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Reality of Living off HYP dividends

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Gengulphus
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Re: Reality of Living off HYP dividends

#91426

Postby Gengulphus » October 28th, 2017, 6:30 pm

pendas wrote:"There were multiple one-off demo HYPs set up by Pyad on the Motley Fool, which Gengulphus I think continues to monitor on here if you want some evidence for how they perform."

I'm aware of HYP1 and the continuity HYP1 that Gengulphus kindly maintained after Pyad left the Motley Fool, but of course these started life as one portfolio. As far as I know, future portfolios constructed, or partly constructed and featured in the MF articles were never monitored once Pyad left.

Yes, I've only monitored HYP1 and its offshoot CHYP1 - mainly the latter because it's the one I have the best data about, and indeed have been running since the end of 2009 (though I have to confess to currently having a bit of a backlog on it - something I intend to catch up on in the next two weeks or so, leading up to their joint 17th anniversary on November 13th).

Pyad later constructed 3 more public HYPs at TMF, called HYP2, HYP3 and HYP4, plus IIRC another and a start on a second that were less public, being published in a subscribers-only TMF newsletter about Value and HYP investing, that TMF pulled the plug on after something in the region of 18 months. They all fell victims to non-maintenance: if corporate actions return cash, you really want that cash to be reinvested reasonably quickly, otherwise you've either got to backdate the reinvestment decisions, which carries the danger of hindsight bias, or you've got to make the reinvestment decisions based on the current situation, which means that the 'HYP' has held a significant amount of cash rather than being fully-invested - especially if the corporate actions concerned are takeovers for cash, because of the large amounts of cash they return.

At some point, it becomes untenable that an unmaintained HYP is still a reasonably fair demonstration of a HYP, or can be resurrected into one, because of those twin dangers of its investment performance being too badly affected by hindsight bias or too badly diluted by not being fully invested. When that point has been reached is of course a judgement call...

Anyway, a look was taken in 2012 at the instigation of ReturnOfFred at the possibility of resurrecting HYP2, HYP3 and HYP4. My judgement at the time was that HYP2 and HYP3 had gone beyond the point of no return due to takeovers, but HYP4 had escaped having any of its holdings taken over for cash. Of course, it probably did have some much smaller capital sums returned by other corporate actions, but they probably totalled a sufficiently small amount that leaving them uninvested until 2012 wouldn't affect the outcome all that much... And as I recall, either ReturnOfFred or someone else did make an attempt at resurrecting HYP4 - an attempt that struck me at the time as serious and good enough to produce a very reasonable approximation to what the outcome would have been - but unfortunately nothing more was heard of it afterwards, i.e. AFAIAA it went straight back to being unmaintained... :-(

I do have some records of all that, but most of them are nothing like as nice as links to Wayback Machine archives to the TMF articles and posts concerned. Which doesn't necessarily mean that they're not archived - just that I don't have links to any such archives that people may have made, and don't have any guarantees that they were made at all... But there are ways that such links might be tracked down - I've just used one of them to track down the December 2007 article that completed HYP4's selection - it's in https://web.archive.org/web/20071207135 ... yield.aspx. Intriguingly, none of the 16 companies it contains has been taken over for cash since, so a reasonably fair resurrection of HYP4 might still be possible, and we are coming up to the 10th anniversary of it being completed... Before anyone takes on the project of producing a HYP4 10-year report, though, let me warn them that working through 10 years of 16 companies' histories, making certain you've accounted correctly for every dividend, rights issue, share consolidation, merger, etc, correctly, is not a trivial job!

I probably also have records of the TMF newsletter HYPs somewhere - but I'm not going to put any effort into finding them: too much effort, which would probably be wasted because the outcome would probably be that they've gone beyond the point of no return on non-maintenance.

Finally, I'm fairly certain pyad has produced HYPs for his post-TMF newsletters, but I neither have any records of them nor have ever had such records.

Gengulphus

Gengulphus
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Re: Reality of Living off HYP dividends

#91432

Postby Gengulphus » October 28th, 2017, 6:52 pm

Julian wrote:1 - A transfer to a savings account where I keep money for my tax bills (I earn enough in dividends to be a higher rate tax payer although, with the new way that divis are taxed even a basic rate tax payer should at least be aware that they will have a tax bill to pay if their dividend income exceeds the personal allowance plus the soon-to-reduce dividend allowance and might want to make sure that they have enough cash to pay that bill when it arrives). I accrue this money monthly based on my income forecast for the year.

