Investment Trust Dividends
Albert Einstein is often credited with describing compound interest as the eighth wonder of the world.
But even though nobody has any credible evidence of this, I’m not really bothered. That’s because I’m convinced of its merits. And that’s why — just like Warren Buffett — I continue to use all of the dividends I receive to buy more shares.
I’ve bought for the portfolio
6494 shares in PHP for 6k and
14,155 shares in Assura AGR for 6k
I’ve sold the portfolio shares in BSIF for a loss of £1,091.00.
£18,250 2b re-invested today.
The Motley Fool
by Dr. James Fox
We’d all love a passive income, regardless where that comes from. Some people in the UK invest in buy-to-let properties, other try their hand at trading.
If I were new to investing, I’d start by opening an investment account with a reputable brokerage. This involves researching and selecting a platform that aligns with my needs, offering a user-friendly interface and access to a variety of investment options.
Personally, I use the Hargreaves Lansdown platform, but appreciate there are alternatives with lower trading fees.
After this, I would have to define my financial goals. I need to establish what and when I’m investing for. For example, when will I want to start taking a passive income?
Understanding my risk tolerance is crucial in determining the mix of assets in my portfolio. I’d have to educate myself on different investment vehicles, considering stocks, bonds, and even cash.
And finally, when I’m ready, I can start purchasing stocks, bonds, or other investment vehicles.
If I’m investing £50 a week or £200 a month, I need to appreciate that I’m not going to build a huge portfolio over night.
In fact, the longer I leave my money invested, the faster it grows. And that’s all down to the magical power of compounding. While the initial growth may seem gradual, the power of compounding can significantly amplify returns over time.
As such, it’s essential to stay disciplined and resist the urge to react hastily to short-term market fluctuations.
As the portfolio grows, so does the potential for compounding to work its magic. That’s because I can start earning interest on my interest as well as my contributions.
Compounding takes place when I reinvest my returns year after year. This may involve me reinvesting the dividends I receive.
Or if I invest in a stock like ******, which doesn’t offer a dividend, the company essentially reinvests on my behalf. That’s because it’s focused on growth.
A novice investor may look to achieve between 6-10% annually in the way of returns. While an experienced investor might aim for higher returns — perhaps around 10-15% annually.
So if I were starting with nothing, and investing £50 a week, here’s how my investment could grow over 35 years, assuming a 10% annualised return. At the end of the period I’d have £759,327, and it would have generated £71,849 in the final year. Even in 35 years, that’s a strong figure.
£££££££££££££
Government loans (Gilts) pay a guaranteed return so your capital is safe.
Can now be bought from online platforms such as AJ Bell as simply as
any other share. Can be useful if u are saving for a specific purpose on a
set day.
At present yielding around 4% so not suitable for inclusion in the blog
portfolio but could be paired trading with a higher yielding Trust to give
a blended yield of 7% with an extra margin of safety.
Wouldn’t it be incredible to have a tax-free source of passive income? The idea of generating income without the burden of taxes is a dream many of us share.
So, what if I had £5,000 in savings? Could I really turn that into £60,000 of passive income within 30 years? Well, it’s certainly possible
£5,000 is a great starting point. But in order to make my portfolio grow faster, I’ll need to embrace the concept of regular saving or regular contributions.
This isn’t rocket science. It’s pretty obvious. If I were to contribute £250 a month from my earnings to the portfolio, it would provide me with additional capital for my investments.
Over time, my commitment to regular saving has several benefits, including pound-cost-averaging and harnessing the power of compounding — the snowball effect where my money makes more money.
By consistently adding to my investments, I can create a cycle of growth, where each contribution builds on the previous one.
As noted above compounding is central to long-term wealth generation. This is the process of reinvesting my returns year after year.
It might not sound like a world-beating strategy. But it really is. Essentially, when I reinvest my returns year after year, it means I’ll start earning interest on my interest. In turn, this leads to exponential growth.
In the below charts we can see how an original £5,000 investment would grow when contributing £250 a month.
The first chart shows how the investment would grow with a more modest 6% annualised return, while the second chart highlights how my investments would grow at 10%.
Created at thecalculatorsite.com: Growth over 30 years with 6% annualised returns
Created at thecalculatorsite.com: Growth over 30 years with 10% annualised returns
Low double-digit growth is what many seasoned investors will be looking for. And while that might sound unachievable, I can do it too by using online resources like The Motley Fool to help me make the right investment choices.
Because, unfortunately, if I invest poorly, I could lose money.
In the final chart, after 30 years, my investment would be worth around £670,000. That’s a huge amount of money. In fact, it would be growing by a phenomenal £62,000 a year.
So, in theory, I could take that £62,000 and treat it as passive income. It’s worth noting that this may involve selling some holdings as my portfolio is unlikely to generate all that money in the form of dividends.
But finally, and perhaps the most important thing worth noting, is that I’ll want to do all of this within a Stocks and Shares ISA. That’s because the wrapper will shield all my earnings from tax. It could be hugely beneficial.
Bear
Trusts still not favoured by Mr. Market.
Could still go lower which would mean the yield increases.
Bull
Some great yields which could turbo-charge your portfolio, best to diversify just in case the Trust you choose is a clunker.
If u want to DYOR for high yielding Trusts for your portfolio.
GSEO will be leaving the watch list as it yields below 7% after
it rose by 29%.
Bear
The Trusts that have increased the most from their low are more high risk as they could return to their low or lower.
