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HYP Strategy Reflection and Sticking with the Plan

General discussions about equity high-yield income strategies
OLTB
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HYP Strategy Reflection and Sticking with the Plan

#119360

Postby OLTB » February 20th, 2018, 7:52 pm

Evening all - I don't know why, but I'm feeling a little despondent/dispirited about my HYP. I"m not too sure if it's normal to get doubt about any investment strategy from time to time (I'm about 18 months in) and whether the feeling will pass eventually, and I might just need to stick with the plan. I have the possibility of receiving a small lump sum later this year from my employer and I was planning to invest it in my HYP. Like any sane person, I don't wish to throw money away and when I look at some of the candidates that would be included in my 17 sector HYP top up, I can think of very good reasons why I wouldn't want to; namely:

BAE Systems: low yield/little growth (not HYP I know, but still a reason)
Glaxo: little dividend appreciation in the foreseeable future/possibly a dividend cut/massive debt
Greene King: An increase in shorting activity - fairly volatile share price recently
Imperial Brands: Negative sentiment towards sector and again, fairly large falls in share price
SSE: potential for significant political interference
United Utilities: as above (and perhaps a total wipe out if re-nationalised)

Now, I know that there is never a time in the market when every sector is tickitty-boo and there is a risk with all investing, that's part of the risk/reward strategy. I also know that I don't have to invest in the above companies/sectors if I don't want to, but I also know it's important to have as equally balanced portfolio as possible.

There is also the possibility that none of the above worries will come to fruition (I certainly don't know what might happen in the corporate world) and buying later this year may prove to be a very worthwhile thing to do in the long term. I'm learning though, the more involved I get, and the more I re-invest dividends to see my capital remaining frustratingly stagnant, the more emotionally difficult I'm finding things. I really want to stick with it and the more I read posts from TJH, Dod, Ian, Gengulphus, Ozyu, Arb, Itsallaguess, etc. the more encouraged I get. But it's still difficult.

Perhaps I just have a touch of the yips. I remember reading from one of Pyad's posts that insouciance is one of the most difficult of traits that he encourages when it comes to HYP investing.

I don't mean to come over as a slightly morose OLTB, just a little :? and wanted to get things off my chest. Encouraging comments and verbal arms round shoulders welcome :D

Cheers all, OLTB.

Itsallaguess
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Re: HYP Strategy Reflection and Sticking with the Plan

#119373

Postby Itsallaguess » February 20th, 2018, 9:10 pm

OLTB wrote:
I don't mean to come over as a slightly morose OLTB, just a little


It sounds like you're just about where I was with my HYP before I discovered the rarely-discussed emotional benefits of holding income-related Investment Trusts.

I really cannot adequately describe how owning a sizable section of IT's in my HYP has benefitted me personally, even if that has come at a slight cost in terms of dividend income.

If you're about to receive a lump sum, why not think about splitting it into thirds -

1. Selection of income related Investment Trusts

2. HYP candidate shares - diversifying existing holdings

3. Medium-term cash buffer - perhaps held in accessible savings vehicle

As my HYP has grown, I've also struggled at times with the issues you're facing, and I've found that moving from a HYP that holds 100% shares to a more diverse position to include the above elements has helped a great deal, and has allowed me to remain fully invested through a few market cycles with very little emotional issues.

By dipping a toe into income-related Investment Trusts, it will also give you a greater feel for these types of investments, which will be a natural side-effect of simply holding them alongside your other income-holdings. I think you'll find that they turn into a really quite agreeable part of an income-portfolio, and I really do wish that I'd discovered this benefit much earlier in my HYP career...

Good luck with your current issues. Stick with it and keep plugging away. Keep an eye on the income rather than concentrating too much on the capital variations....

Cheers,

Itsallaguess

Dod101
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Re: HYP Strategy Reflection and Sticking with the Plan

#119382

Postby Dod101 » February 20th, 2018, 9:47 pm

I agree with itsallaguess (not for the first time). I was trying to find a recent post of mine when I was writing about much the same concerns as the OP (and got a hard time from Arb) but I must say that there are not that many HYP like shares which do not give some real concerns these days and one is forced in to the financials above all else. Mind you there is quite a big selection of them and I doubt that they are very correlated but still............

Moving into income ITs has a lot to be said for it and maybe a few smaller cap shares, although the trouble with them is if even a small thing goes wrong then it can affect them for a couple of years whereas a bigger company could shrug it off.

On the whole though maybe we are all getting too uptight about our HYPs and they should just be left alone for a year or three.