Just to say that I thoroughly agree with the principle here, but what you say about what people should be aware of needs correcting or at least clarifying - with the changes emboldened, it should be:

1 - A transfer to a savings account where I keep money for my tax bills (I earn enough in dividends to be a higher rate tax payer although, with the new way that divis are taxed even a basic rate tax payer should at least be aware that they will have a tax bill to pay if their taxable dividend income exceeds whatever's left of their personal allowance after using it for whatever other taxable income they have plus the soon-to-reduce dividend allowance and might want to make sure that they have enough cash to pay that bill when it arrives). I accrue this money monthly based on my income forecast for the year.

The first change acts in their favour on the tax payable on their dividends, as dividends received in ISAs and SIPPs aren't included; the second against them on that, as it reduces the personal allowance available for use against dividends, but in their favour overall, as the other taxable income that the personal allowance is used against would have been taxed at a higher rate than the dividends.

Gengulphus

midgesgalore
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Re: Reality of Living off HYP dividends

#91496

Postby midgesgalore » October 29th, 2017, 1:07 am

Gengulphus wrote:
midgesgalore wrote:After reading the HYP posts by PYAD, and convinced this was something better than my original plan A, I read the fool's HYP practical board and found the best practical resource (for my purposes) was a long post of Gengulphus called "HYP all at once", or something like that and off I went for the next few months. I don't seem to have saved that post unfortunately.

Might https://web.archive.org/web/20161114200 ... sort=whole be the post you're referring to? (And its ensuing discussion thread, which should be read if only to illustrate the dangers of relying entirely on a secondary data source!)

midgesgalore wrote:Agreed, it is a scary project to build a HYP quickly.

And I should add that I agree entirely - the fact that I posted about how I would go about it if I had to doesn't mean that I would choose to do it if given a free choice!

Gengulphus



That's the post I was thinking about and a really good piece of work. Have a virtual beer on me.
Incidentally I did read this was how you would go about it - not that you recommended anyone should build a HYP all at once with a lump sum however I needed to know the HYP was going to work for real and it looks like it is (so far).

Thanks for the work and the link to reunite me with it.

midgesgalore

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Re: Reality of Living off HYP dividends

#91500

Postby Arborbridge » October 29th, 2017, 7:07 am

Gengulphus wrote:But there are ways that such links might be tracked down - I've just used one of them to track down the December 2007 article that completed HYP4's selection - it's in https://web.archive.org/web/20071207135 ... yield.aspx.



Ah! that brings back memories, not all happy ones.
HYP4 was about the time I started my own HYP. I didn't follow it exactly, but amongst others, I bought such gems as Lloyds, RBS, RTO, DSGI, Av.. In short, it brought me some real cracking disasters, with my first 80% faller in RBS. UU was also bought, which I seem to remember had a rights issue (and a divi cut?) but staggered on.

HYP4 seemed a little ill fated in that respect and didn't give me the best of starts. I've often wondered what would have happened if Pyad had continued it, for I reckon it could have been an interesting contrast to HYP1. The Princess and the Ugly Sister of the HYP world, perhaps.

But maybe the interesting thing is, that despite those and later problems (Tesco,CLLN) my HYP actually still provides me a substantial and increasing income and achieved its secondary aim of maintained or increased capital. It has done what it said on the tin. Let's not be churlish: the HYP idea worked for a someone who was a fairly "ordinary" investor.
That other routes might have been better is hardly in doubt, but I'm happy with my particular choices for my pension pot. (In brief, now consisting of: doses of 3 HYP+ 2 incIT + 0.5 incOEICS + odd growth funds).




Arb.

pendas
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Re: Reality of Living off HYP dividends

#91575

Postby pendas » October 29th, 2017, 12:11 pm

I believe Arb and I started HYP investing around the same time in 2005/6 and I held all the shares he mentions above plus a few more dogs he hasn't!

It was unfortunate timing for us with the financial crisis just around the corner. I expect many were either wiped out or disillusioned with equity investing around then.

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Re: Reality of Living off HYP dividends

#91601

Postby MDW1954 » October 29th, 2017, 4:01 pm

I also began HYP investing in 2005, but as part of a gradual transition away from index tracker investing. It wasn't until 2008 that I completely ceased making monthly payments into trackers, and switched the money to HYP investing instead.

