Scope of consideration for diversification

[Wizard]

My infant HYP is relatively small compared to other investments also purchased to bring me an income in retirement. I am sure that while the balance may be different the situation in principle is not that unusual. In much of the discussion about top ups, new purchases and top slicing decisions I see a number of posters refer to a holding relative to various HYP portfolio metrics, such as value of median holding. However, these diversification considerations seem only to be with reference to the poster's HYP holdings. This raises a question in my mind about the scope over which diversification is considered. Do others consider their HYP holdings in a ring fenced, isolated way or do they take account of other non HYP holdings when considering diversification in their HYP?

As a practical example my other income holdings are significantly greater than my HYP and I can not see a situation where that changes in the near future. My other holdings are very skewed to what could broadly be described as 'financials'. However, if judged on a ring fenced basis HSBA is an obvious share to add to my HYP. This would add to the diversification for my HYP, but increase concentration in banks in my overall portfolio.

I wonder, how do others approach this when selecting HYP shares?

Terry.

[idpickering]

My infant HYP is relatively small compared to other investments also purchased to bring me an income in retirement. I am sure that while the balance may be different the situation in principle is not that unusual. In much of the discussion about top ups, new purchases and top slicing decisions I see a number of posters refer to a holding relative to various HYP portfolio metrics, such as value of median holding. However, these diversification considerations seem only to be with reference to the poster's HYP holdings. This raises a question in my mind about the scope over which diversification is considered. Do others consider their HYP holdings in a ring fenced, isolated way or do they take account of other non HYP holdings when considering diversification in their HYP?

As a practical example my other income holdings are significantly greater than my HYP and I can not see a situation where that changes in the near future. My other holdings are very skewed to what could broadly be described as 'financials'. However, if judged on a ring fenced basis HSBA is an obvious share to add to my HYP. This would add to the diversification for my HYP, but increase concentration in banks in my overall portfolio.

I wonder, how do others approach this when selecting HYP shares?

Terry.

An interesting point Terry. I'm always considering adequate diversification when adding to my HYP. In keeping with your point though, my Wife and I own our house with no mortgage, so am aware of our exposure to the property market, and I also hold Taylor Wimpey and British Land in the HYP. With the two HYP holdings I'm wary of placing to much of a bet on them, as I'd not want to risk to much of our dosh in any one overweight sector. Perhaps your house is a bad example, as you've got to live somewhere. The house is valued £340K so it's not likely my HYP holdings are going to get to that value for a while yet, lol.

Ian.

[kempiejon]

I have more of my investment in my HYP than elsewhere and consider it ring fenced. I do hold a indexes, and Investment Trusts and other funds, I ignore their constituents and relative weightings when assessing my HYP thought there is overlap. I have a trading account that has and does hold shares considered to be HYPable and keep them separate from the HYP, for example I traded Lloyds sub 50p while holding the same share in my HYP.
When I worked for Sainsbury's I stopped buying their shares - even though at the time I thought they were HYPable.

[Wizard]

That's a good point Ian, I hadn't even thought about direct exposure to the property market. In addition to our main home we have some exposure through buy to let and a development project. Hmmm, maybe another reason to sell the Berkley Group holding and reinvest elsewhere.

Terry.

[kempiejon]

That's a good point Ian, I hadn't even thought about direct exposure to the property market. In addition to our main home we have some exposure through buy to let and a development project. Hmmm, maybe another reason to sell the Berkley Group holding and reinvest elsewhere.

Terry.

Berkeley, another HYPable I bought to trade. I'd not consider residences as investments. Holiday homes, backgarden plots for development and doer uppers perhaps, but I'm off topic now, is this topic a strategic question?
Ian I think British Land doesn't have much to do with private property or residences, Taylow Wimpey for sure, but as I said I don't think your home is an investment, in fact mine's a cost.

[Wizard]

That's a good point Ian, I hadn't even thought about direct exposure to the property market. In addition to our main home we have some exposure through buy to let and a development project. Hmmm, maybe another reason to sell the Berkley Group holding and reinvest elsewhere.

Terry.

Berkeley, another HYPable I bought to trade. I'd not consider residences as investments. Holiday homes, backgarden plots for development and doer uppers perhaps, but I'm off topic now, is this topic a strategic question?
Ian I think British Land doesn't have much to do with private property or residences, Taylow Wimpey for sure, but as I said I don't think your home is an investment, in fact mine's a cost.

I did wonder if this is a strategy question and indeed if we drift into a discussion of non-HYP investments it is. But my question is really about how to apply the principle of diversification to HYP share selection, which I concluded was an HYP practical issue.

Terry.

[77ss]

My infant HYP is relatively small compared to other investments also purchased to bring me an income in retirement. I am sure that while the balance may be different the situation in principle is not that unusual. In much of the discussion about top ups, new purchases and top slicing decisions I see a number of posters refer to a holding relative to various HYP portfolio metrics, such as value of median holding. However, these diversification considerations seem only to be with reference to the poster's HYP holdings. This raises a question in my mind about the scope over which diversification is considered. Do others consider their HYP holdings in a ring fenced, isolated way or do they take account of other non HYP holdings when considering diversification in their HYP?

As a practical example my other income holdings are significantly greater than my HYP and I can not see a situation where that changes in the near future. My other holdings are very skewed to what could broadly be described as 'financials'. However, if judged on a ring fenced basis HSBA is an obvious share to add to my HYP. This would add to the diversification for my HYP, but increase concentration in banks in my overall portfolio.

