Starting a HYP

[Alan7878]

Great forum. I would be grateful for some advice. I have been investing for 10 years + in index funds for kids Uni etc and I have a final salary pension for retirement in about 8-12 years. I am completely new to shares although i understand some of the concepts and i've been reading the old motley posts on HYP and here. I would like to develop a HYP but i would be starting from scratch with about £500-800 month to play with. Probably a stupid question but is the best approach to buy a new share every 3-4 months and build gradually? The other options i thought of was to build more in another tracker until i have enough to purchase 5 stocks or keep in cash and buy more if/when the market dips. I have a platform account with HL.

Thanks

Alan

[monabri]

Can you buy "added years" in your pension? Might also be worth considering! Yep - way off topic but just a thought!

[monabri]

Back on topic...

With £500/£800 per month I would be tempted to say buy into one different company every two months. After 2 years you will have a "base layer of shares". Then you can "increase the layer thickness " (top up a particular share) or buy new shares in a different sector. You have to determine how many companies you want to hold in your HYP.

[Alan7878]

Thanks Monabri

No, i cant top up my pension. public sector final salary scheme. I can retire at 55 and i will be on a 'full' pension at that time if I go. I expect i will work on a few years though, probably part-time, until my better half retires.

I think i understand the risks of a HYP but i do really like the idea of seeing increasing dividends coming in and i think that will motivate me to save more and it wont be our only investments outside of pensions. Are there any hard and fast rules about the number of companies in the portfolio? I see that most people have 20-30? I don't however understand why you wouldn't hold more - do you just run out of higher yield shares or does it become too unwieldy?

Thanks again

Alan

[monabri]

Hi Alan,
I think there are two schools of thought. Some say 15 to 20 is enough but you'll see HYPs of circa 30 to 40. My mindset is to hold ~35 shares. I think 15 is too low (IMHO). You will need to decide for yourself here as there seems to be no rules. My view is, as long as the yield is right then it is a HYP candidate..(candidate but not necessarily a buy.. eg Pearson). As demonstrated, very few seem to be able to avoid HYP problems sooner or later (e.g Cobham, Interserve, Tesco, BP, Pearson) so this reinforces my view to hold a large number of shares.

Then the counter argument is " if you picked quality you are less likely to run into problems" . The skill will be to identify the good ones which still have an attractive yield.

So, your HYP, your rules.

Off topic again!!! Have you checked your personal tax account to see if you will get the max state pension when you come to retire- will you have built up sufficient years to get the full state pension? I retired early on a final salary pension but I'm about 8 years short of a full state pension. So I'm buying class 3 added years which are a bargain *( a 33% return every year for life....!)


* Assuming I get to state retirement age.

[Alan7878]

Thanks Monabri

i was also weighing up whether to go for an income index - less risk but probably less reward and a lot less fun

Funnily enough, I checked the state pension last week. All on track and full pension at 67. i think its 30 years contribution for full state pension and i will have that from next year

A

[monabri]

Maybe look at investment trusts? Or an index tracker in non UK funds?

Oh, i think it is 35 years now. Sign up for your personal tax account to check!

https://www.gov.uk/new-state-pension/how-its-calculated

[staffordian]

Just some thoughts on the overall number of shares.

The general consensus is that around 15 shares, spread across different sectors, is a reasonable minimum number to ensure diversity, i.e. protection against failures and dividend cuts.

Some will stick at about this figure, especially if buying a portfolio in one shot, for example with a maturing pension lump sum. Trying to find significantly more than 15 (or even finding 15!) good quality high yielding shares at any one time is a tall order.

If buying gradually, then there is usually a handful of shares to choose from at any one time. Once you have reached the suggested minimum of fifteen, the question then arises as to what to buy next. Do you go back to the existing shares and top those up, or do you go for a sixteenth, seventeenth etc?

The choice is obviously yours, but I would suggest keeping an open mind. I would screen the market for the best yielding share which meets your minimum criterea, such as dividend cover, company size etc, and go with that, whether it is a new share or a top up of an existing one. It is by doing this that many HYPs on here grow to 30-40 shares, because each time a new purchase is contemplated, a new share rather than an existing share happens to be the highest yielder, and why would you not choose the highest yielder (other things being equal).

