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Imminent Retirement and HYP - Reflections...

General discussions about equity high-yield income strategies
Charlottesquare
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Re: Imminent Retirement and HYP - Reflections...

#120391

Postby Charlottesquare » February 25th, 2018, 7:51 pm

Gengulphus wrote:
Itsallaguess wrote:Looking at the 10-year chart for City of London, it's had little of note with regards to catastrophic price issues over that period, and even after the good increase in share price over the past 10 years, it still yields around 4.1% today -

https://i.imgur.com/8HYo1Z4.png

Yes, quite clearly that chart doesn't show a fall in value by about 1/3rd in its first year and a bit.

Oh, wait a minute...

Gengulphus


Re "its first year and a bit" this is of course the first year and a bit of the last ten years rather than "its" first year and a bit, it seems to have been founded in 1891 (per a google search)

"City of London has a formidable reputation as an income-producing investment trust with 50 years of consecutive annual dividend increases under its belt. It also has a good yield of 4 per cent and pays a quarterly dividend."

http://www.moneyobserver.com/fund-fact- ... n-IT/ITCTY

Charlottesquare
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Re: Imminent Retirement and HYP - Reflections...

#120395

Postby Charlottesquare » February 25th, 2018, 7:54 pm

Gengulphus wrote:
Itsallaguess wrote: Or oranges with oranges - the behaviour of a single-share holding in an IT with that of a single-share holding in a HYP.

Gengulphus


Akin to a Terry's Chocolate one, City being the whole before it is tapped on the table.

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Re: Imminent Retirement and HYP - Reflections...

#120396

Postby Itsallaguess » February 25th, 2018, 7:55 pm

Gengulphus wrote:
Itsallaguess wrote:
I wasn't suggesting that it hadn't had any issues at all, but rather that there was nothing catastrophic.

It had some issues during 2007/2008, along with the rest of the wider market during that period, but recovered quickly and didn't look back for the next 10 years.

No catastrophe there that I can see, and I've certainly had bigger issues price-wise over the same period with single-share HYP holdings that have showed greater price deterioration, and a often a comparatively poor ability to bounce back.....



Ah, I see. You're contrasting the behaviour of an IT, which is a portfolio in an opaque wrapper, with that of a single-share holding in a HYP.


Yes, that's exactly what I was doing, and it was entirely intentional, as pointed out in my statement following the original links -

I'm a big fan of both income IT's in general, and also the principal of rotating low-yielding stocks into higher-yielding alternatives.

If we're not looking to shoot the lights out with the choices we make to rotate into, then Investment Trusts like City of London can offer a good instant-diversification boost for investible capital, as well as providing a relatively stable return in the form of dividends.


viewtopic.php?f=31&t=10256#p120251

Cheers,

Itsallaguess

Gengulphus
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Re: Imminent Retirement and HYP - Reflections...

#120413

Postby Gengulphus » February 25th, 2018, 8:36 pm

Charlottesquare wrote:
Gengulphus wrote:Yes, quite clearly that chart doesn't show a fall in value by about 1/3rd in its first year and a bit.

Oh, wait a minute...

Re "its first year and a bit" this is of course the first year and a bit of the last ten years rather than "its" first year and a bit, it seems to have been founded in 1891 (per a google search)

No, pronouns normally refer to the most recently mentioned thing they can reasonably refer to. Taking them to refer to something further back is at best careless reading... In this case, that normal rule says that "its" refers to "that chart" earlier in the same sentence, and the chart concerned runs from 2008 to 2018, not from 1891 to 2018.

Gengulphus

Charlottesquare
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Re: Imminent Retirement and HYP - Reflections...

#120418

Postby Charlottesquare » February 25th, 2018, 8:52 pm

My apologies, my reading was indeed careless.

Gengulphus
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Re: Imminent Retirement and HYP - Reflections...

