Plan for a Longer Retirement

The ultimate goal for a DIY Income Investor is a comfortable retirement, with your income from savings and investments supplementing any pensions you may have built up.

Well here is an incredible statistic: over the last 4 years in the UK life expectancy has increased by one year. Something similar must be happening in all developed countries.

And this looks like a continuing trend, with the implication that your retirement could be longer than you think.

Portfolio Target: Just REIT!

In a recent post we saw that - in the US - REITs (Real Estate Investment Trusts) had been a more volatile asset class, but have had a higher return (since the late 90s) than dividend shares, shares in general or government bonds.

So, looking at the UK market, are there any likely REIT targets for the DIY Income Investor portfolio?

Yields and Volatility of Different US Asset Classes

The DIY Income Investor approach involves combining different asset classes, including cash, dividend shares, government bonds, commercial bonds and other similar securities (such as preference shares).

It is instructive to look at how these different asset classes have performed in the past - over the peaks and troughs of the economic cycles. How far can the historical record help us navigate the investment 'snakes and ladders' environment?

DIY Financial Planning

This blog strongly encourages a DIY approach to personal finance and we are always looking for useful resources.

Here is an example of a financial advisor setting out the basics of a DIY approach to financial planning in a free eBook - something that is unusual, to say the least.

S&P 500: Historical Downward Trend in Dividend Payout Ratio

Income in the form of dividends is an important feature of the DIY Income Investor approach. The Dividend Payout Ratio is the share of net earnings that is paid out as dividends. This metric is used more in the US than in the UK, where we tend to talk about the 'dividend cover' (the ratio of net earnings to dividend payments). Both are an indication of the company's willingness to pay dividends.

However, there is some bad news for US investors on the trend in Dividend Payout Ratio (although there may be a silver lining to this particular cloud).

Over Half of UK Families Have Unsecured Debt

To even start being DIY Income Investor (i.e. Level 1 on the Income Pyramid) you must first pay off debt, particularly unsecured debt, such as credit and store card debt, bank loans and overdrafts. The reason is simple - it costs more than you are likely to make by savings and investing.

Yet over half of UK families have unsecured debt, owing an average of £10,604, with the average debt increasing with the number of children in the household.

Why DIY? UK Banks Give Bad Advice

The DIY Income Investor approach is to usually spurn financial advisers, to do your own homework and make your own decisions.  The main reason for this is that most sources of financial advice are usually self-interested and will help you to in a way that benefits them, rather than you.

Which? - the UK consumer watchdog - has discoved that High Street banks are providing 'shockingly' poor investing advice to inexperienced older savers - with nine in ten High Street bank advisers failing an undercover investigation.

Portfolio Buy: Resolution (LSE:RSL)

 As a DIY Income Investor, I am looking for a good yield. One source of this is a high-yield share (Level 6 on the Income Pyramid), which ideally should have a sustainable market model, based on sound corporate management.

A quick look at the performance of the FTSE 100 constituent companies threw up this opportunity with (as of today) a dividend yield of over 7% and a p/e of under 3!

Portfolio Update: Profit Taking - GSK & VOD

The DIY Income Investor approach is generally 'buy and hold'. However, there are times when it is OK to sell (and there are times when you need to sell).

My mental image of the stock market is similar to one of those fairground carousels with ornately carved horses riding up-and-down as well as round-and-round; each horse follows a cycle of being high then falling, being low then rising. My strategy is to ride the horse to the top and then shift to one that is beginning to rise. What goes around comes around. Pretty simplistic eh!

So what encouraged me to sell this time?

New E-Book Edition: Updated and Expanded

The DIY Income Investor e-Book 'Building Wealth as a DIY Income Investor'  is now available on the e-book page above. It brings together additional material from the last two months of posts and has been restructured to organise the information (hopefully!) into a useful guide.

And it's free (although contributions would be gratefully received)! Do let me know if you have any comments or suggestions about how to improve it.

Carry on Balancing (Government Bonds and Equities)!

The DIY Income Investor approach involves diversification and balancing of asset classes, including cash, bonds (both Government and Corporate) and equities.

The good news (at least in the US) is that two of these asset classes are increasingly uncorrelated. In other words, they don't move in the same direction. This means that together they provide for a more robust portfolio.

Portfolio Review: Legal & General (LSE:LGEN)

High-yield dividend shares form part of Level 6 of the DIY Income Investor Income Pyramid. As the fortunes of these companies change, so does their eligibility for my portfolio.  So it is worth reviewing the portfolio selection, at least annually.

So, given the upheavals in the financial world, how is Legal & General (L&G) doing?

Basic Decision Flowchart for a DIY Income Investor

As a quick introduction to the DIY Income Investor approach I have put together a basic flowchart that (I hope) summarises the key decision points and options. The chart also shows the links to the Income Pyramid 'Levels' - which are in effect different asset classes, in (approximate) increasing order of risk.