New to TLF HYP-P. Advice?

[WrongLicence388]

Hi all,

I was recommended to TLF. I have spent some time reading through a few threads and came to the conclusion that it might be a good idea to post my HYP and see what you think of it and if there is any advice you might think worthy of giving.

Context
I have inherited some money early on in my life. I am in my 20s, so there (fingers crossed) should be plenty of time for this to grow and provide me with a very comfortable retirement in my latter years. I started this in earnest in June 2016 and have been putting in my ISA allowance each year. I probably have 6 more years of ISA allowance left to put into this (however I might decide to put a bit less in and put that somewhere else, which I won't dwell on on this board).

Current Portfolio (Thanks to the creators/contributors to HYPTUSS for saving me many hours work getting this into the right format for TLF)

                                                                                 Value     Div    Fcst 
Share                           Epic    Sector                                  %Total  %Total   Yield
BP                              BP      Oil & Gas Producers                      2.60%   4.41%   8.40%
Rio Tinto                       RIO     Mining                                   6.40%   8.50%   6.60%
AstraZeneca                     AZN     Pharmaceuticals & Biotechnology          3.96%   2.15%   2.70%
BHP Group                       BHP     Mining                                   4.35%   4.73%   5.40%
Berkeley Group Holdings (The)   BKG     Household Goods & Home Construction      2.52%   2.24%   4.40%
GlaxoSmithKline                 GSK     Pharmaceuticals & Biotechnology          3.12%   3.64%   5.80%
Aviva                           AV      Life Insurance                           2.58%   4.42%   8.50%
Unilever                        ULVR    Food Producers                           3.69%   2.38%   3.20%
Standard Life Aberdeen plc      SLA     Financial Services                       5.68%   7.43%   6.50%
Pearson                         PSON    Media                                    3.79%   2.06%   2.70%
Legal and General Group         LGEN    Life Insurance                           6.73%   9.35%   6.90%
Hargreaves Lansdown             HL      Financial Services                       1.58%   1.21%   3.80%
National Grid                   NG      Multiutilities                           4.61%   5.29%   5.70%
WPP                             WPP     Media                                    3.73%   2.78%   3.70%
Smith (DS)                      SMDS    General Industrials                      4.86%   3.62%   3.70%
Sainsbury (J)                   SBRY    Food & Drug Retailers                    3.92%   5.20%   6.60%
Tate and Lyle                   TATE    Food Producers                           3.04%   2.88%   4.70%
SSE                             SSE     Electricity                              3.78%   4.49%   5.90%
British American Tobacco        BATS    Tobacco                                  2.53%   3.97%   7.80%
BAE Systems                     BA      Aerospace & Defence                      4.04%   3.82%   4.70%
Vodafone Group                  VOD     Mobile Telecommunications                3.27%   4.21%   6.40%
HSBC Holdings                   HSBA    Banks                                    3.51%   1.06%   1.50%
British Land Company            BLND    Retail REITs                             2.65%   1.71%   3.20%
Royal Dutch Shell 'B'           RDSB    Oil & Gas Producers                      2.77%   2.34%   4.20%
Mitie Group                     MTO     Support Services                         1.02%   0.12%   0.60%
Lloyds Banking Group            LLOY    Banks                                    3.27%   0.86%   1.30%
Cineworld Group                 CINE    Travel & Leisure                         0.53%   0.00%   0.00%
Centrica                        CNA     Gas, Water & Multiutilities              0.61%   0.17%   1.40%
Marks and Spencer Group         MKS     General Retailers                        1.18%   0.09%   0.40%
Imperial Brands                 IMB     Tobacco                                  2.47%   4.83%   9.70%
BT Group                        BT-A    Fixed Line Telecommunications            1.18%   0.00%   0.00%
Hammerson                       HMSO    Retail REITs                             0.04%   0.03%   4.50%

