As most readers of this blog will know, I am a big fan of investment trusts when it comes to providing a steadily rising and predictable income.
It was therefore no surprise to read today’s article on the AIC website which shows that income from the average trust in the UK equity income sector over the past 20 years has outstripped inflation by over 2% per year.
This may not sound like much however when looking at the start figures for both income as well as capital, the comparison is compelling.
The data starts with a lump sum of £100,000 in 1994 - this was shortly before I bought my very first investment in City of London Trust. In year 1, it provided an income of £3,265, a yield of 3.26%. 20 years later and the income has risen to £8,139. The annual income grew by an average of 5% every year compared to an average inflation rate over the 20 yr period of 2.9%.
In addition to the total income generated over the period of £113,664, the capital value of the lump sum has risen from £100,000 to £222,315. Therefore a total return of over £235K and compound annual growth (CAGR) of 6.23%.
I have just made a quick calculation of the projected returns from my inv. trust income portfolio. Taking the round figure of £34,000 from the most recent update in August, and projecting forward 20 years with the same CAGR, if I have done the maths correctly, the value of the portfolio in 2034 would be just over £113K.
I regard my basket of investment trusts as the equivalent of an index-linked pension annuity with the advantage that, in addition to the growing income stream, I retain control of my capital which will give many more options in the years to come.
As ever, patience is the key....