A portfolio for life: the natural yield approach to drawdown [Members]
For MOGULS by The Investor
on May 2, 2025
From the earliest days of Monevator I’ve betrayed a soft spot for income investing. My 2008 article at the end of that link doesn’t claim pursuing income will beat the market. But I did suggest it might be a mental better fit for some people in retirement.You discount psychology in investing at your peril.
To be sure though, my timing wasn’t great.
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![The quixotic quest to live off a natural yield from ETFs and other passive funds [Members]](https://monevator.com/wp-content/uploads/2024/01/FIRE-calc-4-percent-1024x498.jpeg "The quixotic quest to live off a natural yield from ETFs and other passive funds [Members]")
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Very, very interesting and comes at a point in life I am considering doing just this (my numbers are a bit different). 43 with 2 young children and looking to provide an indefinite base income for life… a decent allocation of my pot will go to infrastructure and enhanced yield AICs such as Fair Oaks, SUPR REIT…
Great topic, look forward to seeing the portfolio. A bit of a situation specific comment but for (very) early retirees with a significant taxable portfolio I would add the relatively favourable tax treatment of income vs capital gains as another benefit.
With no earned or pension income you get the £5k “starting rate for savings” so personal allowance + starting rate for savings + regular interest allowance = £18,570 tax free interest income (bonds & REITs)
Then £500 of dividends tax free and £30,930 taking you up to the basic rate threshold taxed at 8.75% so £2,706 payable in tax on the divs.
Arranged like that you receive £50,000 income (each as a couple) at a 5.4% overall tax rate. Compares favourably to 18% basic rate CGT.
Cash in low coupon gilts, ISA allocated 100% to growth.
As an early retiree I have partially followed this route to supplement my pension income. (Nowhere near the amount suggested above, and I have retained a higher proportion of my investments elsewhere.)
I chose 8 Investment Trusts with the higher yields from different sectors of the AIC “Dividend Heroes” and “Next Generation”.
As the article states, the value of (this part of) my portfolio fluctuates but it doesn’t bother me at this early stage of retirement, and the extra income is very welcome.
Could I have done this cheaper? Probably, but most of the intellectual heavy lifting was done for me by the AIC. And this approach leaves me to consider how to deaccumulate the rest of my portfolio.
You say ‘The gold omission does annoy me’.
Why not have half of your cash buffer as Gold ?
Looks interesting, we’re starting in ‘interesting’ times….too.
An investment approach can work for years and then it doesn’t, it takes a while to appreciate that things have really changed and yet perhaps a previous favourable ‘style’ may return in some fashion equally suddenly.