#120535

Postby Gengulphus » February 26th, 2018, 1:19 pm

Itsallaguess wrote:
Gengulphus wrote:Ah, I see. You're contrasting the behaviour of an IT, which is a portfolio in an opaque wrapper, with that of a single-share holding in a HYP.

Yes, that's exactly what I was doing, and it was entirely intentional, as pointed out in my statement following the original links -

[i]I'm a big fan of both income IT's in general, and also the principal of rotating low-yielding stocks into higher-yielding alternatives.
...

Yes, and there's a good reason why I didn't quote that bit: I wasn't addressing that point. Rather, I was addressing the point I've emboldened in the bit I did quote:
Itsallaguess wrote:Looking at the 10-year chart for City of London, it's had little of note with regards to catastrophic price issues over that period, and even after the good increase in share price over the past 10 years, it still yields around 4.1% today -

https://i.imgur.com/8HYo1Z4.png

and that you've repeated since when you said:

Itsallaguess wrote:I wasn't suggesting that it hadn't had any issues at all, but rather that there was nothing catastrophic.

Assuming that one doesn't count a 1/3rd drop as "catastrophic" (*), that point is true enough in ITs at a whole-portfolio level, but the same is true of HYPs, and indeed many other strategies involving investing in shares, whether as a self-managed portfolio of individual shares or as a managed underlying portfolio of an IT or other 'fund'. Or it's false enough at the single-share level for HYPs, but the same is the case for ITs - the catastrophes are just better hidden from the investor.

In short, I disagreed with the idea that greater immunity to catastrophic price falls is relevant to whether ITs are superior investments, because I see no reason to believe they are more immune to such falls. That doesn't mean I disagree with any other points you made, such the 'easy instant diversification' one.

Nor indeed does it mean that there aren't relevant points to be made about 'catastrophes'. For instance, what I say points one out: there is a significant difference about seeing them, as opposed to one about avoiding them. Unlike the avoidance risk, though, where I expect investors to generally agree that avoiding them is preferable, I'm pretty certain that investors will differ quite a bit about whether seeing those 'catastrophes' that do occur or not seeing them is preferable...

(*) Which I don't, at least in the absence of "forced sales" - I do regard the possibility as potentially catastrophic if e.g. the portfolio is to be used to fund the end-of-term repayment of the capital sum of a large interest-only mortgage and good alternatives for repaying it aren't available. And other investors' views of what is "catastrophic" may well differ from mine. But what regarding a fall by 1/3rd as "catastrophic" basically indicates is that shares are too risky for the investor and/or their investment aim (straightforward, ordinary shares, that is - there are various types of investment that are technically shares, but have rather different risk/reward characteristics).

Indeed, even somewhat larger falls than 1/3rd have to be regarded as non-catastrophic for shares not to be pretty risky, as pointed out e.g. by the fact that the FTSE 100 index fell by somewhat over 50% between the end of 1999 and early 2003, and by nearly as much between late 2007 and early 2009.

Gengulphus

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Re: Imminent Retirement and HYP - Reflections...

#120557

Postby Bouleversee » February 26th, 2018, 2:49 pm

BreakoutBoy1 wrote:Many thanks for sharing your experience. I am convinced that a cheap global index tracker is preferable to a HYP approach for many investors. At least that way you are guaranteed to benefit from the successes of the Amazons as well as the failures of the Carillions.


I quite agree that global is the way to go and have recently started investing in Scottish Mortgage IT and one or two others. However, a global index tracker also sounds like a good idea. Which would you suggest? Not something I have investigated as yet. I agree with the OP's comments and I really don't think individual shares are worth all the time and hassle involved. The performance of my portfolios has been very disappointing since I started buying HYP shares and I really don't want to have my time occupied with the various takeover offers etc. .

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Re: Imminent Retirement and HYP - Reflections...

#120565

Postby monabri » February 26th, 2018, 3:22 pm

Vanguard all world (VWRL)...holdings in 2900 companies in 47 countries. Approx 51% US. Yield 1.8%.

