Author Topic: Franklin IncomeFund FKINX  (Read 5590 times)

smith1959

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Franklin IncomeFund FKINX
« on: May 20, 2015, 07:00:18 PM »
Hi I'm new to the forum but have been reading MMM posts for a while. My wife and I are thinking about retiring soon and have about 60% of our 401k in this fund. Currently it pays about 1400 dollars a month in dividends or about 5%. The problem is the dividends look really constant, they are paid at about a penny a share monthly.
My concern is that the amount will remain constant once we start taking the dividends. We wont be adding shares
For the time being we would be fine but not adjusting for inflation will be very bad eventually.
The share price for this fund is fairly constant at between 2 and 2.60 a share so there is little appreciation.
Any opinions or advice would be appreciated.
BTW we are in our middle 50's and have no debt, no mortgage, income property 15K yr. Planning on part time work.

Thank you

Don

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Re: Franklin IncomeFund FKINX
« Reply #1 on: May 20, 2015, 07:24:15 PM »
Short answer:  Run, its a Franklin A share.  That means it is really expensive.  You will pay over 4% each time you buy into it plus another 0.61% a year to stay in it. 


I also wouldn't focus just on dividends.  A well diversified portfolio of stocks and bonds should be able to grow and produce income, and the total return is what will matter. 


forummm

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Re: Franklin IncomeFund FKINX
« Reply #2 on: May 20, 2015, 07:40:27 PM »
What other options do you have available?

smith1959

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Re: Franklin IncomeFund FKINX
« Reply #3 on: May 20, 2015, 07:46:10 PM »
I made a mistake by saying it is a 401k, it was a 401k rolled over into the fkinx a few years ago. I have lots of option then. I already payed the sales charge of 2.5%. It was 2.5 because of the amount we rolled. Any suggestions?

forummm

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Re: Franklin IncomeFund FKINX
« Reply #4 on: May 21, 2015, 07:06:38 AM »
I made a mistake by saying it is a 401k, it was a 401k rolled over into the fkinx a few years ago. I have lots of option then. I already payed the sales charge of 2.5%. It was 2.5 because of the amount we rolled. Any suggestions?

Roll it over to a Vanguard IRA. It's free, there are a ton of options, and the fund fees are the lowest in the industry. One good option is the Vanguard Target Retirement Fund for the year you turn 65. Or you can do your own mix of funds (and can change them at any time).

GGNoob

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Re: Franklin IncomeFund FKINX
« Reply #5 on: May 21, 2015, 07:14:54 AM »
Yes, roll this account over to Vanguard. You may consider checking out the Wellesley Income Fund. It's an active fund, but has done extremely well over the years. Otherwise the Target Retirement and Lifestrategy fund are good if you want a simple, balanced fund.

smith1959

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Re: Franklin IncomeFund FKINX
« Reply #6 on: May 21, 2015, 08:00:44 AM »
Thank you I'll look at these funds.

Another Reader

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Re: Franklin IncomeFund FKINX
« Reply #7 on: May 21, 2015, 08:10:25 AM »
The problem here is the OP needs the 5 percent yield this fund generates (4.92 percent per Yahoo) for income.  None of the replacement suggestions come anywhere near that yield.  However, what the OP apparently does not understand is this fund achieves the high yield by investing in below investment grade (junk) bonds.  From the fund profile:

Debt securities include all varieties of fixed, floating and variable rate instruments, including secured and unsecured bonds, bonds convertible into common stock, senior floating rate and term loans, mortgage-backed securities and other asset-backed securities, debentures, and shorter term instruments. It may invest up to 100% of its total assets in debt securities that are rated below investment grade.

This is a high risk fund and the yield may not be sustainable.  Some or all of that $1,400 a month in income could easily disappear.  The OP would do well to investigate alternatives to this fund, as the debt instruments it owns could lose a substantial amount of value or even go to zero if the economy weakens or interest rates rise significantly.  Relying on this fund for retirement is not reasonable and the fact that it comprises 60 percent of his 401k is extremely risky.  In the OP's shoes, I would re-evaluate my options.

In addition, this fund is held in a 401k.  The OP should understand his distribution options if the money stays in the 401k, and whether it makes more sense to roll the account over to an IRA when he retires.

ETA:  The current yield on Wellesley is 2.88 percent.  That's representative of a lower risk balanced fund with a tilt towards income.
« Last Edit: May 21, 2015, 08:13:14 AM by Another Reader »

forummm

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Re: Franklin IncomeFund FKINX
« Reply #8 on: May 21, 2015, 08:22:16 AM »
The problem here is the OP needs the 5 percent yield this fund generates (4.92 percent per Yahoo) for income.  None of the replacement suggestions come anywhere near that yield. 