The one proviso to this strategy is to keep an eye on how much you invest in any particular share, how much income you get from a particular share, and how much any one share represents in terms of it's current value. Avoiding excesses in any of these metrics will help avoid shocks to income and overall value.

You have probably come across TJH's posts and strategy with regard to selecting which share to top up, and Gengulphus's demo portfolio also fleshes out some of these principles of share selection.

Just to add, if you select a broker offering cheap dealing days, such as Halifax (others do this too, I just happen to use Halifax so speak from experience) then your monthly contributions are certainly large enough for a purchase every two months, and it could be argued that to ensure rapid diversification, buying one per month (say £800 a time) is worth considering. And do try to ISA this from the start. Dividends soon mount up, and with the current attacks by the chancellor, sheltered income is very useful...

[Gengulphus]

Great forum. I would be grateful for some advice. I have been investing for 10 years + in index funds for kids Uni etc and I have a final salary pension for retirement in about 8-12 years. I am completely new to shares although i understand some of the concepts and i've been reading the old motley posts on HYP and here. I would like to develop a HYP but i would be starting from scratch with about £500-800 month to play with. Probably a stupid question but is the best approach to buy a new share every 3-4 months and build gradually? The other options i thought of was to build more in another tracker until i have enough to purchase 5 stocks or keep in cash and buy more if/when the market dips. I have a platform account with HL.

If you want a real-life example of something pretty close to matching your conditions (it's been funded with £600 per month, and is approaching having been run for 9 years) and haven't already taken a look at GDHYP, take a look at it. Its first 8 years are described in https://web.archive.org/web/20161107182506/http://boards.fool.co.uk/gdhyp-year-8-report-13397971.aspx?sort=whole and by chasing links from there. Since then, it has had two more purchases on TMF and two more on TLF.

The first of those subsequent purchases on TMF is described in:

https://web.archive.org/web/20161213070830/http://boards.fool.co.uk/gdhyp-39th-purchase-13407144.aspx?sort=whole
https://web.archive.org/web/20161213071011/http://boards.fool.co.uk/gdhyp-39th-purchase-candidates-13412146.aspx
https://web.archive.org/web/20161213071153/http://boards.fool.co.uk/poll-gdhyp-39th-purchase-pre-poll-part-1-13412148.aspx
https://web.archive.org/web/20161213071318/http://boards.fool.co.uk/poll-gdhyp-39th-purchase-pre-poll-part-2-13412149.aspx
https://web.archive.org/web/20161213071454/http://boards.fool.co.uk/poll-gdhyp-39th-purchase-final-run-off-poll-13413014.aspx?sort=whole

The second is described in https://web.archive.org/web/20161214011842/http://boards.fool.co.uk/gdhyp-40th-purchase-13437146.aspx?sort=whole, and the TLF selections are described in a number of threads - the first is https://www.lemonfool.co.uk/viewtopic.php?f=15&t=1140 and each has a link to the next one towards its end.

By the way, I'm not suggesting using its method of choosing shares to purchase - if lots of HYPs chose their purchases (or even every other purchase) by an extensive GDHYP-like voting process, this board would be absolutely swamped by them! Rather, I'm suggesting it as a way of getting some idea about its total value, its number of shareholdings, the income it's producing, etc, after 9 years, as some sort of guide to what you might look for from your HYP.

Gengulphus

[Alan7878]

Thanks Monabri - 35 years should be fine - no'FIRE' retirement for me!

Staffordian/Gengulphus - very helpful and Gengulphus, I hadn't seen those particular posts on TMF - incredibly helpful. I can clearly see the process from that.

I will be in a position to make my first purchase later this month. I still have a lot more reading to do regarding the selection process.

Lastly, if i may, any practical tips on managing and monitoring the portfolio from scratch? e.g. I am with HL. I've seen a spreadsheet referenced on TMF and TLF but it wasn't immediately apparent to me how it worked! I've also read about HYP monitoring via Digital Look.