Portfolio Running Yield = 4.97%

                                                  Value      Div
Sector                                           %Total   %Total
Oil & Gas Producers                               5.37%    6.75%
Mining                                           10.75%   13.23%
Pharmaceuticals & Biotechnology                   7.08%    5.79%
Household Goods & Home Construction               2.52%    2.24%
Life Insurance                                    9.31%   13.77%
Food Producers                                    6.73%    5.26%
Financial Services                                7.26%    8.64%
Media                                             7.52%    4.84%
Multiutilities                                    4.61%    5.29%
General Industrials                               4.86%    3.62%
Food & Drug Retailers                             3.92%    5.20%
Electricity                                       3.78%    4.49%
Tobacco                                           5.00%    8.80%
Aerospace & Defence                               4.04%    3.82%
Mobile Telecommunications                         3.27%    4.21%
Banks                                             6.78%    1.92%
Retail REITs                                      2.69%    1.74%
Support Services                                  1.02%    0.12%
Travel & Leisure                                  0.53%    0.00%
Gas, Water & Multiutilities                       0.61%    0.17%
General Retailers                                 1.18%    0.09%
Fixed Line Telecommunications                     1.18%    0.00%
Total                                           100.00%  100.00%

'Strategy'
I suppose my current view towards my HYP is that I'm likely to be a bit of a tinkerer. When I look at my portfolio I see that I am fairly reliant on Mining and Life Insurance for my dividend income (until the Banks are allowed to resume ). This a result of how COVID-19 has impacted my HYP, rather than a deliberate decision to invest more money in those sectors. I think top-slicing some would make sense but I think I have the view that I will wait until April when I invest my next years ISA allowance and try and re-balance my portfolio then, rather than selling to balance it beforehand.

I don't rely on this income, and I don't expect to need to for a long while yet so everything is re-invested into the portfolio.

I currently have this HYP across 3 accounts. 2 ISA's with Barclays (37%) and I-Web (28%) and a Trading account with I-Web (35%). I plan to open a third ISA account in April and then top up these three moving forward. Eventually once I have invested all the cash I intend to, I plan on selling my shares in the trading account and moving them into the ISAs too. I could have been more patient when I opened my non-ISA account and invested a considerable amount in there but I couldn't help myself investing in May-20 and September-20 as in years and decades to come I thought it may have been a missed opportunity to get hold of some shares at a discount.

I'm not a big fan of capital loss (who is) and while I know its not strictly that important in the long run there are a few shares above which unfortunately would cost me to remove/replace. Hammerson being one and the other more painful name, Carillion (not included above).

For completeness (but not really for discussion)
The rest of my wealth is shared between a 2 bed property, a small selection of 5 ITs, P. Bonds (for it's tax free nature), Easy Access Saving accounts and some student debt.

I would greatly appreciate some more experienced HYPers having a glance over the above.

Thanks
C.

[idpickering]

Welcome to the HYP Practical Board. I admit to envying your youth, and wish I'd been more in the HYP know at your age, so well done thus far!
At 32 shares you seem to have most of the usual suspects on board already. I'd be tempted to leave your HYP as is, but topping up the lower weighted holdings maybe.

I look forward to seeing how you get on with your HYP going forward.

Ian.

[TUK020]

You are very fortunate to have such a portfolio this far ahead of your retirement.
I would be tempted to say leave this as is for a long time.
A bigger question is that for a horizon of 30-40 years, you ought to be thinking about getting more international coverage, and getting exposure to sectors not represented in the FTSE - eg semiconductor manufacturing will be a core engine of wealth creation over the next century.
If you don't wish to get into the complexities of holding foreign shares directly, then you probably need to be looking at ITs

[dealtn]

You are very fortunate to have such a portfolio this far ahead of your retirement.
I would be tempted to say leave this as is for a long time.
A bigger question is that for a horizon of 30-40 years, you ought to be thinking about getting more international coverage, and getting exposure to sectors not represented in the FTSE - eg semiconductor manufacturing will be a core engine of wealth creation over the next century.
If you don't wish to get into the complexities of holding foreign shares directly, then you probably need to be looking at ITs

Yes but we are not here to question the strategy, or introduce such complexities, at least not on this Board.

