HYP vs IT's for income

[bjmarren]

Hi all,

Like many here (LemonFool), I migrated from the Fool where I was mainly a lurker on the various investment boards.
Anyway, about 2 months ago I posted on the Fool that I had about 13K sitting in a UK bank account (I live in Bulgaria) and I wanted to invest it in HYP shares, reinvest the dividends, add to the pot (another 20K available next March). The aim of investing is to provide future income, maybe after 7 or 8 years.

I've been aware of the HYP for years and used to regularly follow the posts but never dipped my toes. I've been reading back posts and following comments here and as a result have started looking at IT's as part of this strategy but there are so many around that it is hard to get a handle on them. I guess I am looking for some advice as to whether it's best to have a combination of HYP shares and IT's or simply go down the IT road to avoid the management of individual shares. I've seen Vanguard mention as a low cost alternative as well but know nothing about them. Holding individual shares probably means an overall higher dividend yield but IT's are probably less hassle to manage. I should mention that I have a trading account with Charles Stanley but without any share holdings.

As background, I will turn 60 end of next March and as well as having the cash in the UK bank have cash in Euros and local currency here in Bulgaria. I also have property and earn some rental income. I plan to work for another 5 years maybe and then ease back gradually. I work as a freelance English Teacher and anticipate having enough work to cover expenses up to when I decide to stop working. Being non-resident for tax purposes means I can't benefit from ISA"s, SIPP's etc.

I'd welcome peoples opinions based on their experiences and I hasten to add that I'm not looking for advice as I will do my own research.

Thanks in advance,

Brendan

[Raptor]

Hi Brendan,

I was happy along the HYP route for many years, then there was a thread about what would you do if you lost the interest or capability to mange the HYP anymore? The consensus I worked on after that was maybe to move towards IT's and at that time (like you 60), the government rules changed about pension drawdown. Took the opportunity to consolidate 3 pension pots into 1 (later added another small one that became available), take the 25% tax free and the rest looked at putting into a combination of High Yield income, shares and IT's. The Shares were easy as had been doing that side for years. At the time I looked at Luni's basket of IT's (B7 and B8) as a starter. Since then my SIPP has only re-invested divi's into IT's. Will leave it like this for a while to see how it plays out on income and then decide if IT's is the right way going forward, but at the moment am happy with the split between shares and IT's.

Raptor.

[tjh290633]

I think that this comes down to how much you want to be hands on, and how much invest and forget. If you go down the Income-oriented IT route, then it's all taken care of for you, while if you go down the HYP route, you will inevitably have to do some things along the way. Shares may be taken over, they may spin off subsidiaries (think BT and Openreach for a start) and some may grow too quickly or stop paying dividends.

Luni's baskets are a good starting point for ITs. You ought to be able to get 4% yield from one of the portfolios, possibly more if you are selective.

With an HYP you may start out over the 5% level at the moment, but long-term that may fall to 4.5% or so. Don't forget that both of these are likely to grow and to grow faster than the RPI. If you are in Bulgaria, your rate of inflation may be different and you also have currency effects to consider. A lot of ITs have global investments, and some of them may be useful. Look at FRCL and WTAN, for example.

TJH

[bjmarren]

Hi Raptor,

Thanks for your reply and comments.

As I'm non-resident for tax purposes and have no pension pot apart from a small company pension, due to start next April, and the OAP, Government draw down rules won't apply to me but equally I can't benefit from ISA's or Sipps etc. My gut feeling is to initially invest in HYP shares, using the existing 13K in the bank account plus the 20K I'll get next April. At that point I'll also start receiving a company pension, which will allow me to invest another GBP 500 a month in building up the number of HYP shares and total value. Of course, I'll re-invest the dividends and continue topping up for the first 2 years to see where that gets me to in terms of total annual dividends. At that point I may simply rely on re-investing the dividends for the
for-seeable future and use the company pension to supplement my earnings if necessary.

Between now and next April I'll also do more work at looking at IT's and trackers and maybe use a chunk of the cash we have here to invest in those areas. Putting this all down on "electronic paper" has helped to organise my mind better on this.

If you or any other posters have any thoughts or comments I'd be happy to hear them.

Brendan

[bjmarren]

Hi TJH,

Thanks for your reply.

I guess I'm initially drawn to the individual shares because of the potential much higher overall yield but other people have also mentioned Luni's baskets so I'll definitely have a look at those. I guess I'll have to go back to the Fool's archives for those? Thanks for pointing me in the direction of those 2 global ITs as this is an area where I'd definitely opt for an IT. What's your opinion about the Vanguard products as a low cost tracker?

Brendan

[tjh290633]

I think that they are in TMF board "Investing for Income". They shouldn't be hard to find.

http://boards.fool.co.uk/basket-of-eigh ... t=threaded is the last review that I can find of B8.

TJH

[MDW1954]

You could also look at this Monevator piece, which looks at ITs for income in retirement:

http://monevator.com/investment-trusts- ... 16-update/

Here is the latest version of the table referred to:

http://monevator.com/compare-investment ... nt-income/

MDW1954

DECLARATION OF INTEREST: I recently "outed" myself here as the author of said "Greybeard" pieces on Monevator.

[bjmarren]

I think that they are in TMF board "Investing for Income". They shouldn't be hard to find.

http://boards.fool.co.uk/basket-of-eigh ... t=threaded is the last review that I can find of B8.