Dividend yield is 100% irrelevant during retirement. Selling shares of stock (you've owned for 361 days or more) for living expenses is the same as using dividends for living expenses. In the former case, businesses are investing in growing their business (and therefore growing the company's value) in the latter they pay out the dividends for you to buy more shares of the company yourself. There are 100 threads on here with math showing why they are the same. What people want is the most overall total return (price appreciation + dividends) which is what a low-cost index fund provides.

Another Reader

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Re: Franklin IncomeFund FKINX
« Reply #9 on: May 21, 2015, 09:38:29 AM »
That's not the point.  My point is that he is taking on an obscene amount of risk to squeeze out 5 percent from this investment.

The OP needs 5 percent of the current investment amount every year and he really needs that indexed for inflation.  That's a 5 percent not so safe withdrawal rate with a reasonable asset allocation.  And he wants to withdraw it from a single, risky fund.  If he tried to go out in the marketplace and purchase a SPIA to produce $1,400 a month with some inflation protection, it's going to cost him a lot more than what he has invested in this fund.  He needs to rethink his investment strategy.

In addition, lots of folks, myself included, are not the least bit interested in decumulation of a carefully assembled portfolio including a variety of assets.  That's why I own a lot of real estate, value tilted funds, and dividend paying stocks. YMMV.

forummm

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Re: Franklin IncomeFund FKINX
« Reply #10 on: May 21, 2015, 10:59:22 AM »
That's not the point.  My point is that he is taking on an obscene amount of risk to squeeze out 5 percent from this investment.

Agreed.

The OP needs 5 percent of the current investment amount every year and he really needs that indexed for inflation.  That's a 5 percent not so safe withdrawal rate with a reasonable asset allocation.  And he wants to withdraw it from a single, risky fund.  If he tried to go out in the marketplace and purchase a SPIA to produce $1,400 a month with some inflation protection, it's going to cost him a lot more than what he has invested in this fund.  He needs to rethink his investment strategy.

Agreed.

In addition, lots of folks, myself included, are not the least bit interested in decumulation of a carefully assembled portfolio including a variety of assets.  That's why I own a lot of real estate, value tilted funds, and dividend paying stocks. YMMV.

Care to explain more? What's wrong with selling some shares here and there (still leaving you with more $s worth of shares this year than last year on average), and selling them in ways that maintain your desired asset allocation, if it provides you with less risk and more diversification?

Another Reader

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Re: Franklin IncomeFund FKINX
« Reply #11 on: May 21, 2015, 11:38:03 AM »
This is not an academic debate about whether assets are fungible.  The OP is facing a very difficult problem of putting together a stable income stream to replace two paychecks in the near future.  Relying on a relatively steady and predictable stream of dividends, bond interest, real estate, or an annuity causes a lot less stress for someone in their late 50's or 60's than throwing oneself on the mercy of the financial markets.  Once he and his wife are out of the workforce, it will be very difficult for them to return if they project their retirement income inaccurately high.  When you get to be his age, my guess is you will see the problem from a different angle.

forummm

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Re: Franklin IncomeFund FKINX
« Reply #12 on: May 21, 2015, 12:42:35 PM »
This is not an academic debate about whether assets are fungible.  The OP is facing a very difficult problem of putting together a stable income stream to replace two paychecks in the near future.  Relying on a relatively steady and predictable stream of dividends, bond interest, real estate, or an annuity causes a lot less stress for someone in their late 50's or 60's than throwing oneself on the mercy of the financial markets.  Once he and his wife are out of the workforce, it will be very difficult for them to return if they project their retirement income inaccurately high.  When you get to be his age, my guess is you will see the problem from a different angle.

