When to Top-Up a HYP not yet in Drawdown (spun out of ITH's Pyad update)

[vrdiver]

Back in TMF days, this issue [the 'economic top-up sum'] came up several times.

I think it was Gengulphus who posted a handy formula that helps calculate what "economic" means, as that will vary depending on how much an investor is able to put into their HYP, as well as opportunity costs of not investing money.

I don't have it to hand, but hopefully he will be along to post it again?

Do you mean this one?

https://web.archive.org/web/20161111110 ... 44023.aspx

I tend to use £1000 as a useful 'minimum tranch size', taking into account stamp-duty and average on-line trading costs.

Cheers,

Itsallaguess

Spot on - thank you!

[idpickering]

Perhaps, but if you accept that the time to invest is "now" and that time "in" the market is more important than time "ing" the market, then you face the issue that the share identified today, as the best share for your money, may be rejected simply because it is about to pay a dividend, leaving you with an inferior option, or the decision to delay your investment.

I seem to recall that studies have shown that there is no significant advantage or disadvantage in investing immediately before or after a share goes ex-dividend, so as a HYP investor I simply ignore dividend dates until I actually own the share concerned.

VRD

[/quote]

Funnily enough, on 15th August I bought more Phoenix Group irrespective of the fact that they went ex divi that day. In keeping with my ‘get the dosh invested’ asap/now policy. The fact that they’d gone ex divi that day didn’t faze me, or have any influence whatsoever.
They were due a top up to bring them up to average capital value weighting, so went for it. This was via the Halifax cheapo monthly investment, £2 plus stamp, deal.

Ian.
Ian.

[kempiejon]

I seem to recall that studies have shown that there is no significant advantage or disadvantage in investing immediately before or after a share goes ex-dividend, so as a HYP investor I simply ignore dividend dates until I actually own the share concerned.

VRD

Talking of Gengulphus I think he did this calculation a while back too, I'll try and recreate it. Assuming the share falls by the same amount as the dividend then buying cum div you pay stamp duty on the amount of the dividend that is then returned to you. As HYPer we're looking at yields over say 5%, as dividends are generally twice a year split a third two thirds, sometimes equally quarterly and one share I hold pays an equal amount each month so the amounts we're looking at would be as much as 66% of 5% so 3.3% on which tax of 0.5% is paid there buying doing the investor out of 0.0167% of their investment. Less I suspect than most daily fluctuations. For quarterlies the amount is 0.00625%
Like Ian the feeling of getting that dividend back sooner rather than later is sometimes a pull. All else being equal I might use ex/cum div as a decider but mostly buy when the cash is there.

[monabri]

Funnily enough, on 15th August I bought more Phoenix Group irrespective of the fact that they went ex divi that day.
Ian.

You will have to console yourself with the fact that on the day the share price fell more than the dividend so you effectively got the dividend + a little bit more compared to if you had bought just before XD.

(p.s. I topped up PHNX on the 15th as well!).

[Wizard]

I seem to recall that studies have shown that there is no significant advantage or disadvantage in investing immediately before or after a share goes ex-dividend, so as a HYP investor I simply ignore dividend dates until I actually own the share concerned.

VRD

Talking of Gengulphus I think he did this calculation a while back too, I'll try and recreate it. Assuming the share falls by the same amount as the dividend then buying cum div you pay stamp duty on the amount of the dividend that is then returned to you. As HYPer we're looking at yields over say 5%, as dividends are generally twice a year split a third two thirds, sometimes equally quarterly and one share I hold pays an equal amount each month so the amounts we're looking at would be as much as 66% of 5% so 3.3% on which tax of 0.5% is paid there buying doing the investor out of 0.0167% of their investment. Less I suspect than most daily fluctuations. For quarterlies the amount is 0.00625%
Like Ian the feeling of getting that dividend back sooner rather than later is sometimes a pull. All else being equal I might use ex/cum div as a decider but mostly buy when the cash is there.

Depending on individual circumstances it is also possible that dividend tax is payable on the income at 7% on that income, but I guess that is only a payment brought forward as even bought on the ex. div day it would likely be no more than 6 months until a dividend was paid anyway.