TJH

Hi TJH,

Thanks for the link, I'll start having a read.

Brendan

[bjmarren]

Hi MDW1954,

Many thanks for those 2 links, much appreciated. I'll start having a read.

Brendan

[bjmarren]

Hi MDW1954,

Many thanks for those 2 links, much appreciated. I'll start having a read.

Brendan

[Chloe]

When I clicked tjh's link it didn't work. If you have the same problem, you can try the following:

Basket of 7 2016 review: http://tinyurl.com/j6tdxkg
Basket of 8 2016 review: http://tinyurl.com/jgsw6yy

I have included the basket of 7 as well because I understand Luniversal very much favours it over the B8.
You could also try this: http://tinyurl.com/zllxfo4 but be warned that you could spend days tracking back through the postings!

Good Luck,
CB

[tjh290633]

The problem is trying to click on a copied link, which breaks at the point where the "...." appears on the original link. The original link works fine and, if you want to include that link in your post, then you need to open the linked page in a new tab and then copy the URL into your post..

TJH

[swill453]

The problem is trying to click on a copied link, which breaks at the point where the "...." appears on the original link. The original link works fine and, if you want to include that link in your post, then you need to open the linked page in a new tab and then copy the URL into your post..

Or alternatively right-click on the link and choose the "copy link location" option (or equivalent).

Scott.

[bjmarren]

Hi All,

I started this thread back in Dec 2016 when I was looking at setting up a HYP portfolio or investing in IT's or a more passive form of investing. This came about as a result of having money in banks loosing value. I thought I would let you know what I did in the end. After a lot of thought I opted to set up a Hyp portfolio and bought my first 6 shares towards the end of December. I bought another tranche of 6 a couple of weeks ago and here they all are:

HSBC
Shell B
Vodafone
Legal & Gen
SSE
Capita
Glaxo
Greene King
Royal Mail
British Land
Persimmon
Imperial tabacco


As you can see, the list includes all the usual suspects, including those that people have concerns about in terms of maintaining the dividend. There was an element of chasing the yield in some selections but I am 60 and the HYP will form part of my overall investment strategy so I was willing to risk a bit. Given that I do not live in the UK or intend to in the forseeable future, means I can't take advantage of any tax free wrappers, which also influenced my selection a bit. I now want to buy another another 3 shares to have the recommended minimum amount of 15 for a HYP. I've been looking at Rio Tinto and Marks, to help sector diversification, even though I generally don't like General retailers such as Marks as an investment but the yield is attractive. I would be grateful for any thoughts on the HYP so far and possible further purchases. I hasten to add that I'm not looking for advice, as I will DMOR, but getting another view(s) is always helpful.

Thanks for reading,
Brendan

[richfool]

Brendan, Re your proposed additions, I don't like the prospect for retailers and M&S, with the current economic outlook, despite any diversification it might give you. I think retailers are in for a hard time for some time yet.

[TUK020]

British Aerospace?

[Urbandreamer]

I'm curious that, given that you don't live in the UK, you have focused upon UK companies!

Given that the original thread considers shares/ IT's I'm going to suggest that you consider HFEL (I own some) or other high yield global IT.

The yield is currently running at over 5% and there has been some capital growth (My investments show an Xirr of 5.8% over the last 4 years).

Given that your bills are not in pounds doesn't it make sense to have a more global outlook?

[kempiejon]

I'm curious that, given that you don't live in the UK, you have focused upon UK companies!

Given that the original thread considers shares/ IT's I'm going to suggest that you consider HFEL (I own some) or other high yield global IT.

The yield is currently running at over 5% and there has been some capital growth (My investments show an Xirr of 5.8% over the last 4 years).

Given that your bills are not in pounds doesn't it make sense to have a more global outlook?

But from that list of UK companies
HSBC
Shell B
Vodafone
Legal & Gen
SSE
Capita
Glaxo
Greene King
Royal Mail
British Land
Persimmon
Imperial tabacco
Hsbc, Shell, Vodafone, Glaxo and Imperial all earn and I think declare dividends in non UK£, and at a guess most of the other will have some international earnings.

[bjmarren]

Hi All,

Thank you all for replying.

Thanks for pointing me in the direction of British Aerospace TUK020, I'll give it a look.

Yes, I agree with you "richfool", retailers are not usually the best investments and I would never usually touch them but I also looked at Next but their yield is a lot lower. Are there any other sectors that you think are worth looking at?

As "kempiejon" has pointed out, Urbandreamer, most of the companies I chose, earn some if not most of their revenue outside the UK which I felt gave me a more global outlook but from companies that I had more of an understanding of and a stock market I am familiar with. However I will have a look at HELF and thanks for the recommendation. I had thought I would perhaps invest a world wide tracker and was thinking of looking at Vanguard.
Once again thank you for your thoughts which have given me something more to think about.

Brendan

[richfool]

Yes, I agree with you "richfool", retailers are not usually the best investments and I would never usually touch them but I also looked at Next but their yield is a lot lower. Are there any other sectors that you think are worth looking at?

Brendan, I have what I refer to as a "mini-HYP", and a much larger portfolio of IT's. Whilst I note you hold LGEN, in my mini-HYP I hold SL. (as well as LGEN). I also hold ULVR from a different sector, though all are currently at high SP's, to the extent that I wouldn't buy or top-up either at current prices.

I also hold a range of Global and UK G&I IT's.