Hopefully newcomers will discover other Board's exist, where "bigger questions" are allowed and encouraged and they can then share and learn elsewhere too. Until then it is HYP only that is allowed.

[moorfield]

C.

I have only skimmed what you have posted but two thoughts spring to mind immediately.

1 Consolidate your ISAs onto a single provider/account. And if/when you are paying higher rate tax, consider moving some of it into a SIPP while the tax relief for doing so is still on offer.

2 Do not tinker. Please. Top up with contributions and divis as/when you can but do not get carried away and feel you have to be "doing something". A 5 yearly review and rebalancing should suffice, for at least the first 25 years of your journey.


Good luck, and keep us posted!

M.

[MDW1954]

First, I'd talk to your Dad. You and I both know who he is on these boards. If you're anything like my twenty-something kids, you're probably underestimating the value of his advice.

Second, in my view you have far too few REITs and quasi-REITs. WHR, ESP, UKW, BBOX, ASLI, CREI, LXI, PHP, BSIF, HICL, RGL, etc etc etc. I hold all these.

Third, resist the temptation to tinker. I have four degrees that are highly relevant to investing (eg economics etc), I have been investing for decades -- and even I often don't know what to do. What I do know is that statistically, action is often worse than inaction. (Academic refs: Kahnemann, Odean, etc -- be careful of my spelling, here, because I'm not at my desk.) There are several shares in your HYP that I wouldn't want to hold right now -- but who knows what the prospects will be in 3, 5, 7, 10 years. And you have 40+ years before you even need the income.

Fourth, keep coming back. TLF, like TMF before it, is a superb resource and a wonderful community. You'll gain a lot.

Fifth, wonderful user name. Just hope it's not in the area of activity that your Dad holds dear...

MDW1954

[tjh290633]

1 Consolidate your ISAs onto a single provider/account. And if/when you are paying higher rate tax, consider moving some of it into a SIPP while the tax relief for doing so is still on offer.

2 Do not tinker. Please. Top up with contributions and divis as/when you can but do not get carried away and feel you have to be "doing something". A 5 yearly review and rebalancing should suffice, for at least the first 25 years of your journey.

I second these comments. If you are split across two or more accounts, you will invariably find that the money that you want to reinvest is in the wrong account. If the ISA is with a major bank or one of its subsidiaries, the risk is minimal.

The only time that you need to rebalance is when one or more shares run away with themselves and become a high proportion of your portfolio. I set a limit of holding value, when I need to take such action. Twice the median holding value should be fine in your case. Most rebalancing can be done by selective reinvestment of dividends.

TJH

[WrongLicence388]

Thanks all for your comments! Really appreciated.

1 Consolidate your ISAs onto a single provider/account. And if/when you are paying higher rate tax, consider moving some of it into a SIPP while the tax relief for doing so is still on offer.

I second these comments. If you are split across two or more accounts, you will invariably find that the money that you want to reinvest is in the wrong account. If the ISA is with a major bank or one of its subsidiaries, the risk is minimal.

The only time that you need to rebalance is when one or more shares run away with themselves and become a high proportion of your portfolio. I set a limit of holding value, when I need to take such action. Twice the median holding value should be fine in your case. Most rebalancing can be done by selective reinvestment of dividends.

TJH

With regards to the consolidation points. I had planned to spread across three providers to try and be better protected by the 85k FSCS protection. Would consolidating not increase my exposure to that sort of risk? While the risk might be minimal surely it would be catastrophic if the worst did happen? Are the extra transactions costs and fees in the long run not worth that protection?

Thanks
C.

