High yield vs other investing strategies

[JamesMuenchen]

Due to an unprecedented set of circumstances LLPC/LLPD were available at well below par, by some 30% or so. Those conditions did indeed make them (and other) Prefs a 'bargain of a lifetime'.
…
The chances of Prefs ever again having the double-digit returns required to make them a viable alternative to an HYP are diminishingly small IMHO.

Nevertheless, those were the circumstances that existed during the period under discussion. Terry is arguing to never buy prefs, even when they are a 'bargain of a lifetime', because his portfolio eventually recovered to pre-crash levels. You can't therefore dismiss how prefs actually performed in the same period.

I'm also not sure why they would require double-digit returns to generally be viable. Clearly they are viable to plenty of income-seeking investors, otherwise they wouldn't be trading well above par today.

[Breelander]

You can't therefore dismiss how prefs actually performed in the same period...

I don't, that would be hypocritical seeing as I bought LLPD myself back in 2011

I'm also not sure why they would require double-digit returns to generally be viable. Clearly they are viable to plenty of income-seeking investors, otherwise they wouldn't be trading well above par today.

It's not just income an HYP'er is seeking, it is a rising income. The only way to synthesise income growth with fixed interest is to reinvest some part of the income - hence the need to obtain them at a much higher yield than conventional shares. That opportunity is very unlikely to occur again IMHO.

[Alaric]

The only way to synthesise income growth with fixed interest is to reinvest some part of the income

If ambitions as to income growth are relatively limited, another way is to combine fixed interest with stocks where the dividend growth has been such that the market price rose to make the dividend yield relatively modest. Past experience of Diageo and Unilever would be examples. It's the same idea really as reinvesting, some of the initial yield has to be diluted to get some growth.

[JamesMuenchen]

It's not just income an HYP'er is seeking, it is a rising income.

If we restrict ourselves to PYAD's HYP doctrine, then yes we'll probably conclude a strategy that looks very similar to PYAD's HYP strategy.

But this thread is about alternatives to HYP.

It's up to OxDoc what weight he places on fixed vs rising income and his attitude to risk.

[Pastcaring]

I don' t go along with silly acronyms and theories etc

Living off dividends is very easy,drawdown rates are very strange,why draw down.Do we fool ourselves that predicting the day we kick the bucket is easy.The day before death drawdown what is left and have a great party.

Aim to retire with a high income and pay a good deal tax,then it is virtually impossible to go wrong

I have 3 sources of income,rent from properties,private pension,and dividend income.

Living off dividend income alone would be no problem at all,it is 6 figures.

One company makes up 40% of capital,I always thought it was around one third so I checked it,I was very surprised as I do no work at all for investing

Anyhoo the company is CBA ( ASX).Pulling out the 2012 annual report,because I couldn' t find the 2011 report,the information you require is on page 93.Going through a big crash is covered as that is the 5 year summary.From 31/6/2008 to 31/6/ 2012/

To pull out the extremes the price hit a high of $62 around Nov 2007,then fell to $24 around Feb/ march 2009.Frightened me for a day or two,but I knew dividends would keep me going .

In round numbers the prices are year end

2008. $40

2009. $39

The highs and lows did not match year end prices

2010. $49

2011. $52.


2012. $53.

The dividends are

2008. $2.66.

2009. $2.28

2010. $2.90

2011. $3.20


2012. $3.34/

Last year dividends were $4.31.End of year price was around $73 I think ( 31/6/2018)

Across the period from 2012 to now it hit a high of $96, March /April 2015/ or 16.Banks hit a hard time and prices fell,trading range has been around $68 to $75 for a year or two now..

The dividend drop in 2009 is the only reduction in divi since 1991? when I bought them.They had one year where dividends were exactly the same.

I'm not really expecting any huge increase in divi over the coming 2 or 3 years,but as they provide a good income for me they can flat line for the next 10 years and it is no problem

To sum up retire at the top of the market with 10,000 shares,you were worth $620 K.Your income was $26,600.

Today you are worth $700K,and income is $43,100.

That takes you through the biggest crash I' ve gone through,although 1987 was a good one

Perhaps the way to look at it is if you have a few million and you lose half of it,no problem at all

If you have a few hundred thousand and lose half of it,big problems.

Aim high.Turn off the daily bullshit noise and think for yourself

[Itsallaguess]

I don' t go along with silly acronyms and theories etc

I have 3 sources of income, rent from properties, private pension, and dividend income.

Living off dividend income alone would be no problem at all, it is 6 figures.

One company makes up 40% of capital, I always thought it was around one third so I checked it, I was very surprised as I do no work at all for investing

Perhaps the way to look at it is if you have a few million and you lose half of it, no problem at all

If you have a few hundred thousand and lose half of it, big problems.

Aim high. Turn off the daily bullshit noise and think for yourself

I try to think for myself whenever I can.

