No, never ignore Jane Austen:

Not touching your capital is some old-fashioned "key tenet of income investing."

In its purest form, this involves living on payouts generated by a nest egg you leave intact. The theme has deep roots in the UK. The rural gentry in Jane Austen’s novels subsisted on yields from land, shares and bonds. If you rewrote Sense and Sensibility as a financial thriller, prudent Elinor would be an income investor. Flighty Marianne would be in doomed pursuit of capital gains from the latest hot theme.

"“Fie, sir!” she would tell an unwanted suitor, as they whirled round a ballroom, “I perceive you are a tradfi nocoiner! Yet I have filled my boots with meme stocks and bitcoin!”"

Yes, because "meme stocks" and "bitcoin" belong in the same category... obviously.

Purist income investment is appealing for two main reasons. First, it provides a sense of security. If you do not touch your capital, its yields should support you for as long as required. Second, it is administratively tidy. Your stocks, bonds or funds will produce regular payments. You need not dither over what proportion of any capital gains to withdraw for living expenses.

I mean, maybe psychologically nice but completely dysfunctional in a positive-inflation/fiat-money regime era... because part of the implicit indexation #1552045, #1555588 adjustment happens via capital appreciation. So living entirely off what the primary securities throw off effectively squeezes your real income.

A chart illustrates the problem. This also shows how crazy it would be to focus on percentage paybacks in isolation. If you do so, the dividend yield on the FTSE 100 appears reassuringly stable at 3 per cent to 4.5 per cent since 2021. In reality, cash payouts have been as volatile as the share prices on which yields are calculated.

Does my list of negatives mean income investment is obsolete? My feeling is that it still has a role to play in personal investment. It represents a useful diversification, even though it has lost its mojo as an all-encompassing solution. If you allocate a chunk of your portfolio to income investment, what should you buy? Most investors would define income stocks as bearing dividend yields of 3.5 per cent to 7 per cent. UK-focused financial services groups are among the steady payers.

"What about fixed-income bonds, perhaps the most obvious income asset class? Here, payouts are pretty much guaranteed unless the issuer defaults."

That aside, living on investment income alone no longer constitutes a financial strategy for most better-off Britons. In contrast, Jane Austen’s books never go out of fashion.

archive: https://archive.md/bYCPe