[Dod101]

Good for you. Unlike say MDW I have no idea either who you are or who your Dad is but it seems to me that as a HYP there is not much wrong with it although there are a number of holdings that I would ditch. We cannot talk of international exposure here without the risk of being hounded off. I would say however, that contrary to what moorfield has advised, you need to tinker from time to time. in fact I would say you need to tend to your portfolio from month to month. Often the tending will mean doing nothing but sometimes you will need to take a good look and maybe almost change direction.

Good luck anyway. Things look good for now even if you have some stuff which I would not. Who can say with investing about who is right?

Dod

[uspaul666]

Thanks all for your comments! Really appreciated.

——snip——

With regards to the consolidation points. I had planned to spread across three providers to try and be better protected by the 85k FSCS protection. Would consolidating not increase my exposure to that sort of risk? While the risk might be minimal surely it would be catastrophic if the worst did happen? Are the extra transactions costs and fees in the long run not worth that protection?

Thanks
C.

I thought the 85k FSCS protection only applied to cash deposits or firms that provide advice?

[monabri]

The £85k FSCS is for losses and applies to the assets in ones accounts ( shares and cash). In the recent cases of Beaufort Securities and SVS Securities, investors with FAR more than £85k were covered such that they were not out of pocket. In the case of SVS Securities it was nigh on a year until I had any type of access to my investments and, in this period, there was no income stream at all ( and to cap it all, the choice of a new broker is made by the special administrator). In the case of both aforementioned failed brokers, the costs of the special administrator's were significant ( at an average of over £500 per hr). These costs would have been investors losses as "special administration" allows the administrator to use investor's assets to pay their costs (fortunately the costs were met directly by the FSCS).

[WrongLicence388]

So the risk is having to cope with the time period of no access to the funds rather than losing my capital.

If that is the case then I certainly see the benefit of consolidating and reducing the running costs.

C.

[MDW1954]

What follows is a bit simplistic, but this is how I think about it.

The legal holder of the shares is you. If it's a electronic holding, the broker holds them on your behalf, but they are still your shares. Ring-fencing is generally in place to ensure that is the case, so actual intentional fraud would have to take place alongside a broker failure. Even so, you might still be concerned. So one defence is to *not* hold them electronically, but actually hold the paper certificates, and just use a broker to buy and sell. This is what we all used to do, and what many people still do. Big downside: you can't do that *and* have the shares in an ISA. Or a SIPP.

Hargreaves Lansdown is massive. HSBC is massive. Halifax Sharedealing is owned by Lloyds Bank. What is the likelihood of these going bust *and* systemic fraud having taken place?

To my mind, a bigger risk to your capital is over-trading, poor investment decisions, and chasing yield.

MDW1954

[Gengulphus]

I thought the 85k FSCS protection only applied to cash deposits or firms that provide advice?

FSCS protection applies to broker accounts (with the usual conditions about the broker being authorised, the investor being an individual or a small business, etc) and has done for a long time. The limit on such protection used to be £50k - which I suspect is what you're remembering. But it's now £85k, having been raised to that level on 1 April 2019 - see https://www.fscs.org.uk/what-we-cover/investments/.

Gengulphus

[GrahamPlatt]

I thought the 85k FSCS protection only applied to cash deposits or firms that provide advice?

FSCS protection applies to broker accounts (with the usual conditions about the broker being authorised, the investor being an individual or a small business, etc) and has done for a long time. The limit on such protection used to be £50k - which I suspect is what you're remembering. But it's now £85k, having been raised to that level on 1 April 2019 - see https://www.fscs.org.uk/what-we-cover/investments/.

Gengulphus

I seem to remember it was £100k, and was reduced to £85 when the £/€ exchange rate was quite high (the europeans having only €100k cover so UK treasury was just evening up the field). Hasn't gone up again though!

[Gengulphus]

I thought the 85k FSCS protection only applied to cash deposits or firms that provide advice?

FSCS protection applies to broker accounts (with the usual conditions about the broker being authorised, the investor being an individual or a small business, etc) and has done for a long time. The limit on such protection used to be £50k - which I suspect is what you're remembering. But it's now £85k, having been raised to that level on 1 April 2019 - see https://www.fscs.org.uk/what-we-cover/investments/.

