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Weekend reading: Divided by a common drawdown dilemma

What caught my eye this week.

I have a soft spot for income investing. I haven’t actually (naughtily, actively [1]) invested with a focus on income since the financial crisis, though.

(Why not? That’s a whole other [2] story.)

I still expect to live off [3] investment income when I’ve had enough of spinning the wheel on my net worth (and of work, of course). But it’s been more than a decade since replacing my salary [4] with the readies from a growing collection of income-producing assets guided my portfolio.

Thinking back, when I began investing I feel it was the aim of most serious private investors I came across to someday live off dividends, bond coupons, interest on cash, and perhaps a buy-to-let or two.

But that’s not the case any longer.

Obviously, the utter squashing of fixed income yield hasn’t done income investing any favours, although those who owned such inflating assets enjoyed a lucrative ride on the way to today’s miserly yields. And interest on cash is a bygone luxury.

More recently dividends have gotten the chop [5]. It all adds up!

But I believe wider cultural influences are at work beyond the numbers.

Imported Americana

When my co-blogger The Accumulator began talking about his planned drawdown strategy – to sell a certain amount of capital every year, with the aim of running it down to near-zero by death – it sounded foreign to me.

And I mean that very specifically.

I was familiar with such strategies – although newer investors would be shocked how rarely you heard terms like ‘safe withdrawal rate’ 20 years ago.

But to me the plan sounded American. I associated it with the American market, which taught different lessons from those I picked up from the curmudgeonly band of 30- and 40-something dotcom bust [6] survivors who frequented the UK investing landscape at the turn of this century.

In contrast The Accumulator was schooled by Bogleheads at the Temple of Vanguard. I sensed he found my income-fantasies atavistic.

I believe he’s made his peace with the concept – writing numerous articles on the intricacies of the safe withdrawal rate [7] will show anyone that all strategies come with their own mental and practical fudges – but he still definitely wouldn’t advise it.

To him, income-investing as a drawdown strategy is at best a retirement hobby for rich people. Like raising alpacas.

You say milllionaire, I say million-a-year

The US market hasn’t yielded much by the way of income for many years. I always assumed that was the main reason for the disinterest in income.

There are big tax disadvantages to dividends in the US, too, although this is also true in the UK nowadays outside of ISAs and SIPPS.

But I was interested to read a post on The Rational Walk [8] blog suggesting there were deeper cultural habits at work, too. Only this author is American, looking in the UK’s direction:

I find the British manner of thinking about wealth much more satisfactory for several reasons that are worth exploring in greater depth.

He believes we still focus on income. The following section from a famous investing book, Where Are The Customer’s Yachts, is fingered for this trans-Atlantic supposition…

Have you ever noticed that when you ask a Britisher about a man’s wealth you get an answer quite different from that an American gives you?

The American says, “I wouldn’t be surprised if he’s worth close to a million dollars.”

The Englishman says, “I fancy he has five thousand pounds a year.”

The Englishman’s habitual way of speaking and thinking about wealth is of course much closer to the nub of the matter.

A man’s true wealth is his income, not his bank balance.

…which does indeed sound familiar, but only to those who’ve read the likes of P.G. Wodehouse, Somerset Maugham and their contemporaries, not to today’s British investing forums.

Because as dedicated investing nerds all know, author Fred Schwed published Where Are The Customer’s Yachts [9] in 1940!

It’s still a timeless read, mind you. Even if I think that this British/American distinction is more dated than many of its other observations. (It’s funny, too, so check it out [9] if you’ve never had the pleasure.)

Also be sure to read that Rational Walk post: What’s Your Magic Number? [8]

Who knows? You might just find some of your native income-seeking spirit rekindled, after all!

Have a great weekend.

