Ian Lance on a new approach to income

SPOTLIGHT ON INCOME

Ian Lance, portfolio manager at RWC Partners, explains why a flexible income strategy is successful in the long term.

The benefits of an equity income strategy are well understood, although were often over looked during the years of strong capital gains for the equity market. In the long run, income has been a larger part of total returns than inflation, growth or valuation changes combined. In his paper, Dividends and the Three Dwarfs, Rob Arnott identified that total returns from the US equity market over 200 years had been 7.9%. The components of this return are shown in Chart 1. Reinvesting income is the key to building long term wealth. The annual Barclays Equity Gilt Study showed £100 invested ...