Page 6 - DIY Investor Magazine | Issue 41

· August 2024 6
DIY Investor Magazine
Charles Luke, Investment Manager, Murray Income Trust PLC
• Retirement is getting longer, and retirees have more ambitions for their later years.
• A longer retirement means greater risks from inflation.
• A well-constructed stock market portfolio can be the key ingredient to preserve wealth.
Many people in their sixties today can expect to enjoy
20 years or more in retirement. Their plans have become more ambitious, with far-flung travel, entrepreneurship, or extreme adventure on their bucket lists. However, the challenge is paying for it and the models that worked for previous generations may not work today.
A longer retirement means being far more alert to the potential impact of inflation. High inflation will erode retirement savings over 10 years, but over 20, it can
be highly detrimental to an investor’s living standards. Although inflation has come down significantly from
its highs of over 10% in 2022, there are still a number
of inflationary forces in the global economy, from deglobalisation, to higher government spending, to the energy transition that threaten retirees’ standards of living.
This means retirement income needs to grow over time. Bonds may provide security, but in most cases, they do not grow with inflation. In contrast, company dividends have generally outpaced inflation, providing greater protection of the purchasing power of retirement savings over time. With this in mind, investors need to retain exposure to stock markets in later life.
That said, investors still need to be discerning. The div- idends from UK companies, for example, are currently growing at an anaemic 2% per year. The sectors showing growth will vary depending on economic conditions and the stock market environment. Dividends in the mining sector will depend on the commodity cycle, for example,
‘INVESTORS NEED TO RETAIN EXPOSURE TO STOCK MARKETS IN LATER LIFE’
while banks will vary dividends in line with monetary policy. Prioritising companies and sectors that are expanding can deliver a faster growth rate than the market.
SEPARATING THE WINNERS FROM THE LOSERS
This is particularly important today, when the economy moves faster, and technology is so disruptive. There are a number of clear trends that are separating companies into winners and losers. Investors looking to grow their capital and income over time will need to make sure they are on the right side of these major global shifts – from climate change to Artificial Intelligence (AI).
WHAT DO INVESTORS NEED IN RETIREMENT?
‘MURRAY INCOME TAKES DIVIDEND GROWTH SERIOUSLY. IT HAS GROWN ITS DIVIDEND EVERY YEAR FOR 50 YEARS‘...
Finding long-term growth in income takes commitment, and it helps to have a clear track record. The Association of Investment Companies publishes its list of
‘Dividend Heroes’ each year
– trusts that have grown their payout to investors year on year for over 20 years1. This shows that the fund manager prioritises dividend growth,
rooting out those companies that can grow their earnings consistently over time.
Murray Income takes dividend growth seriously. It has grown its dividend every year for 50 years, one of the longest track records in the market. This consistency has been helped by the structure of investment trusts that allows it to squirrel away income or reserves in the good years to pay out in weaker years. We have built up a rainy-day revenue reserve of over a half of the full year dividend that can be used to top up the dividend
if necessary.