Investors who rely on dividends and property income to fund their spending will be looking at the next twelve months with some trepidation as company after company cuts or abandons its dividend to preserve cash. Property is little better with many tenants failing to pay the March quarter’s rent and potentially June’s. 

The situation is exacerbated by the UK traditionally paying a higher yield than other markets, leading income investors to overweight it, and therefore being more exposed to the UK’s steeper falls than the larger US market.

All is not lost. First, many investors may not receive a lower income since their pooled charitable fund can distribute on a total return basis, and usually maintains an income reserve. This - and the ability to spend a total return - frees them to maintain their spending if there is a shortfall in income. Your manager will be able to explain if they are exposed to these lower dividends.

If you are in a segregated fund (where you own stocks and shares directly) then you will feel the loss of dividend income more sharply, even if it is only for a limited period. This can be ameliorated by moving to a total return spending policy, where you spend a small percentage of a three (or five) year average market value. This will provide for more stable spending in future as well as allowing you to take a more balanced view of where to invest, rather than using income as the driver.

The most common complaint is that total return spends capital. This is true, but capital gains are still substantial for most long-term investors even after the recent losses. After all, most investors have seen their portfolios almost double in the last ten years and future beneficiaries have benefited enormously at the expense of current ones – those most ill served by austerity. 

Now is a good time to use all those years of excess capital gains and to keep spending through this hiatus. After all, what makes us charitable is what we spend, not what we keep.


If you would like to investigate moving to a total return, or for any other question, please don’t hesitate to contact us.

Categories: Expenditure, Investments, Reserves
Yoke and Company is the trading name of Yoke Financial Consultants Limited, incorporated in England and Wales (No 10787996) and registered at 6 Normanhurst Road, London, SW2 3TA. Yoke Financial Consultants Limited is authorised and regulated by the Financial Conduct Authority (Financial Services Register reference number 826126)
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