In this particular situation, I think it's sometimes easy for people to give advice to dismiss investment risk if they've got capital and income in abundance, and from a number of diverse sources.

But it's clear that not everyone is in such a good financial position, and as such we often have to manage capital and income-diversification in different ways, suitable for the situation that we are in.

It's not bullshit - it's a sensible approach to portfolio-investment.

I wish you the best of luck with your approach, but do you think you might be a little bit less dismissive of other people's investment ideas where they might be in a completely different situation to your own?

Cheers,

Itsallaguess

[Pastcaring]

The joys of getting older,forgot.
The well diversified portfolio,the all ordinaries XJO ( I think) ASX.Tip of 6800 in Nov 2007.

All these years later still trading below that at around 6200.Dividend yield of the all ords is less than the yield of CBA.

So ,all ords top of 6800 and crashed to around 3100 then today 6200.

CBA top of 62( 00 ), crashed to 24 (00),today 70 (00) ,and a very good dividend yield of around 8.5% grossed up.Grossed up is for Australian taxation purposes,you don' t need to know the complexity ( simplicity) of dividend franking.

Think roughly along the lines of what the UK had before Brown cancelled it ( 98 ish?)

The all ords is around 520 companies,along with fees and charges that the salesman charges that reduce the return a lot over those years.Individual stocks,no fees and charges,they are held within the CHESS system,CREST for you..

Apart from me who could be heartless enough to think the salesperson should not get one penny for his bullshit,ERM sorry wonderful advice of MUST have a well diversified portfolio.

[IanTHughes]

Apart from me who could be heartless enough to think the salesperson should not get one penny for his bullshit,ERM sorry wonderful advice of MUST have a well diversified portfolio.

The shareholders of Royal Bank of Scotland Group (RBS) from 2007, might be tempted to think the BS was coming from your direction!


Ian

[Pastcaring]

I don' t go along with silly acronyms and theories etc

I have 3 sources of income, rent from properties, private pension, and dividend income.

Living off dividend income alone would be no problem at all, it is 6 figures.

One company makes up 40% of capital, I always thought it was around one third so I checked it, I was very surprised as I do no work at all for investing

Perhaps the way to look at it is if you have a few million and you lose half of it, no problem at all

If you have a few hundred thousand and lose half of it, big problems.

Aim high. Turn off the daily bullshit noise and think for yourself

I try to think for myself whenever I can.

In this particular situation, I think it's sometimes easy for people to give advice to dismiss investment risk if they've got capital and income in abundance, and from a number of diverse sources.

But it's clear that not everyone is in such a good financial position, and as such we often have to manage capital and income-diversification in different ways, suitable for the situation that we are in.

It's not bullshit - it's a sensible approach to portfolio-investment.

I wish you the best of luck with your approach, but do you think you might be a little bit less dismissive of other people's investment ideas where they might be in a completely different situation to your own?

Cheers,

Itsallaguess

If you want average returns minus costs I would fully agree with you.When I started I didn't want that,thus dismissive entirely of what the salesman wants to sell me.

I started small,using borrowed money and understanding leverage and compounding .

My view of risk is following the crowd,far too risky for me .Your view of risk will probably be the exact opposite of mine.

Things occur because I did nothing at all for decades,leave it alone to compound.

As I have explained if you want to become a millionaire then tomorrow spend £ 100,000 .You will need equity in a house to borrow that money,I fully understand why people are not going to do that.Compound that for 25 years at reasonable rates and it is almost impossible not to be a millionaire.You will also pay a lot in fees and charges to the salesman.

Use the money you would be paying weekly/ monthly/ annually to reduce that loan as quick as you can.

What you think is maximum risk from day one,I think is maximum return from day one.I am well aware that people are not going to do what I did. I have pointed out over and over by looking at the shareholder break down

The mega wealthy borrow far more than that.The entire Westfield empire was started out in 1955 ish by borrowing a ( for then) largeish amount of money,the equivalent of a house mortgage today.Buy a corner shop,buy another corner shop to rent out.

Then borrow the equivalent of 75-- 80 years average wages.An amount far too great for what were then bank managers.

An amount that large had to be negotiated with head honchos,all of which was refused.How dare an immigrant van driver think he knew better than the financial whizz kids.Try try and try again.Eventually he got it,Westfield is now owned by Unibail Rodamco.I will be selling out off that in July,after the dividend

You will never become wealthy by following the crowd,you will never become wealthy by saving up .

Otherwise no problem at all with what you have said,have a well diversified portfolio,you will get average returns minus costs.Put enough in and you will retire comfortably.

[Pastcaring]

Apart from me who could be heartless enough to think the salesperson should not get one penny for his bullshit,ERM sorry wonderful advice of MUST have a well diversified portfolio.