Might be worth a discussion on the pros/cons compared to Scottish Mortgage and/or Murray International. I'll come back on this with a new posting in the Investment Trust section of TLF. (Leave it with me to get some info together!! ;) )

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Re: Imminent Retirement and HYP - Reflections...

#120581

Postby Itsallaguess » February 26th, 2018, 4:31 pm

Gengulphus wrote:
Itsallaguess wrote:
I wasn't suggesting that it [CTY] hadn't had any issues at all, but rather that there was nothing catastrophic.


Assuming that one doesn't count a 1/3rd drop as "catastrophic", that point is true enough in ITs at a whole-portfolio level, but the same is true of HYPs, and indeed many other strategies involving investing in shares, whether as a self-managed portfolio of individual shares or as a managed underlying portfolio of an IT or other 'fund'.

Or it's false enough at the single-share level for HYPs, but the same is the case for ITs - the catastrophes are just better hidden from the investor.

In short, I disagreed with the idea that greater immunity to catastrophic price falls is relevant to whether ITs are superior investments, because I see no reason to believe they are more immune to such falls.


I wasn't really selling the IT idea as being a superior investment overall, but an option that might perhaps have some merit where investors might struggle to maintain an overall 'portfolio view', and perhaps might not be able to stop themselves placing too much emphasis on the performance of individual holdings.

This situation gains more merit for me personally where I'm rotating single-holding low-yielders into something with a better yield, and that's why I mentioned the option in the first instance.

I also think investment-personalities are an under-discussed area on these boards, and I think that even where we might have two 'identical' portfolios, in terms of delivering both income and capital performance, there's certainly a trait amongst some investors (and I include myself in this group) to perhaps struggle with maintaining that portfolio approach where the visibility of individual holdings within a portfolio clearly shows the individual 'struggles' of some of the components within it.

So where we might have one of those HYP portfolios, and we might compare it (for the sake of this discussion..) to a similar HYP-like portfolio of income-related Investment Trusts, I do think there's an argument that whilst this second HYP-like portfolio might indeed not perform any better in 'real terms' for the income-investor, there is indeed some additional merit for some investors in not easily being able to view the performance of the individual components within it, in terms of the various individual holdings within those income-IT's.

So whilst I certainly agree that IT's won't be immume to the same company-level issues that we're likely to experience ourselves if we hold general portfolios of individual income-shares, I think there's a big benefit there for some people in only seeing the wrappers, as they (we..) don't then necessarily worry too much about the holdings within them in a way that's made much more difficult when we're buying and holding those individual shares ourselves.

So if we can find some income-related Investment Trusts that deliver a good enough, and steady enough, dividend income, then I think they are a good option for people that might have been put off by the performance of their individual HYP holdings, if that individual-holding performance takes a prominent position in people's view of the strategy, rather than concentrating on their HYP as an overall entity in itself, in the same way as an IT clearly is.

Cheers,

Itsallaguess

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Re: Imminent Retirement and HYP - Reflections...

#120591

Postby monabri » February 26th, 2018, 5:28 pm

monabri wrote:Vanguard all world (VWRL)...holdings in 2900 companies in 47 countries. Approx 51% US. Yield 1.8%.

Might be worth a discussion on the pros/cons compared to Scottish Mortgage and/or Murray International. I'll come back on this with a new posting in the Investment Trust section of TLF. (Leave it with me to get some info together!! ;) )


cross posting to ITs.

viewtopic.php?f=54&t=10323&p=120589#p120589

uspaul666
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Re: Imminent Retirement and HYP - Reflections...

#124514

Postby uspaul666 » March 13th, 2018, 11:38 am

Interesting thread and I’m enjoying the contributions.
But approaching retirement and in retirement isn’t there an argument to avoid other countries currency and economy fluctuations and stick with investing in the country you’re going to retire in? I.e. a global tracker would be a bad idea?
I mean the uk may go up and may go down but at least your HYP income will go up and down with it and thus compared to “everyone else”, you’ll be at the same level. There’s the example of some expats taking uk pensions denominated in GBP who have experienced a fall in living standards since brexit for example. It’s not like they can all get a job if their income does fall. Conversely if I bought a global tracker tomorrow and USA declared war then that’s about 50% of my tracker that’s going to tank.

