If u have made good profits from your investments and don’t want to
lose them, a dividend re-investment scheme is one way of preserving wealth.
Better if u can add oxygen to the fire by investing regulary.
If u are starting with little capital, below is how I built my share portfolio by buying and holding, taking profits and re-investing into new positions whilst always re-investing the dividends.
I have now moved on to a high dividend strategy as I’ve already achieved
my plan for my own portfolio.
I no longer hold any of the above but would buy back selected Trusts the
Can I simply just say what a comfort to discover an individual who truly knows what they’re talking about on the net. You certainly realize how to bring a problem to light and make it important. More and more people have to look at this and understand this side of your story.
I can’t believe you aren’t more popular given that you certainly have the gift.
£20,000 in savings? I’d try to turn that into £29,685 of passive income each year By James Beard
Passive income is earned by doing very little. But as appealing as it might sound to earn lots of it, there’s a bit of patience needed. Let me explain.
For the purposes of this exercise, I’m going to assume I have savings of £20,000 available to invest. This is the amount that can be invested each year in a Stocks and Shares ISA.
As a risk-averse investor, I’d be uncomfortable concentrating all of my funds in a single stock. I know that if I bought the ‘correct’ one, I could make a lot of money. But with an estimated 60,000 listed companies in the world, there’s a good chance I’d choose unwisely.
One way of potentially overcoming the problem of picking winners is to buy shares in an investment trust. Although I’d hold a single investment, my risk’s spread across the many stocks the trust owns. My exposure isn’t then limited to one particular industry, index, or country. What to buy? With this in mind, I’d use my hypothetical £20,000 to buy shares in Allianz Technology Trust (LSE:ATT). Although not guaranteed, I believe technology stocks are likely to out-perform the wider market.
I like the fact that the trust isn’t just focused on artificial intelligence (AI). Although I believe AI’s going to revolutionise our lives, I think it’s a little too early to identify which particular aspect of the technology is going to be the most profitable.
As its name suggests, ATT has a wider remit and invests in all parts of the tech sector. Having said that, its biggest holding (9.9% of total assets at 29 February 2024) is Nvidia, whose semiconductors are used in many AI applications.
Its next four biggest stakes are in Microsoft (8.1%), Meta Platforms (6%), Apple (6%) and Broadcom (4.2%).
Another positive is that it invests only in quoted companies. Its more famous peer, Scottish Mortgage Investment Trust, owns some of the “world’s most exceptional growth companies”. But many of them aren’t listed, which means valuing them accurately can be difficult.
Although it hasn’t performed as well as the Dow Jones World Technology Index, its cumulative five-year return of 139.4%’s impressive.
Also, the fund currently trades at a discount of approximately 10% to its net asset value, which implies the stock’s undervalued.
But tech stocks can be volatile. And when the dotcom bubble burst, we saw how quickly things can go spectacularly wrong.
However, for the purposes of this hypothetical exercise, I’m going to assume that the trust’s share price increases by 17.4% a year. This is equal to its compound annual growth rate during the five years ended 22 March.
Of course, there’s no guarantee history will be repeated. But if I could achieve this growth rate, after 20 years, my initial stake would be worth £494,757.
I could then sell up and buy some dividend stocks. Assuming an average yield of 6% — again, not guaranteed — I’d be able to generate an impressive income stream of £29,685 a year, with minimum effort.
That’s why I believe patience is the superpower of the wise.
£££££££££££££
Anyone with more time in the market before u need the income for retirement could include a percentage of higher risk Trusts in their portfolio.
ATT or PCT
Only trading back at their 2021 price, since the start of this year.
Plan for the next generation Leaving an inheritance is a major consideration for most investors in their 80s, says Mr Khalaf. “If you’re investing for an inheritance, you can probably afford to take a more growth-orientated approach,” he says.
Assets to be passed on as a bequest do not necessarily need to be liquidated – they could instead be treated as a longer-term investment for those who inherit them. However, older investors should also ensure they have a steady income source, Mr Khalaf says.
This is particularly important to meet the cost of any health or care needs that may arise. Making gifts to children or grandchildren within seven years of death may trigger inheritance tax, but there are some exceptions.
Ms Guy suggests making gifts of £5,000 to children getting married (or £2,500 to grandchildren getting married). Both would be exempt from IHT. Gifts of £3,000 each tax year are also permitted.
DIY – if you feel confident After working with “perfectly nice” financial advisers from major firms, Mr Pannett decided to go solo at the age of 40. “I don’t think we need to pay for advice when we’re quite capable of sorting things out ourselves and I much prefer doing it myself,” he says.
Mr Young agrees, although he cautions that doing so means taking on a “certain level of personal responsibility”. “The truth of the matter is I really resent paying the fees [for professional management],” he says.
He points out that if advisers take fees out of capital, any income the investor receives from their investments is being undermined. “You virtually have to do it yourself. Otherwise you’re not gaining anything,” he says.
Ms Guy says many people are already comfortable making their own investment decisions. She adds: “It’s important to do your own research and understand your own risk level as the right type of investments will be different for everyone.”
Some prefer a mixture of different funds and shares while others are happy with a simple stock marker tracker fund, she adds.
Lord Lee, who bought his first share, in a shipping company, in 1958 at the age of 15, says common sense and patience are needed.
“Apart from a little money and time, that’s all you need,” he says. “Patience is the most important thing, and that’s what most people haven’t got.
“I do understand that most people aren’t terribly interested, and are happy to pass investment decisions on to others, but it’s more expensive over time. I believe that most people can and should handle their own affairs.”
£££££££££££££££
If u want to leave a legacy, an IT re-investment plan may be suitable for u,
as u can’t sell the Trusts in the portfolio (unless an unexpected event happens) as your plan is to use the dividends to pay for your retirement.
The sooner u start to re-invest the larger your Snowball will be.
Investing over a long period is a tried and tested strategy.
The sooner you start saving the more you can put aside, and early contributions are the most valuable because they have the longest to grow.
Compounding will also boost returns. In simple terms, your money earns a return in the first year and both the original cash and the return benefit from any growth in the second year. In the third year your investment is further enhanced by any returns achieved. This snowball effect is known as compounding.