By the time that I was making fairly significant lump sum additions to the HYP, the financial crisis had happened, and I was able to a) avoid the dogs; and b) ride the resulting stock market recovery.

But for a brief moment in early 2009, the yield available on HYP stalwarts was amazing.

MDW1954

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Re: Reality of Living off HYP dividends

#91690

Postby Arborbridge » October 30th, 2017, 8:26 am

pendas wrote:I believe Arb and I started HYP investing around the same time in 2005/6 and I held all the shares he mentions above plus a few more dogs he hasn't!

It was unfortunate timing for us with the financial crisis just around the corner. I expect many were either wiped out or disillusioned with equity investing around then.


More or less - I started in 2006/7 when I gained control of my pension pot. I invested gradually over the next three years as my confidence grew, aided and influenced by Pyad and TMF posters. As you can probably imagine, being given responsibility for the largest lump of capital I'd owned, I didn't want to rush things: this was altogether different from my previous twenty years of investing on a small scale, and had bigger consequences if it went wrong.

Far from being disillusioned, in my case, I found it stimulating to be in the worst market bear for a generation. My view was that if one could survive this, then my retirement plans would probably hold water for as long as I need them.
If my view is correct, then unfortunately I could only let you know by posting from my coffin: unlikely.

Arb.

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Re: Reality of Living off HYP dividends

#91695

Postby jackdaww » October 30th, 2017, 8:40 am

MDW1954 wrote:I also began HYP investing in 2005, but as part of a gradual transition away from index tracker investing. It wasn't until 2008 that I completely ceased making monthly payments into trackers, and switched the money to HYP investing instead.

By the time that I was making fairly significant lump sum additions to the HYP, the financial crisis had happened, and I was able to a) avoid the dogs; and b) ride the resulting stock market recovery.

But for a brief moment in early 2009, the yield available on HYP stalwarts was amazing.

MDW1954


=========================

in 2009 , BATS was available for several weeks at around £16 .

i piled in .. and the dividends have poured in ever since ..

pendas
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Re: Reality of Living off HYP dividends

#92075

Postby pendas » October 31st, 2017, 2:49 pm

I've just had a look back at my records because I copied most of the selections in HYP4 at the time and initially held 14 out of the 16 shares, missing only BP and Land Sec. They weren't all held in equal amounts, but the total invested was in the same ball park totalling £83k in year 2008 and increasing to £87k by 2011 and then falling to £80k by 2013. Disposals after this point make income figures difficult to compare with previous years. Sadly, one of the early disposals in 2008 was Compass for a capital gain, some of which went into buying more RBS.

2008 £4376
2009 £2044
2010 £2298
2011 £2536
2012 £2618
2013 £2951

You can see that the income took a big hit after the first full year of dividends.

tjh290633
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Re: Reality of Living off HYP dividends

#92090

Postby tjh290633 » October 31st, 2017, 4:14 pm

2009 was a bad year for dividends all round.

TJH

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Re: Reality of Living off HYP dividends

#92235

Postby ElectronicFur » November 1st, 2017, 9:34 am

All in all I found it a very valuable experiment that gave me some comfort that, were financial necessity to force me back to this level of income (inflation adjusted for whenever that happened) my world wouldn't collapse around me.


I have done a similar experiment to Julian. For two years I cut down spending to £15k a year. But note I'm currently mortgage free. This gave me confidence that I can live off my HYP and can tighten my belt if the need arises.

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Re: Reality of Living off HYP dividends

#93288

Postby WessexBoy » November 5th, 2017, 12:53 pm

Two contributions to this interesting thread, the first as assistance for finding those hyperlinks back in time:

1/ try using the Memento plug-in for Chrome which searches more than the Internet Archive (& hence more than the Wayback Machine):

https://chrome.google.com/webstore/search/memento?hl=en

(more on the topic of 'Web today & gone tomorrow is found on http://hiberlink.org/ - a project I worked on)

the second as request:

2/ Given that a number here do (or will) have alternative sources of income, such as pensions, I'd be interested in a revised question about who is geared to use HYP to maximise UK tax-free income from Dividends (currently £5,000), and with what capital sum and by what spread of HYP shares.

(I might then opt to draw on cash savings to achieve that.)

Moderator Message:
Will create new topic for 2 so as to not take this thread off topic.. Raptor.


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