TUK020
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Re: Imminent Retirement and HYP - Reflections...

#124545

Postby TUK020 » March 13th, 2018, 1:26 pm

uspaul666 wrote:Interesting thread and I’m enjoying the contributions.
But approaching retirement and in retirement isn’t there an argument to avoid other countries currency and economy fluctuations and stick with investing in the country you’re going to retire in? I.e. a global tracker would be a bad idea?
I mean the uk may go up and may go down but at least your HYP income will go up and down with it and thus compared to “everyone else”, you’ll be at the same level. There’s the example of some expats taking uk pensions denominated in GBP who have experienced a fall in living standards since brexit for example. It’s not like they can all get a job if their income does fall. Conversely if I bought a global tracker tomorrow and USA declared war then that’s about 50% of my tracker that’s going to tank.


HYP argument for diversity applies to economies as well as industries.
Would you want to be 100% exposed to the UK economy if Corbyn were to be elected?

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Re: Imminent Retirement and HYP - Reflections...

#124548

Postby Lootman » March 13th, 2018, 1:34 pm

TUK020 wrote:Would you want to be 100% exposed to the UK economy if Corbyn were to be elected?

Yes, there are specific single-country risks. I'd assess those as tax risk, regulatory risk and other forms of political risk.

Historically British investors have viewed the UK as having lower risks like that than many other countries. But as you say, if we went back to 1970's-style socialism with strikes, high taxes, exchange controls, renationalisations, more regulations, exchange controls and rising interest rates and inflation, then you'd be really glad that you had substantial allocations to the US, Europe and emerging markets.

Of course, Corbyn could impose a "windfall" tax on profits from overseas securities and currencies . .

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Re: Imminent Retirement and HYP - Reflections...

#125276

Postby Street66 » March 16th, 2018, 7:59 am

Good post - thanks for kicking off an interesting discussion.

I've been running a buy and forget portfolio over the last 9 years based on largely HYP principles, with many of the usual suspects.

AV, BAE, BG, BP, BATS, CCL, GSK, EMG, NG, RSA, REL, SSE, SBRY, TATE, TSCO, VOD, WTB, WMH

Some winners and some losers in here. Annual return (XIRR calc) has been 9.45% compared to 6.45% for FTSE (ex div) on exactly the same timing. Possibly I have low expectations, but in a decade of incredibly low inflation & safe returns (bond/cash) I'm absolutely delighted with 10%!

Seeing some of the ups and downs over time (while doing nothing about them) has convinced me of a few things:

1. Narrowing investment focus on a few shares is folly - yes you might get lucky and you might have done incredible research, but there are so many black swans/acts of god/acts of Trump that could crater your investment, why would you try?
2. Active management of a HYP portfolio could well reduce your returns over time - even ignoring frictional costs. If you follow David Dreman, you have to allow time for the boring/value/HYP business to outperform other asset classes.
3. Boring is good for your stress levels. I know FANG stocks would have given me much higher returns than value/HYP - but I'm not sure I could have ignored the ups and downs of the newsflow over the months and years. Better to invest in companies that don't make front page news - much less noise driving you towards active management. Leave that to the fanboys, snakeoil salesmen and day traders.

Cheers,
Street66

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Re: Imminent Retirement and HYP - Reflections...

