use them? They are yielding north of 4% except US when I was checking fact-sheets.
    For UK, iShares UK Dividend UCITS ETF GBP (Dist) (OC 0.4%) (Yield 4.64%)
    For EU, iShares Euro Dividend UCITS ETF EUR (Dist) GBP (OC 0.4%)( Yield 3.68%)
    For AP, iShares Asia Pacific Dividend UCITS ETF (OC 0.59%)( Yield 4.39%)
    For EM, iShares EM Dividend UCITS ETF (OC 0.65%)( Yield 4.18%)
    For NA, iShares MSCI USA Dividend IQ UCITS ETF (OC 0.35%)( Yield 2.23%)

    Also, I compared on google finance with ISF (ishares ftse 100 etf ) vs MRCH (Merchants Trust) for last 5 years for share price, looks like MRCH is giving better returns and yield is definitely better that ISF. So going by some other articles on Monevator on IT, I think Investment Trusts looks like promising option especially when they try to control discount/premium in bad/good times in market. Other point to look into is liquidity of ETF on LSE. I find volumes are really low as compared to Inv Trust as of now. So when we are trying to buy or sell ETF, we might face issues on really bad day on market.

  • 28 Mr optimistic April 23, 2017, 10:49 am

    Thanks for the article. I am in the process of trying to rationalise our 5 ISA funds to provide a retirement income to supplement pension. Yes, I had noticed iShares propensity for non distributing funds and that puts me off them. The other thing is as I favour investment trusts there really aren’t that many with the scope and charges I am looking for so I suspect I will unintentionally create unseen overlaps. At least a passive approach would make the logic clearer.

  • 29 The Greybeard April 23, 2017, 1:03 pm

    @Milind,
    The sorts of ETFs are the subject of the *next* article, which focus on just these “smart ETFs”.
    @Chris B — sorry, sloppiness on my part.

  • 30 Naeclue April 23, 2017, 2:51 pm

    @Miland, “Since iShares got a lot of Dividend ETFs focused on all geographies, why not use them?”

    In a nutshell, increased costs and increased risks. Moving away from market neutrality risks long term market under performance (to be fair, there is an opportunity for outperformance as well). Increased costs come in the form of higher management fees, higher dividend withholding taxes on foreign shares, increased trading costs as the portfolios are rebalanced (cap weighted trackers require little rebalancing) and increased foreign exchange fees on conversion of dividends to sterling. You need to balance the perceived benefit of higher immediate income against these known long term costs and risks. I consider the price not worth paying and stick with cap weighted funds.

    The iShares funds seem quite expensive. In comparison, Vanguard offer a global high yield ETF (VHYL) for only 0.27%, it is also cap weighted rather than fundamentally weighted and this reduces trading costs. The higher yield is achieved through filtering. Even though they filter for yield, VHYL is still well diversified with 1,238 stocks compared with 2,999 for VWRL. Historic yield of VHYL is reported as 3.09% compared with 1.98% for VWRL. If I wanted a higher yield from my equities, VHYL would be my pick as the approach and lower management fee at least tries to keep additional frictional costs down.

    Both VHYL and the normal market weighted All-World ETF (VWRL) hug their benchmarks well, so you can reasonably reliably infer what returns would have been had they both existed for 5 years. The 5 year dollar total return for VWRL to March 31 would have been about 50% (92% in pounds due to the exchange rate dropping from 1.60 to 1.25), compared with around 40% for VHYL (79% in pounds), so holding VHYL for the higher yield would have meant giving up about 10% (13% in pounds) in total return over those 5 years. I am not trying to imply the same thing will happen over the next 5 years by the way, and would not be surprised if VHYL did better than VWRL, I am just illustrating the risk of investing in some section of the market, in this case higher yielding shares, instead of investing in all of it by market weight. Over the next 5 years luck will play a big part in performance, but over the very long term (20y+) though I would expect to see VHYL underperform due to the higher costs.