Dod

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Re: HYP Strategy Reflection and Sticking with the Plan

#119391

Postby moorfield » February 20th, 2018, 10:37 pm

OLTB wrote:Evening all - I don't know why, but I'm feeling a little despondent/dispirited about my HYP. I"m not too sure if it's normal to get doubt about any investment strategy from time to time (I'm about 18 months in) and whether the feeling will pass eventually, and I might just need to stick with the plan.


So what actually is "the plan" for your HYP, OLTB ?

I can articulate mine quite easily I think: I'm aiming for an income of "roughly what a higher rate tax payer earns" (~£45000 in today's money) from 2031 onwards. Plus or minus £5k is an acceptable ballpark, and anything greater than that is icing.

Keep the overall long term view in focus, and work backwards from there. You may find that will help the feeling pass if you are still pointing in the right direction.

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Re: HYP Strategy Reflection and Sticking with the Plan

#119396

Postby BreakoutBoy1 » February 21st, 2018, 1:10 am

OLTB,

Your gut is trying to tell you something about your strategy and risk tolerance and your head is telling you these companies are unattractive risks.

I went through my epiphany last year, where I realised I was investing in companies that were cheap for all the wrong reasons. They were high yield, but low quality. What he is the point of bagging an extra percentage point in yield if that yield cannot be sustained mathematically? Why place money at risk with management that overdistributes despite obvious lack of cash to do so?

The answer was to acknowledge that HYP was not the strategy for me, and to change tack.
I always had held some ETFs and ITs and the outperformance of these versus my own stock picking made it an easy decision to do more of what worked.

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Re: HYP Strategy Reflection and Sticking with the Plan

#119427

Postby pds2008 » February 21st, 2018, 9:31 am

Interesting to see the responses to this post. I started out my HYP with a "chase the yield" approach which taught me a valuable lesson or three about this investment lark. My recent share purchases have been of companies I consider to =be market leaders (or at least at the front end of the pack) with a solid and respectable yield - last three purchases were Diageo, Unilever and HSBC (the latter a top up). As a result my portfolio has a more balanced look to it even though I am investing primarily for income now as I retire this month.

My next step is to rebalance the portfolio to put a greater proportion of capital into IT's and Trackers. I am aiming for a split of shares, IT's and trackers of 60/20/20 which I will then monitor. It also gives me exposure to markets that I am not familiar with (basically anywhere outside the FTSE 250) and greater balance to the portfolio.

Helps me sleep better too

OLTB
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Re: HYP Strategy Reflection and Sticking with the Plan

#119487

Postby OLTB » February 21st, 2018, 2:00 pm

moorfield wrote:
So what actually is "the plan" for your HYP, OLTB ?



Hi moorfield and thanks for your reply - at my first anniversary in Aug 17 I set out my plan to achieve the following income by age 62 (in 2031). I started off with £13,125 as an annual target increasing with inflation (I've adjusted the figures since as this was inflated at CPI whereas I've been advised to increase at RPI as this is more realistic). As this was the first year, the figures didn't include full dividend income so I expect the anniversary in August to be more accurate:

Year Dividend Target Actual Income
Aug 16 - Aug 17 13125 2891.64
Sep 17 - Aug 18 13453
Sep 18 - Aug 19 13789
Sep 19 - Aug 20 14134
Sep 20 - Aug 21 14487
Sep 21 - Aug 22 14849
Sep 22 - Aug 23 15220
Sep 23 - Aug 24 15601
Sep 24 - Aug 25 15991
Sep 25 - Aug 26 16391
Sep 26 - Aug 27 16801
Sep 27 - Aug 28 17221
Sep 28 - Aug 29 17651
Sep 29 - Aug 30 18092
Sep 30 - Aug 31 18545

Having feedback, I think it is now unrealistic to achieve the income based on what's affordable to invest regularly, so I shall just plug away and perhaps have to think about stopping work later than 62.

Cheers, OLTB.

OLTB
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Re: HYP Strategy Reflection and Sticking with the Plan

#119499

Postby OLTB » February 21st, 2018, 4:22 pm

Moderator Message:
Poster ID and quote removed on request of poster. Raptor.


Many thanks ****** for your very comprehensive post - I think you may have crossed earlier responses to my original post as I also think £40k is unachievable (it is moorfield who is aiming for this target).

My target income is indeed £13,125 (in today's terms) and I hope this will cover my monthly direct debits and basic needs. My only pension income would be from State Pension at age 67, HYP and IT / ETF portfolio (all with HL). I am also paying into an auto enrolment pension through work and it is possible that at 62 when I stop work, I draw this down as income all the way to zero at age 67 and then, when my State Pension starts, this takes care of very basic needs with HYP / IT / ETF taking care of other expenses.