From Monevator

Negative interest rates explained (including the potential consequences) – Monevator [10]

Walter Schloss: His rules that beat the market – Monevator [11]

From the archive-ator: Debating passive vs active investing: Episode II – The Couch Potato Strikes Back – Monevator [12]

News

Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1 [13]

UK borrowing soars to record high of £55bn in May – Independent via MSN [14]

Bank of England pumps an extra £100bn into the UK economy to help the recovery – BBC [15]

MPs call for ‘triple lock’ on pensions to be temporarily suspended – Guardian [16]

Bounceback loans to survive the pandemic are being spent on supercars, insiders claim – ThisIsMoney [17]

[18]

Should you buy a house now? [Free to read if you’ve no paywall cookies]Investor’s Chronicle [19]

Products and services

Nationwide triples deposit for first-time buyers – Guardian [20]

Inflation plummets to 0.5%: discover the best savings accounts as rates decline – Which? [21]

Sign-up to Freetrade via my link and we can both get a free share worth between £3 and £200 – Freetrade [22]

More insult added to injury for Woodford investors – The Evidence-based Investor [23]

What are ‘buffered ETFs’? A comprehensive guide [US but relevant]ETF Trends [24]

The most reliable hybrid and electric cars you can buy – ThisIsMoney [25]

Comment and opinion

How sustainable is your investing? – Fire V London [26]

Millions on furlough in fear of redundancy [Search result]FT [27]

Why many in the 50s fear the Covid crash will force them to work up to ten years longer – ThisIsMoney [28]

When should you sell your stocks? – A Wealth of Common Sense [29]

Same as it ever was – Morgan Housel [30]

Google Skynet hedge – Finumus [31]

pwned – Indeedably [32]

Think like a winning investor – Humble Dollar [33]

Small value stocks: Opportunity and peril – Morningstar [34]

Why a recession can be a good time to start a business – BBC [35]

The lystrosaurus – Epsilon Theory [36]

Portnoy complaints

Barstool’s Dave Portnoy leads army of new traders into the stock market – Fox Business [37]

Trading sportsbooks for brokerages, bored bettors wager on stocks – New York Times [38]

Why so many people are getting into the stock market – Of Dollars and Data [39]

20-year-old Robinhood customer dies by suicide after seeing a $730,000 negative balance – Forbes [40]

Beware the ‘Portnoy top’: A former Wall Street chief strategist breaks down how the day-trading exploits of Barstool Sports’ founder highlight an ‘unholy speculative mix’ infecting stocks – Business Insider [41]

Naughty corner: Active antics

Has the US coronavirus recession ended? – The Capital Spectator [42]

The math of value and growth [PDF]Morgan Stanley [43]

Coranavirus and general contention corner

[44]

Nearly 1,500 deaths in a day: UK ministers accused of downplaying Covid-19 peak – Guardian [45]

UK virus-tracing app switched to Google-Apple model – BBC [46]

Covid-19 antibodies may start fade within 2-3 months in many cases – CNBC [47] / Nature [48]

Fear of public transport got ahead of the evidence – The Atlantic [49]

When will life return to normal? [Infographic]Visual Capitalist [50]

“Totally predictable”: State reopenings have backfired [says article]Vox [51]

Why are Covid-19 cases increasing in Florida? – Slate [52]

Fear of infection hurts the economy more than lockdowns – Bloomberg via MSN Money [53]

Kindle book bargains

Why We Work by Barry Schwartz – £0.99 on Kindle [54]

The Anti-Procrastination Mindset by Harry Heijligers – £0.99 on Kindle [55]

How To Day Trade For A Living by Andrew Aziz [Wealth warning [56]!] – £0.99 on Kindle [57]

The Spider Network: The Wild Story of a Maths Genius and One of the Greatest Scams in Financial History by David Enrich – £1.99 on Kindle [58]

Off our beat

Cut-and-run: The underground hairdressers of lockdown – Guardian [59]

Bizarre allegations against eBay security team who didn’t like a particular blog – US DOJ [60]

How Elon Musk aims to revolutionise battery technology – BBC [61]

The global implications of ‘re-education’ technologies in China – Center for Global Policy [62]

Hardcore History: Supernova in the East IV [Podcast]Hardcore History [63]

Invisible insulation – Seth’s blog [64]

And finally…

“For all of the most important things, the timing always sucks. Waiting for a good time to quit your job? The stars will never align and the traffic lights of life will never all be green at the same time. The universe doesn’t conspire against you, but it doesn’t go out of its way to line up the pins either. Conditions are never perfect. “Someday” is a disease that will take your dreams to the grave with you. Pro and con lists are just as bad. If it’s important to you and you want to do it “eventually,” just do it and correct course along the way.”
– Tim Ferris, The Four-Hour Work Week [65]

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  1. Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. [ [69]]