#131588

Postby floyd3592 » April 12th, 2018, 7:32 am

Street66 wrote:I've been running a buy and forget portfolio over the last 9 years based on largely HYP principles, with many of the usual suspects.
AV, BAE, BG, BP, BATS, CCL, GSK, EMG, NG, RSA, REL, SSE, SBRY, TATE, TSCO, VOD, WTB, WMH

Some winners and some losers in here. Annual return (XIRR calc) has been 9.45% compared to 6.45% for FTSE (ex div) on exactly the same timing. Possibly I have low expectations, but in a decade of incredibly low inflation & safe returns (bond/cash) I'm absolutely delighted with 10%!
Street66


Great post Street (on a great thread),
I'm recently 'mainly retired' and currently struggling with constructing an income generating portfolio from my cash savings, cash ISAs and tracker ISAs I've built up over the years.
i.e. Do I convert everything into index trackers, a dividend tracker fund, a basket of ITs, Vanguard life strategy funds, plump for some fund managers like Train, construct a HYP? or go for a mixture of some / all of them?
Regarding ur own HYP: -
1. why do u say "Active management of a HYP portfolio could well reduce your returns over time" and what would u suggest is an alternative therefore?
2. How do u re-balance ur portfolio to remove 'losers' for replacing by potential 'winners' (the 'holy grail' of an HYP I guess)
3. Could u give examples of the 'companies which don't make front page news' that u refer to?

tjh290633
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Re: Imminent Retirement and HYP - Reflections...

#131749

Postby tjh290633 » April 12th, 2018, 6:32 pm

floyd3592 wrote:I'm recently 'mainly retired' and currently struggling with constructing an income generating portfolio from my cash savings, cash ISAs and tracker ISAs I've built up over the years.
i.e. Do I convert everything into index trackers, a dividend tracker fund, a basket of ITs, Vanguard life strategy funds, plump for some fund managers like Train, construct a HYP? or go for a mixture of some / all of them?
Regarding ur own HYP: -
1. why do u say "Active management of a HYP portfolio could well reduce your returns over time" and what would u suggest is an alternative therefore?
2. How do u re-balance ur portfolio to remove 'losers' for replacing by potential 'winners' (the 'holy grail' of an HYP I guess)
3. Could u give examples of the 'companies which don't make front page news' that u refer to?


I think that the things to remember before you decide are:

1. Directly held shares (ideally in an ISA) incur minimal management fees, because you are the fund manager.

2. Managed funds and ETFs take their fees out of the dividend income, so a 1% fee on what would be a 4% yield without it means that the income is reduced by 25%.

3. Some take fees out of capital, so that your capital is reduced by that and the dividend income is on a slightly reduced amount of capital.

If income is your objective, then my priority would be a DIY HYP, followed by income generating ITs, followed by all other sorts of funds or managed products. Life strategy is for the birds. If you want exposure to non-UK equities, ITs can be a good way to go.

Street66 can answer for himself, but regarding your second question, I indulge in a modest degree of portfolio management, by limiting the weight of any one holding, limiting the contribution to income of any one holding, and limiting the share of portfolio cost of any one holding. Those going overweight are trimmed back by about 25%, those up against other limits are disqualified from being topped up when dividends are reinvested.

I also cull holdings where the dividend yield falls below about half that of the market, usually due to the share price rising, but also if dividends are cut with little prospect of resumption. I have also sold to avoid having shares which are not UK-listed or shares which delist.

New shares to replace those removed will always have a yield at or above the market average. Overweight shares have usually got a lower yield, and the capital released is then reinvested in shares with higher yields, ideally about twice that of the sold shares. My definition of overweight depends on the number of holdings in the portfolio. Under 20 shares, my limit would be 10% of the portfolio value. Between 20 and 30 holdings, twice the median holding value. Above 30 holdings, then I reduce it to 1.5 times the median. You can decide on your own limits, of course.

Having tight limits will increase the amount of intervention that is needed to keep relative balance in the portfolio. If they are too tight, then excessive intervention may arise, leading to accusations of trading. Ideally you can just sit and watch, and enjoy the flow of dividend income. If you don't want a DIY HYP, then a small selection of suitable ITs is probably the way to go.

Good luck with whichever route you decide to pursue.

TJH


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