Best,

A

[Raptor]

I0've seen a spreadsheet referenced on TMF and TLF but it wasn't immediately apparent to me how it worked! I've also read about HYP monitoring via Digital Look.

Best,

A

Good start for spreadsheets.

Raptor

[Itsallaguess]

I've seen a spreadsheet referenced on TMF and TLF but it wasn't immediately apparent to me how it worked! I've also read about HYP monitoring via Digital Look.

Raptor has already helpfully provided a link to the TLF Financial Software Repository (http://lemonfoolfinancialsoftware.weebly.com/ if you missed it), where you can download the HYP Top-Up Spread Sheet (HYPTUSS for short), as either an Excel or OpenOffice version.

The tool was principally developed to emulate Terry's (TJH) HYP top-up methodology, but that feature can be safely ignored and it can be helpful in it's own right as a portfolio monitoring tool, with the obvious additional benefit with it being spreadsheet-based of being flexible in terms of any additional development you may wish to carry out beyond it's vanilla-capabilities.

As one of the authors of the tool, along with ever-helpful Kiloran, I'm clearly biased in terms of it's usefulness, but it may be worth a look to see if you might find it helpful, because it's had quite a lot of nice features bolted on over the years following many helpful suggestions from both the TMF and TLF posters. I use it constantly for my own HYP portfolio-monitoring, so I hope you might find it useful too.

Here's some screen-shots of the tool. Although they don't cover all of the useful features it does give a flavour of the utility without having to download and populate it with your own portfolio.

http://lemonfoolfinancialsoftware.weebl ... shots.html

Please do be aware that as authors of the tool, Kiloran and I are absolutely specific on the fact that all personal financial information is only contained locally on your own machine, internal to the spreadsheet. No 'cloud-based' issues are going on with the tool at all, and all internet-related activity is specifically designed to grab data from external sites, to use in populating relevant information in the tool.

The code has been scrutinised many times over the years by other Visual Basic users, and whilst we do password the code, that's purely to try to avoid any un-intended issues by people using the tool, and we've always been clear that the password is available to all users ('pleaseletmein') if they do wish to view the code themselves, or even alter it if they so wish, although obviously the lifetime warranty does become void at that point....

If you've got any questions regarding it, then we'd prefer to keep those specific discussions separate to the HYP Practical Board if at all possible, so you'd be best posting over on the Financial Software Discussion Board, which you can find here -

viewforum.php?f=27

Good luck with your HYP journey. I can honestly say that it's one of best financial decisions I've ever made, and I hope you enjoy it half as much as I have.

Cheers,

Itsallaguess

[Alan7878]

Brilliant, thanks Raptor and Itsallaguess

Alan

[tjh290633]

The question of how many shares to hold comes down to how you start and how you go about it thereafter. My own story began when PEPs started, and I subscribed for the first few years. From memory, that got me to about 12 holdings, including ICI and Hanson. ICI split off Zeneca, now AZN, and Hanson set about splitting itself up. The two US companies were disposed of, and I was left with Hanson, Imperial Tobacco and Energy. Also British Gas split off Centrica, which was sold.so potentially I was up to 16 or so. I threw a little more money at it, and Halifax demutualised, so I ended up with about 20 holdings in the PEP. Then ISAs came along and I decided not to duplicate holdings, so the total rose to about 30. Growing like Topsy seems to cover it best.

After nearly 30 years, I have 37 holdings and do not seek to add more, but sometimes they come along of their own volition. Most recently Reckitt-Benckiser shed Indivior and BLT-Billiton shed South32, which I have held on to.

Takeovers also lead to replacement, and I normally add at my median holding value. Occasionally I have lost two and gained three. You will find that events will determine how you get along. What is certain is that you will lose holdings from time to time. Life can get interesting.

TJH

[monabri]

Life can get interesting.

I prefer boring...boring is good!

[tjh290633]

Life can get interesting.

I prefer boring...boring is good!

Better than interesting, certainly.

TJH