A quieter month on the income front;
– £225 in income from the U.K. Government Bond UCITS ETF
– £42 in interest on a Cash ISA.
Dividends or interest are assumed to be paid into the cash account before we look at any withdrawal.
Mechanical rules are followed to simplify things, based on the initial asset allocation of 75% Equity and 25% Bonds&Cash.
Distributions will be taken first as income in the month and then any remaining withdrawal will be taken by selling capital, aiming to re-balance towards the 75:25 allocation with any dealing costs picked up by poor Mr Z himself. This should then skim off any parts of the portfolio that are doing well and hopefully give any flagging parts of the portfolio catch up while avoiding drawing on capital unnecessarily.
Doing this every month, rather than quarterly or annually, might not be the best option. It exposes the intrepid Mr Z entirely to the volatility of the markets and the closing price on one fixed day. Still, that’s how we started this.
The portfolio is very slightly overweight in the US S&P500 ETF and the government bond portfolio, when compared to our original target allocation.
This results in 41 units from the S&P500 being sold (at £25.70 per unit), 6 units being sold from the UK Gov’t Bond tracker (at £21.13 per unit) and the remaining from cash.
The remaining portfolio after withdrawal
Following withdrawal the portfolio looks like;
Had we panicked back in September when the market was on it’s way down, gone into a selling frenzy to limit our losses, we would have missed out on nearly £22k of gains. Not quite back to where we started, but we’re getting there.
Let’s have a quick gander at where we would be with some other fund choices.
This is my favourite graph.
The blue line is the experimental portfolio. The purple line is the most aggressive allocation, with 100% in equities (the 100% equity LifeStrategy fund). The straight line is just cash, earning interest and slowly running down, guaranteed to be exhausted at some point. And the green is 100% invested in a government bond fund.
Things are pretty much like you’d expect, with the portfolios with a heavier equity allocation showing more volatility than those with a higher proportion in bonds or cash.
After a large spread in September (£50k), all of these portfolios are coming back together (a £10k spread at the end of October), with the bond option being at the top at the end of October.
But it’s a long term game, and if the statistics are to be believed, the equity proportion should out perform cash and bonds in the long run, unless of course we take an initial pummelling and never recover. Things are looking brighter this month.
I think I will add the Vanguard High Yield ETF
to the comparisons above, from next month. It was yielding 3.43% at the end of September, so would offer a nice comparison. One where the majority of the spending would hopefully be covered by the dividends. Having a quick look at the fund and it’s distributions, if we had used the whole £625k to buy units of this fund it would have provided approximately £19k of income to date, which would have nearly covered all of our ‘income’ requirements of £2,083 a month. Not a bad option, perhaps.
A summary of all the past months are here.
[If you want to do any reading on the 4% withdrawal rate, a recent(ish) post by the Mad FIentist is excellent. Nicely aligned with my thoughts on it]