RGL. Trusts don’t trade at big yields for no reason, although Mr. Market isn’t always right but the risks are much higher.
Bull
They are the Trusts favoured by the market, for whatever reason.
The fcast for the blog portfolio using this tax year, ending next month, the total would be £10,880,00, compounded at 7% for the next nine years would achieve a pension of
£20,019,00 pa
The blog portfolio will retain the end of the year for reporting its income.
Compound growth: A powerful argument for investing long term.
Provided by This Is Money
Investing over many years eventually reaches a ‘tipping point’ where your returns double what you’ve put in to date, highlights new research from Interactive Investor.
In a powerful argument for investing long term, compound growth can account for an ever larger share of your portfolio or pension fund over the years.
Putting £250 per month into investments returning 5 per cent a year would see a gain of £83 on your £3,000 total contributions, or 3 per cent, in year one.
This means that your returns after that year would represent just a small percentage of the total pot.
But by year 10, the power of compounding would mean the portion delivered by investment growth would make up 30 per cent of the overall portfolio, and by year 20 it would be 72 per cent.
At year 26 it would hit 105 per cent – with a pot containing £78,000 worth of your monthly contributions over the period now worth £160,229.
Then you’ve reached the tipping point where your returns double what you’ve put in.
If you paid in the same amount but achieved an annual investment return of 7 per cent, it would take 18 years to reach the investment ‘tipping point’, calculates ii.
When considering compounding, you also need to take into account inflation and charges.
Compounding returns offer a layer of protection against investment volatility, says Myron Jobson, senior personal finance analyst at ii.
‘Generally, as your investment grows, compounding becomes more significant, and there’s a point where growth outpaces new contributions.
‘This varies for each individual’s investment strategy and market conditions.
‘In our scenario, the investment tipping point is 26 years, but the reality is many investors will hit their financial goal, be it investing to buy a home or for retirement, a lot sooner.’
Five per cent growth: Impact of compounding interest over 30 years on £250 monthly contributions (Source: Interactive Investor)
Jobson explains: ‘The nature of investing means the annual rate of return isn’t fixed, meaning you can earn more or less in a given year, depending on the market environment.
‘Investing as much and as early as you can – ensuring that all expenses can be met and maintaining a rainy-day fund – can pay dividends over the years. The key is to stay the course, don’t make unnecessary changes, and reinvest dividends and interest earned on investments.’
Jobson adds that for pension savers, retirement investments are turbocharged by the tax relief and employer cash that are added to your own contributions.
‘This dual advantage not only amplifies the initial investment but also leverages compounding over time, accelerating the growth of the pension fund.’
Seven per cent growth: Impact of compounding interest over 30 years on £250 monthly contributions (Source: Interactive Investor)
Even if you don’t have a stocks and shares Isa, the magic of compound returns is probably already benefiting you, if you are one of the millions of Brits contributing to workplace or personal pensions every month, writes Becky O’Connor, director of public affairs at PensionBee.
Pensions are possibly the longest-term investment you will ever have, which makes them particularly fertile ground for compounding to work its magic.
Think of your own and your employer’s pension contributions as the seeds, tax relief as the water, your investment plan as the soil and compound growth as the sunshine, helping to grow what eventually becomes a mature pension pot for when you retire.
The investment ‘tipping point’: When do your returns overtake total contributions?
One of the beauties of pensions is that if you start paying into them early, as so many workers now do thanks to auto-enrolment kicking in at age 22 (set to come down to 18), you will benefit from around 45 years of compound growth from the investments within that pension.
In fact, assuming roughly similar average annual investment returns, the impact of compound growth for younger pension savers who maximise their workplace pension contributions in their early career rather than starting with lower contributions or even foregoing a pension altogether for more immediate priorities, can be really astonishing.
Someone who makes the same annual contribution of £2,000 a year for their whole working life, but misses five years of pension contributions in their twenties would have a pot £22,000 lower at retirement, at £121,450 rather than £143,215.
“Compounding can work against you too, in that percentage fees on investment products can add up the wrong way, magnifying the reduction in your investment pot over time”
However, if they choose to keep paying in when they are young and instead miss those five years of contributions when they are older, from 60 to 65, the impact on their pension pot is much smaller – with a pot size around £11,000 lower, at £131,895, highlighting the greater importance of contributions made early on to eventual pot size.
Of course if your investment grows by significantly more than the fee, the impact of this is reduced, but it’s worth keeping an eye on and making sure you aren’t being charged over the odds for an investment that isn’t delivering.
Let’s assume u bought the 3 Trusts above, equal weight and
the dividend yield at the time was 7%, it wasn’t but it matters
little.
Your 10k capital has decreased but u have earned £700 in dividends.
In ten years time if nothing changes and u are able to re-invest the dividends at 7%, your capital will have been returned. Your account would be
10k of dividends
plus the value of your Trusts.
As the intention is to never sell the Trusts and to use the dividends for a pension the value of you Trusts matters little to u, maybe more to those wee cats and dogs u are going to leave your capital too but they don’t know that fact.
Now after ten years u still have 7% income from your Trusts.
If the 10k is invested in Dividend Income shares yielding 7% your initial 10k
will be yielding 14%.
The more years u have of re-investing the bigger your Snowball will be.
Your dividends should grow over the ten year period, not included in the calculations and if/when share prices improve, your buying yield will remain the same but your running yield will fall, so u might have the chance to flip your Trusts but that’s another post for another day.
GetRichSlow
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