I seem to remember it was £100k, and was reduced to £85 when the £/€ exchange rate was quite high (the europeans having only €100k cover so UK treasury was just evening up the field). Hasn't gone up again though!

I've a memory of a change related to the £/€ exchange rate some years back, but don't think it involved £100k: I remember a £10k drop, but not whether it was from £85k to £75k (in which case it has come back up) or from £95k to £85k (in which case it hasn't). If it was to do with approximately matching the value of €100k, a look at a long-term £/€ exchange rate chart suggests a drop from £85k to £75k and coming back up is more likely - but I don't regard that as at all conclusive.

Deep-diving into this is however wandering off the thread's topic, so I'll stop there!

Gengulphus

[tjh290633]

I second these comments. If you are split across two or more accounts, you will invariably find that the money that you want to reinvest is in the wrong account. If the ISA is with a major bank or one of its subsidiaries, the risk is minimal.

With regards to the consolidation points. I had planned to spread across three providers to try and be better protected by the 85k FSCS protection. Would consolidating not increase my exposure to that sort of risk? While the risk might be minimal surely it would be catastrophic if the worst did happen? Are the extra transactions costs and fees in the long run not worth that protection?

Thanks
C.

Provided that you avoid small brokers, the risk is minimal. In any case your holdings are only at risk in case of fraud or deliberate misbehaviour. They are held in nominee accounts, and as has been said above, the real risk is that of access to your holdings while things are sorted out after a failure of the manager.

If somebody had a million in an ISA (and some do), do you think they would try to spread their holdings over 12 brokers? You cannot manage a portfolio that way.

TJH

[Arborbridge]

Some good advice below about multiple brokers. I'd add a footnote to what MDW wrote, however:

Ring-fencing is generally in place to ensure that is the case, so actual intentional fraud would have to take place alongside a broker failure.

In a broker account, there is a vulnerability in that shares are held in a pool, so to speak. There has been at least one case I remember (there are maybe more) in which the number of shares supposedly in the pool was less than the number held be each individual person. This wasn't fraud, as I understand it, just shoddy bookeeping. The company involved was a bit of a muddle and quite old fashion, I believe, and this would not happen with a huge company like Halifax or Hargreaves - would it? I asked HL about this, and they say the accounts are reconciled regularly to make sure this cannot happen.

To reduce this risk, I have three broker accounts for my shares and ITs. It's true that this does occasionally limit my actions in the way TJH suggested (at least twice recently), but I've never found it a particularly onarous problem simply because there are usually several investment choices in view at any time - and often choosing between them is entirely academic. The restraint is not serious, provided each account has what one might call "critical mass" to give you choices.

Arb.

[Gengulphus]

I second these comments. If you are split across two or more accounts, you will invariably find that the money that you want to reinvest is in the wrong account. If the ISA is with a major bank or one of its subsidiaries, the risk is minimal.

With regards to the consolidation points. I had planned to spread across three providers to try and be better protected by the 85k FSCS protection. Would consolidating not increase my exposure to that sort of risk? While the risk might be minimal surely it would be catastrophic if the worst did happen? Are the extra transactions costs and fees in the long run not worth that protection?

Provided that you avoid small brokers, the risk is minimal. In any case your holdings are only at risk in case of fraud or deliberate misbehaviour. They are held in nominee accounts, and as has been said above, the real risk is that of access to your holdings while things are sorted out after a failure of the manager.

If somebody had a million in an ISA (and some do), do you think they would try to spread their holdings over 12 brokers? You cannot manage a portfolio that way.

And no-one sensible would even try to do so!