Your comments on total returns are very useful and others have said the same - capital does matter. Your comment of 'Its better to buy and cost average the market average, as that path leads to better certainty.' leans more towards the ETF side of investing - is that right?

Thanks again, cheers, OLTB.

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Re: HYP Strategy Reflection and Sticking with the Plan

#119503

Postby kempiejon » February 21st, 2018, 4:33 pm

OLTB wrote:Having feedback, I think it is now unrealistic to achieve the income based on what's affordable to invest regularly, so I shall just plug away and perhaps have to think about stopping work later than 62.

Cheers, OLTB.


Unless you're living like a hermit I think one can usually find more to invest. It becomes a question of delayed gratification, what can one forgoe down scale or reduce that one spands on now to enable an earlier retirement. I for example would give up alternate years expensive holidays for 10 years or more to retire 5 years early but I don't get much more pleasure from spunking lots of cash overseas in hotels or resorts eating out all the time, I'll happily b&b or camp in my home country on a walking tour of the lakes, hills and coastal paths.

jackdaww
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Re: HYP Strategy Reflection and Sticking with the Plan

#119504

Postby jackdaww » February 21st, 2018, 4:36 pm

i am leaning towards investment trusts , with above average income , but very much for total returns.

and to repeat , capital does matter , which probably rules out the strict HYP approach .

8-)

OLTB
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Re: HYP Strategy Reflection and Sticking with the Plan

#119505

Postby OLTB » February 21st, 2018, 4:48 pm

kempiejon wrote:I for example would give up alternate years expensive holidays for 10 years or more to retire 5 years early but I don't get much more pleasure from spunking lots of cash overseas in hotels or resorts eating out all the time, I'll happily b&b or camp in my home country on a walking tour of the lakes, hills and coastal paths.


Thanks very much kempiejon and I do agree - Mrs OLTB is, however, very keen on spunking lots of cash oversea in hotels or resorts eating out all the time so I think I'll be working a little longer!

Cheers, OLTB.

kempiejon
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Re: HYP Strategy Reflection and Sticking with the Plan

#119507

Postby kempiejon » February 21st, 2018, 4:57 pm

OLTB,

Ah I see, you've been well trained, I agreed to several years of carribbean holidays before I put my foot down - and got away with it.

OLTB
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Re: HYP Strategy Reflection and Sticking with the Plan

#119510

Postby OLTB » February 21st, 2018, 5:24 pm

Ahh - I'll give that a go, however, with a feisty Welsh woman to contend with, I will need to go in well protected.

Cheers, OLTB.

Dod101
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Re: HYP Strategy Reflection and Sticking with the Plan

#119512

Postby Dod101 » February 21st, 2018, 5:39 pm

Not even pyad said that capital does not matter. It is not often that I support his views but I think what he said was to the effect that capital accretion is not the primary purpose of a HYP, which I think is true. Of course capital matters which is why I am not in the least sanguine about say British Land or for that matter in the last few months either of our tobacco investments. We have all lost around 10% capital from BAT and probably Imps for a yield of a mere 3.7% or so from BATs. A bit more from Imps.

One reason no doubt for the OP from OLTB.

Dod

OLTB
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Re: HYP Strategy Reflection and Sticking with the Plan

#119528

Postby OLTB » February 21st, 2018, 7:32 pm

Dod101 wrote:

One reason no doubt for the OP from OLTB.

Dod


Thanks Dod and yes, IMB is indeed a factor (as is Greene King/United Utilities/SSE!). Thank you for clarifying the remark from Pyad and as the HYP is meant to be a 'forever' portfolio, perhaps I am a little premature...

Cheers, OLTB.

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Re: HYP Strategy Reflection and Sticking with the Plan

#119532

Postby OLTB » February 21st, 2018, 7:56 pm

Moderator Message:
Poster ID and quote removed on request of poster. Raptor.
20%+ of the index. [/quote]

Thanks again ****** - my passive portfolio is as follows:

VEVE 36% (Global Developed)
VVAL 12% (Global Value)
WOSC 12% (Global Small Cap)
VFEM 8% (Emerging Markets)
IWDP 8% (Global REITS/Property)
IEMS 4% (Emerging Market Small Cap)
SEMB 5% (Emerging Market Bonds)
SLXX 5% (UK Corp Bond)
CRPS 5% (Global Corp Bond)
UTIP 5% (US TIPS)

I don't fully understand levereged ETFs so, staying in my comfort zone, I'll probably stick with the above and just rebalance once a year. Appreciate all of your comments.