I wonder, how do others approach this when selecting HYP shares?

Terry.

I do not distinguish between HYP and non-HYP holdings when looking at sector diversification. Its all one pot!

If I want to add, top-up or top-slice an HYP holding then the whole pot has to be considered. As an example, I have a non-HYP investment trust in the pharmaceutical sector (Wordwide Health). I also hold AstraZeneca and GlaxoSmithKline. If tempted to add or reduce either AZN or GSK then I look at my overall exposure to the sector -including the IT.

[tjh290633]

My infant HYP is relatively small compared to other investments also purchased to bring me an income in retirement. I am sure that while the balance may be different the situation in principle is not that unusual. In much of the discussion about top ups, new purchases and top slicing decisions I see a number of posters refer to a holding relative to various HYP portfolio metrics, such as value of median holding. However, these diversification considerations seem only to be with reference to the poster's HYP holdings. This raises a question in my mind about the scope over which diversification is considered. Do others consider their HYP holdings in a ring fenced, isolated way or do they take account of other non HYP holdings when considering diversification in their HYP?

Terry.

The short answer to those questions, Terry, is Yes and No.

I have other investments in Unit funds and in ITs, plus a little bit in AIM, none of which I take into account when looking at diversification.

My split is roughly:

HYP   68%
ITs    8%
Funds 24%

One of these days I may move into ITs when I can feel Nemesis approaching, but not yet.

TJH

[midgesgalore]

I consider all HYPable shares in ISAS, share accounts and my SIPP as one HYP. I have also hold funds / trackers in my ISAS and SIPP but do not consider those HYP but because they are collectives give me the opportunity to diversify a bit more from UK equities. (also aware Shell, unilever etc are not inward UK looking for their business)

The ratio is about 50:50 HYP to funds


midgesgalore

[monabri]

my other income holdings are significantly greater than my HYP and I can not see a situation where that changes in the near future. My other holdings are very skewed to what could broadly be described as 'financials'

Since the other holdings are > greater than the HYP, you are free to do what you want. Personally, I'd mix it up a little by adding new sectors in FTSE100 sectors...i.e. increase your HYP portfolio and diversify specifically into areas other than financial. If you are heavy in financials elsewhere, is it prudent to invest more into the same basket just because it is in a HYP?.

Money is Money no matter where it is held or what you call it.


Off topic here, I've started to top up my class 3 NI contributions ..I see these as a "no risk HYP share with a 33% yield for life" (providing I don't die before state retirement ! On that happy note...

[StepOne]

I don't think your home is an investment, in fact mine's a cost.

You do need to consider the value in your home. If you need a particular size of pot to retire on, then using capital in your house by downsizing could make a big difference in reaching your goal. Also the house value will be used to determine your assets if you ever need help for care in old-age, and will eventually be included in your estate for inheritance tax. So I think it makes sense to include it in calculations. Not so sure whether it should influence diversification questions.

[OZYU]

We nowadays look at this across all our investments and try to maintain a balance which suits us between property, equities, other investables (such as collecting a few pieces of nice woodwork, ceramics, sculptures and paintings by mostly young artists, because we like them as the primary aim) and cash(or near cash if we put premium bonds in that lot). This has only gradually developed as we have got older, when the family was growing, careers developing and mortgage demanding, it was only a remote dream to even think about the concept.

For equity based investments we look , overall, for a sensible balance across the market cap, yield and geographical spread. So for us a 'pure HYP' on its own would not be diversified enough by a long way.

Ozyu

[idpickering]

I don't think your home is an investment, in fact mine's a cost.

You do need to consider the value in your home. If you need a particular size of pot to retire on, then using capital in your house by downsizing could make a big difference in reaching your goal. Also the house value will be used to determine your assets if you ever need help for care in old-age, and will eventually be included in your estate for inheritance tax. So I think it makes sense to include it in calculations. Not so sure whether it should influence diversification questions.

If I may, this may be slightly off topic, but down sizing is the way to go should you need the cash. My parents took some equity release from their bungalow a few years ago totalling £25K. In Nov last year I cleared their debt which had ballooned to £95K after all the interest is added!! So watch out for this.

Ian.

[Smautf]

I wonder, how do others approach this when selecting HYP shares?

As I mentioned when I posted an update last month, my retirement planning consists of

- a HYP held in a SIPP
- an S&S ISA
- membership of a defined benefit pension scheme
- the state pension (assuming it's not abolished !)

For many years, my ISA held an L&G UK all-share index tracker. However, I became concerned about the lack of diversification as the L&G tracker depended on many of the same shares as my HYP.

My solution was twofold : to replace the UK index tracker with a Vanguard Lifestrategy fund, which includes overseas equities and bonds, and to seed some more money into my SIPP with which to buy two other trackers - one covering the developed world (ex-UK), and the other covering emerging markets. This was a relatively inexpensive way of rebalancing my exposure.

This leaves me free to follow a fairly "vanilla" HYP strategy which selects from UK shares with a market cap over 1B sterling. As I have said before, I do not add new money to the HYP - new purchases and top-ups are made with dividend income from the HYP alone, so although it now sits alongside two funds in my SIPP it operates as a single independent entity.

Chris