Why not? Because we're dealing with an extremely-low-chance-of-devastating-loss risk here. The way to manage such risks is either to accept them on the basis that they will very probably never happen, or to incur just enough costs to reduce the loss to being acceptably non-devastating. But not to go all out to eliminate the loss entirely: your suggestion of a dozen brokers for an ISA millionaire to eliminate the loss entirely (by having no more than £85k with each) is complete overkill in risk-management terms...

Put another way, if someone has a million and holds it all in a single account, then if they were to suffer the complete loss of that account and just get the FSCS compensation for it, their fortune would drop 91.5%, from £1m to £85k. At an assumed portfolio yield of 5%, that's an income fall from £50k to £4.25k - which could leave them struggling for enough income to live on, or even not just struggling, but with a hopelessly inadequate amount if they have too little income from other sources.

If they instead split it equally between two accounts, then if they were to suffer the complete loss of one of those accounts and just get the FSCS compensation for it, their fortune would drop 41.5%, from £1m to £585k. At the same assumed portfolio yield of 5%, that's an income fall from £50k to £29.25k - which is still quite a bit more than an average salary in post-tax terms due to definitely not paying National Insurance on it, and more so if the account is an ISA or SIPP. The loss of £20.75k of income will doubtless force them to tighten their belts quite a lot, but it won't reduce them to penury.

If they instead split it equally between three accounts, then if they were to suffer the complete loss of one of those accounts and just get the FSCS compensation for it, their fortune would drop about 24.8%, from £1m to about £751.7k. At the same assumed portfolio yield of 5%, that's an income fall from £50k to about £37.58k - which is still well over an average salary even in pre-tax terms. And that income drop is little worse (if worse at all) than what the pandemic has inflicted on many HYPers this year, and what the financial crisis did a bit over a decade ago.

Putting a great deal of effort into reducing the potential size of a loss further doesn't make sense if it has an extremely low chance of happening and one is accepting much higher chances of similar-size losses by being invested in the stockmarket at all! So in principle, if one has a million in one's HYP, I would regard an equal split between two or three accounts as perfectly adequate for reducing the potentially-devastating size of losses from massive fraud / broker failure, bearing in mind the extremely low chance of those risks actually materialising (*). For considerably larger sums, I might upgrade that by one, to three or four accounts, and circumstances can force the split between accounts not to be equal, which might upgrade it by a few more - e.g. if someone's wealth arrives very rapidly, e.g. from a Lottery win or major inheritance, it might take quite a lot of years to grow their tax-sheltered accounts to anything like the same size as their unsheltered accounts. But anything beyond about half a dozen accounts would IMHO almost certainly be complete overkill for managing massive fraud / broker failure risks even in pretty extreme circumstances.

Or much more briefly, reducing massive fraud / broker failure risks by splitting one's portfolio across multiple accounts is subject to a strong law of diminishing returns, with the first few extra accounts getting most of the benefits.

And finally, quite a few HYPers will want multiple accounts anyway - e.g. an ISA, a SIPP and an unsheltered account. For them, the issue isn't whether to have multiple accounts, but how equal-sized they can be, and whether to hold them with the same broker - doing so will probably be a bit more convenient, but will make them ineffective for managing massive fraud / broker failure risks.

(*) And just to be clear, I'm not recommending either that HYPers should use multiple accounts to reduce the size of such losses or that they shouldn't. That's a matter for each individual HYPer to decide for themselves on the basis of how risk-averse their personality and circumstances make them - I'm commenting on how much it's sensible to do if they decide they want to reduce the size of the potential losses, not on whether they should decide that.

Gengulphus

[tjh290633]

What I do see as sensible is to use different brokers for diferent portfolios. One for Stocks and Shares ISAs, perhaps, another for Investment Trust portfolio, and maybe another for ETFs or OIECs. Providing that you are not subscribing to each, they could all be ISAs. The very nature of Collective Investments tends to eliminate the problem of money being in the wrong place. You can simply reinvest or use accumulation units, if available.

In the past my wife and I had about 7 ISAs or PEPs with different managers. Now we have four. They are serving different purposes.

TJH