I totally get owning a lot of bonds or an annuity to provide stability. But that's totally different than owning stocks that spit out a lot of dividends vs stocks that appreciate more in price and spit out less in dividends. You're still at the "mercy of the financial markets" for either. And there's no difference between selling shares of stocks vs using the dividends and not repurchasing shares with them. You suggested a preference for not doing the first. That's what I asked about--why the preference?

smith1959

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Re: Franklin IncomeFund FKINX
« Reply #13 on: May 21, 2015, 01:12:38 PM »
I looked at the Wellesly Income Fund and it looks like after quarterly dividends and capitol gains it yields about the same dollar amount as FKNIX. One difference is the expense ratio of .61 for franklin vs .25 for Vangard.
We don't plan on retiring on this alone we have other investments, real-estate and social security will also contribute to our income.
So the 60% I have this 300K approximately, I agree we're  happy with the 1400 currently rolling back in however FKINX is not gaining any value.
I agree with the concern  that the yield  of .01 per share will drop again, it has dropped several times and never increased. One of the reasons I got into this fund is through the advice of a friend. It has seen 10% since inception 1948 and is a 4 star fund.
The difficulty for me is lack of knowledge, I hear about how we should diversify our funds but there's not alot of information ( that I can understand) as to what are good funds to diversify into. I assumed that when I owned a mutual fund the funds diversified their investments for me. But there are so many different kinds of mutual funds.....................Any suggested readings?

By the way your feedback is appreciated

Another Reader

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Re: Franklin IncomeFund FKINX
« Reply #14 on: May 21, 2015, 01:42:02 PM »
The purpose of responding to the OP is to offer assistance in solving his dilemma.  I'm not going to engage in a debate with you about asset fungibility. 

What I will point out anecdotally is that in the 2008-2012 downturn, other than banks and some financial companies, my dividend income remained relatively stable while stock values dropped dramatically.  My tenants paid their rents, while real estate values were cut by 50 percent or more.  A couple more tenant failures than usual, but rents actually went up during that period as people lost homes to foreclosure and short sales and became renters. 

Selling off assets at fire sale prices to produce income during times like those is a lot less palatable than depositing rent, dividend, and interest checks and maybe cutting your spending a little to compensate for any missing checks. Sequence of returns risk is the largest threat to the success of a new retiree.  Sequence of returns risk is a lot more muted with this approach. 

There's a reason Warren Buffett doesn't care if the stock market were to close down for a few years.  His businesses continue to produce income independent of how the market values them on any given day.  He is not forced to sell shares of his businesses or complete businesses at any point in time, and does so only at points of his choosing.  My equity positions are pieces of businesses and my rentals are another business.  As long as the businesses are operated efficiently, I'm more likely than most folks to survive an extended downturn in asset prices.

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Re: Franklin IncomeFund FKINX
« Reply #15 on: May 21, 2015, 01:46:31 PM »
OP, at your stage in life, I think you might be interested in reading some of the threads over at early-retirement.org.  That's a generally older crowd facing the same issues you are.  I'm a few years older than you, and I have found some of the discussions very helpful.

Indexer

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Re: Franklin IncomeFund FKINX
« Reply #16 on: May 21, 2015, 05:38:15 PM »
I looked at the Wellesly Income Fund and it looks like after quarterly dividends and capitol gains it yields about the same dollar amount as FKNIX. One difference is the expense ratio of .61 for franklin vs .25 for Vangard.
We don't plan on retiring on this alone we have other investments, real-estate and social security will also contribute to our income.
So the 60% I have this 300K approximately, I agree we're  happy with the 1400 currently rolling back in however FKINX is not gaining any value.
I agree with the concern  that the yield  of .01 per share will drop again, it has dropped several times and never increased. One of the reasons I got into this fund is through the advice of a friend. It has seen 10% since inception 1948 and is a 4 star fund.
The difficulty for me is lack of knowledge, I hear about how we should diversify our funds but there's not alot of information ( that I can understand) as to what are good funds to diversify into. I assumed that when I owned a mutual fund the funds diversified their investments for me. But there are so many different kinds of mutual funds.....................Any suggested readings?

By the way your feedback is appreciated

Reading material:  https://personal.vanguard.com/us/insights/investingprinciples

When it comes to diversification there are different levels.  You can own 100 stocks and you are diversified from the standpoint you own 100 companies, but if they are all tech stocks and the year is 1999.... oops.  If you owned the SP 500 index then you own around 500 companies, but they are all large cap US stocks.  If US stocks take a beating you can still see a 50% drop.

Real diversification is owning lots of different securities across many different asset classes.  A vanguard target retirement fund will have thousands of securities over many different asset classes.  That is 1 fund that gives you proper diversification, but normally 1 mutual fund doesn't equal diversified. 

I'm going to second not focusing on the dividend.  VTINX has averaged over 5% growth pretty consistently(9 of past 12 years) but its dividend is no where near 5%, and it has held its value very well during crisis years(down about 11% in 2008).  It is also low cost at 0.16% and super diversified(15k+ securities).  This is a VERY conservative fund.  You could easily notch up the risk level a little and get higher average returns.