daveh wrote:Gan020 wrote:I would suggest that this Board have unconscious bias on this matter, because the people who blew up their pot due to a large market correction aren't posting on here sharing their situation. They are still in employment regretting the day they ran too much risk (either knowingly or unknowingly)
I'm afraid you are wrong - there are a number of posters on here who were investing in a version of a HYP through the last correction who post regularly. I can name three from memory TJH, Dod and myself and I think a number of the other regulars Eg the two Ians, Arboridge, Gengulphus were all investing in HYPs to a lesser or greater extent over the last correction in 08/09 and are still posting.
In my case at least, that needs some context. My HYP income did drop by about a third between the 2008/2009 and 2009/2010 tax years - but I've had
much more capital than I need for the income on it to cover my living expenses ever since the 1999 tech boom (by far the best investment move I've ever made was to take very substantial chunk of it out of the market in late 1999 and early 2000, and by far the worst was not to take it all out!). So even after that fall in HYP income, it was still more than enough for my needs. And I didn't have anything like 100% of my investment capital in my HYP...
I remained happy to be invested in HYPs, and indeed to retire early in the spring of 2010, funding the majority of my living expenses from HYP income. Would I have been happy to do that if my HYP had only just been covering my living expenses and I hadn't had further investment capital to fall back on if necessary? I'm 100% certain that my answer would have been "No" - and that's not merely an opinion expressed now with hindsight: I can point to an archived
2006 post of mine on TMF in which I had pretty clearly said that having no 'safety margin' of one's actual income over the income one needs struck me as decidedly risky. (Note in particular that if one can deal with a shortage of income by cutting back on one's spending, then one has such a safety margin - "needs" is not necessarily the same thing as "wants"!)
Had I been in that position of only just having enough investment capital to buy a HYP whose income would cover my living expenses, what would I have done? I'm 99% certain the answer is that I would have failed to find anything else that delivered the income I required sufficiently safely. So I would have put my plans to retire early on hold and continued in employment and saving until I had enough investment capital to fund a HYP with a 25% income safety margin (i.e. its income = 1.25 times my living expenses) plus a cash reserve of a year's living expenses (note that a year's worth of living expenses will cover more than a year's worth of required income shortfalls, unless they were 100% shortfalls - and that would indicate a marketwide total disaster that would very likely affect every other type of investment as well). I would have expected that to take about five more years, allowing for new savings, reinvestment of all dividends / corporate action proceeds and inflation, and my general impression is that it would probably actually have taken about four due to the market recovery being a bit faster than I would have expected.
The other bit of context is that while I'm happy using a HYP strategy myself, I most certainly
don't intend to say (and AFAIAA don't say) that HYP strategies are suitable for everyone. They are IMHO not suitable for:
* those who don't have enough investment capital to be able to invest in a HYP to earn their required income with sufficient safety for their taste (though I doubt they'll find any other strategy that does that job, until they're old enough to be fairly certain that they won't live more than about 20 years longer - note that means a
lot more certain than the ~50% chance that they live longer than their statistically-expected remaining lifespan);
* those who want to pit their shorter-term trading skills against the market, since the income-oriented nature of HYP strategies is at odds with the capital-gain-oriented nature of short-term trading;
* those who think it's worth paying the management fees for a good professional fund manager to manage their investments for them
and that they're capable of picking a professional fund manager who will prove to be a good one in the future, since they will be happier choosing and investing in a suitable fund (using the term loosely to cover investment trusts, unit trusts, OEICs, etc);
* those who basically take no interest at all in the stockmarket and would prefer to leave handling
all management of their equity investments to a professional fund manager, since running a HYP does involve sporadically having to deal with takeovers and other corporate actions;
* those who cannot psychologically accept that a company-specific disaster (e.g. Carillion) that they see because it affects a directly-owned shareholding of theirs is no worse than the same disaster happening out of sight to the holdings of a fund they own, as long as their portfolio isn't significantly overweight in that share;
* probably some more categories I haven't recalled offhand!
Gengulphus