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This White Paper calculates the different outcomes of investing for income via FTSE & MSCI World trackers, traditional 60/40 portfolios and investment trust dividends, from 1986 to 2022. It applies four amounts of income against each strategy, and applies inflation to income drawn so investors can see the reality of the £-numbers separated from the mist of theory created by institutional research being mis-applied to personal portfolios. It further compares annuities over that time, and the resulting capital values for all investment strategies, and all income choices.
The 4% Rule was defined in America by Bill Bengen using US stocks and bonds records, along with US inflation. This is Bill's original essay and calculations. The study does not transpose to the UK because UK equity, fixed income and inflation levels are not the same; the principle is valid in the UK but not the calculation.
This is the most important calculation any investor needs to know. It is simply a shortcut to estimate the number of years required to double your money for a given rate of return / interest / yield.
In this free white paper, we argue that Modern Portfolio Theory is an inappropriate basis for generating a retirement or other long-term income for individual investors because their main objective is reliability of income, not capital growth.
Dr Harry Markowitz received the 1990 Nobel Prize for Economics as a result of his 1952 paper that defined Modern Portfolio Theory (MPT).
MPT has incorrectly been migrated from its intended use in the fund industry to investment planning for individuals: we provide Markowitz’s own evidence of that error.
Research from the actuary Lane Clark & Peacock assessing modelling of retirement portfolios alongside consideration of relevant asset allocations for decumulation. It also outlines their thinking on why the heuristics on spending rules and portfolios need to be updated.
Research from the perspective of a mathematical theorist examining the patterns and behaviours of trust dividend payments to determine confidence levels for future projections via algorithms, and, specifically, the correlations to be found within the trusts. This drills down into the actual volatility of income to determine whether or not the term ‘risk’ is being correctly applied to income streams.
From an actuary’s perspective, the dividend returns of a pre-selected set of investment trusts are analysed to determine the mathematical relationship between demonstrable historical movements and future projections. It considers confidence levels within set bounds by calculating correlations and measuring causation effects, comparing model forecasts against actual portfolio returns.
We believe dividend investing is the best way to secure a retirement income and beats capital investing for capital hands down. 5 of these reasons are exposed in this article.