Cheers, OLTB.

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Re: HYP Strategy Reflection and Sticking with the Plan

#119582

Postby Wizard » February 22nd, 2018, 7:25 am

Moderator Message:
Poster ID and quote removed on request of poster. Raptor.

I think this is in part why there is often a difference of perspective. There seem to be a number of people (like myself) who have started their HYP recently and seen some pretty horrific capital destruction. When this gets raised the response from those who started their HYP's long ago is something like "focus on the income". I suspect that it is psychologically much easier to do that if you are sitting on a portfolio that has already grown significantly through past capital growth and dividend reinvestment. It may be irrational, but maybe it is easier to see capital created for you by the strategy taken away than to lose hard earned cash only recently invested. It is also all too easy to do the mental maths on a share 30% down since purchase with a 6% yield and work out how long it will take before you are back to breakeven, which I guess is the non-scientific version of ****** point above.

Now, it may be that with many of these shares down it is a great time to top up. But there are two issues there: unless you have another large pot of cash to invest then the averaging effect will not be that significant if the original pot was much larger; and, how do you sort the Carillions (which just keep falling) from the Royal Mails (which has bounced back to go from my worst to pretty much best performing HYP purchase)?

So I suspect some of the "yips" from those new to HYP come from an intuitive understanding of the theory ****** explained, that having picked the last couple of years to start an HYP may have a fundamental impact on your wealth at retirement. That is not to say it is a good or a bad strategy in aggregate, but just that timing will have a big impact on how it works for any individual.

Terry.

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Re: HYP Strategy Reflection and Sticking with the Plan

#119613

Postby kempiejon » February 22nd, 2018, 9:34 am

Wizard wrote:Now, it may be that with many of these shares down it is a great time to top up. But there are two issues there: unless you have another large pot of cash to invest then the averaging effect will not be that significant if the original pot was much larger; and, how do you sort the Carillions (which just keep falling) from the Royal Mails (which has bounced back to go from my worst to pretty much best performing HYP purchase)?


Isn't hind sight wonderful, when I started my HYP I ranked the FTSE100 in yield order and worked down the list with one share per industry, the highest yielder that matched my safety criteria, I used 5 year positive dividend history - no cuts, I would allow a hold but generally an increasing trend and cover of over 1.5 but I relaxed that for utilities. Neither Carillion nor Royal Mail would have made it in if I'd been building recently. That didn't protect me from other stumbles mind you. I suppose you have to decide if the reasoning behind a strategy gels with you and give it a chance to run, I've found HYPing suits me and so far delivers the income I'm looking for but I wouldn't have been much worse off sticking it all into a tracker my first strategy and I might have been able to find a better strategy but I stopped looking having tried value trading that didn't suit me. I expect when my HYP is done and the income and safety margin is sufficient if I have spare cash I might look at another way.

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Re: HYP Strategy Reflection and Sticking with the Plan

#119634

Postby Minesadouble » February 22nd, 2018, 10:30 am

In a lot of these ruminations I think the P in HYP is lost. While individual shares might do spectacularly well or badly in income or capital terms, I don’t think a properly diversified HYP will go bust. In certain years, income growth may disappoint, but over the longer term a Portfolio of high quality mega caps is likely to provide an increasing stream of income, sadly many will lose faith at the precise time that there are opportunities to buy cheaper income.
For my part I run other portfolios alongside my HYP, an Income focussed IT Portfolio and a Growth focused IT Portfolio, I have a few stocks which sit outside these, AIM stocks, a couple of major non HYP stock positions and a Capital Preservation oriented IT, I also had accumulated a US portfolio, but I liquidated that when the post Brexit forex gain got so big that I couldn’t resist it.
In my view HYP works, but I personally augment it with other strategies.

MAD

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Re: HYP Strategy Reflection and Sticking with the Plan

#119651

Postby tjh290633 » February 22nd, 2018, 11:15 am

1nv35t wrote:No doubt given the wide distribution of HYP investors, you'll tend to hear more from those who were lucky enough to be on one (good) side of the distribution (those that picked the right stocks at the right time), much less from those on the other (bad) side who capitulated or simply went broke (wrong stocks at the wrong time).


I've invested in a number of shares and funds over the years, after which investment the market or the security in question has gone down.

Taken over the long term, often 30 years or more, the results have been good, despite the likes of Marconi, Mapeley, Cattles and Carillion. You learn your lessons along the way.

If you are well enough diversified, you can ride out the odd storm along the way. As Lemon Fools, we ought to suck it and see.

TJH


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