  • 31 Milind April 23, 2017, 10:53 pm

    @The Greybeard, Thanks a lot for assuring me that there will be Part III of this article series.
    @Naeclue, Very good explanation for VHYL and VWRL. I am investor in both of these ETFs and helpful explanation about with will happen in long term if we want dividend out of VHYL

  • 32 Barn Owl April 24, 2017, 9:08 pm

    @Greybeard. In part 1 of this you said: “I personally know of no studies claiming that passive investments do outperform active investments on the income front – an omission that is naturally of extreme interest to someone contemplating a retirement that might be funded by them.”.

    However, there is a very relevant study on the Vanguard web site. https://personal.vanguard.com/pdf/s352.pdf.

    Essentially the argument is to look at total return not just yield. I think this is what@Naeclue was saying above. If low cost passive funds are good in the accumulation phase, they are also good in retirement. So long as you can administer it (admittedly it takes some thought and discipline) and you are prepared to sell capital.

    The Vanguard article shows why chasing high yield funds is likely to be sub-optimal.

  • 33 The Investor April 26, 2017, 9:53 am

    @all — Unfortunately The Greybeard’s family has been in touch to say his health has taken a turn for the worst in the past few days. He asked that I comment to explain that he won’t be able to reply to any more questions on this article, at least not anytime soon. We’re all looking forward to a speedy recovery, but he’ll certainly be away from his desk for a period.

    Thanks for all the input so far. I might be able to answer questions, if anyone has anything left to ask? (Will take a quick skim of the thread now to see if anything is leftover).

  • 34 The Investor April 26, 2017, 9:57 am

    @BarnOwl — I believe whether to sell capital or try to create a natural income is a personal decision. Not everything about investing is about maximizing potential returns. (Another good example of what I mean would be dollar-cost averaging versus investing a lump sum all at once. Or even whether you should run 100% equities throughout accumulation, one could argue. If you do, then you’ll understand why I can argue about income versus selling capital. My co-blogger agrees with you, and it’s a debate we’ve had several times. 🙂 )

    In any event it’s a discussion we’ve had in these comments after Greybeard’s articles many times, so no need to rehash again. If you’re curious you’ll find the link to his articles (and previous debates) at the bottom of the post.

    I don’t believe it’s the only reason to target income at all, but specifically to your good point about discipline and ability:

    http://monevator.com/death-infirmity-investing/

  • 35 Davidlp12 May 8, 2017, 7:04 pm

    In relation to this article I have spent a few hours today speaking to both Hargreaves Lansdown and TD Direct.

    I own the Vanguard ETF “VWRL” with both of these platforms. The ISIN number is identical for both so I am not getting the products mixed up.

    TD Direct have told me today that even though I own the £ GBP version of this ETF that the base currency is in $ USD and TD have stated that the income is always paid out in $ USD.

    However HL have told me today that even though I own the £ GBP version of this ETF that the base currency is in $ USD, HL pay out the income in £ GBP.

    So in summary I have the exact same product but it is treated differently in an income perspective from different platforms.

    Both the KIID leaflets are the exact same with no mention of income distribution currency.

    I was told by TD to read the 287 page prospectus to get the definitive answer in writing.

    I thought that this might be of use to some of the readers especially in relation to currency fluctuations and retirement income.

    In summary buyer beware!

  • 36 The Investor May 9, 2017, 3:34 pm

    @Davidlp12 — Hmm, that’s an odd little bit of confusion, thanks for sharing.

    The question is whether the ETF itself pays out the income in £ or $, as you suggest, not whether the platform does. I believe both platforms only run in UK Pound Sterling (i.e. You cannot hold $ sums in a HL account) so in both cases it’s going to hit your own account in £s.

    The question then is whether there is an FX charge applied by the platform or not. (Probably would be if it’s paid out by the ETF in $, shouldn’t be if it’s paid out in £).

    Currency fluctuations (/currency risk) will impact the £ value of what you’re getting paid in either case. You are exposed to a basket of global currencies via the ETF’s underlying holdings, and the income they pay the ETF also fluctuates with currencies. This is true regardless of the base currency.

    I think you understand this, but if any other readers want to know more please see this article:

    http://monevator.com/currency-risk-fund-denomination/

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