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Short-cuts have their place. If you can avoid complexity and effort, it makes absolute sense to do so. It gives you time to work on other projects, or in my case re-watch The Treble (1999), reliving the good ol’ days. However, when it comes to retirement income, short cuts may be counter-productive and nowhere is this more apparent than with the 4% rule.
This blog comes with a health warning: Higher fee pots die younger. And the UK government is taking notice.
In my previous post I outlined the possible benefits of using multiple asset classes to achieve a more stable and attractive level of yield from an income-focused portfolio. In this post I take aim at targeting a fixed level of yield, showing that this objective could mean you miss the big picture.
Much like the choice between TV channels, income investing was easier in the old days. Investors seeking stable and attractive income from their investments needed to look no further than bonds. These days, with yields near historic lows, many investors are looking elsewhere.
Soviet-era Polish cinematography is often a source of seemingly absurd catchphrases repeated for generations. “How much sugar is in your sugar” is a classic one from the quirky professor in the 1973 comedy Man-Woman Wanted. When we target particular factors within our equity exposures, I increasingly find myself taking on the role of the professor as I try to answer the question “How much factor is in my factor?”. It might seem like an odd question but we can answer this by relying on simple factor definitions and a holistic approach to combining factors. It’s only once we know what our true exposures are, that we can consider how we avoid any unintended secondary exposures that have the potential to sour the overall outcome.
In my recent post "What to factor in and what to factor out?," I explained what the ‘factor’ in factor-based investing really means. While its acronym (FBI) gives the impression that it's rather complex, like the US organisation, investors have been increasingly looking to factor-based investing to drive their investment returns. It's time to consider why...