The shareholders of Royal Bank of Scotland Group (RBS) from 2007, might be tempted to think the BS was coming from your direction!


Ian

The infinite stupidity of the human race.The fool that refuses to see his own folly

Insert name of company here,ask some body that owned shares in a company that went bust.The sheer stupidity of that.This one piece of information proves everything I want to see.The facts are wrong.

RBS went bust,that must prove that every company in the world is going bust .

What next,that clown that worked for RBS in 2016?.

The prediction of "SELL Everything the end of the world happens this year.

The world will always be full of clowns in chicken little suits,the end of the world is nigh.I predicted it first

Keep telling yourself,RBS went bust,what more proof could anybody need.

I would advise you to take the chicken little suit off.

[Itsallaguess]

RBS went bust, that must prove that every company in the world is going bust.

You keep saying things like that, but of course it's clearly not the case...

What it does prove, however, is that single companies can and do go bust, so we should arrange our investment strategies to cope with that risk and manage it accordingly.

Your situation, with 40% of your investment capital being in a single company, only seems to cope with that 'going bust' risk because of the following -

1. You've got other diversified capital and income sources.

2. You own a level of capital and income that can still cope with potentially large hits to either or both.

If you refuse to see that not everyone is in that situation, and that those in a different financial situation to you need to manage the 'going bust' risk in a completely different way to you, because their situations might not be able to cope with the potential impact that a case similar to the RBS situation might place on their investments, then that is an issue that you are not appreciating, and not an issue that others are not appreciating...

Cheers,

Itsallaguess

[IanTHughes]

Apart from me who could be heartless enough to think the salesperson should not get one penny for his bullshit,ERM sorry wonderful advice of MUST have a well diversified portfolio.

The shareholders of Royal Bank of Scotland Group (RBS) from 2007, might be tempted to think the BS was coming from your direction!

The infinite stupidity of the human race. The fool that refuses to see his own folly

Insert name of company here,ask some body that owned shares in a company that went bust.The sheer stupidity of that.This one piece of information proves everything I want to see. The facts are wrong.

The infinite stupidity of the human race. The fool that refuses to see his own folly

Insert name of company here, ask some body that owned shares in a company that never went bust. The sheer stupidity of that. This one piece of information proves everything I want to see.

RBS went bust, that must prove that every company in the world is going bust

Your facts are wrong.

So, what you are saying is:
"Commonwealth Bank of Australia (CBA) did not go bust, that must prove that every company in the world is not going to go bust"

Asinine advice in my opinion

I would advise you to take the clown suit off, investment is not for the playground


Ian

[Pastcaring]

You are not getting it at all are you.

The vast majority of people will have multiple sources of income,sorry, actually they will not. The vast majority of them will refuse to invest,because ( insert name of company here) went bust.That proves it is too risky.

I do repeat that,the answer to a dumb statement will always be exactly the same.

This company went bust it does happen.

This company didn' t go bust,that also happens.I like companies with a long history of rising share prices and dividends .

I will point out again,after all those years they didn' t go bust.I expect them not to go bust.There is a chance they can go bust,I am prepared to take that chance and continue to do nothing,leave them alone to compound.A lot of money goes into my bank account in the form of dividends,some of the divi is still reinvested in more after of CBA.

Honesty is always the most important thing.After ( round it 1990 to now) 30 years there is no chance they will ever say " we got that wrong every day for the last 30 years".

I fully expect that company to be around for the next 20 years,I fully expect them to continue to do the same thing.If they do not ,then I was WRONG,it will easy to see that I was wrong .

Across that 50 year period I fully expect the crowd to repeat RBS went bust.Across that full fifty year period none of them are going to say "I have been wrong every day for the last fifty years" see where the honesty comes in.

I fully expect,almost 100% guarantee that CBA is not going to disappear overnight.I will have plenty of time to get out,I would think at least one year.If not then I was WRONG.Isn' t it wonderful how easy it is to say I was WRONG.
Isn' t it amusing how virtually nobody will have that honesty,fooling themselves that the herd cannot be wrong.

You have been given the path to take to become a millionaire.I have no interest at all whether you or anybody else follows it.

Everybody ( sorry majority ) of people gets exactly the same chance ad I did..

A lifetime of nobody can afford to buy a house,repeat that every day.

A lifetime of investing is too risky,I must be right,look how many people agree with me.

When that company was floated the bullshit was exactly the same.The government are selling it because it is going bust,can' t fool them.I chose to take the risk of buying that company,everybody else chose to avoid the path that I took.

They still repeat exactly the same bullshit today
RBS went bust.Facts are CBA didn' t go bust.Facts are I chose my path,everybody else chose the opposite path.They will continue to choose the opposite path to me,I will continue to think,how the hell can you do that.

Nobody sets out to get rich,it happens.I set out to be comfortable.Replace my income that was always around average,with rental income.I soon worked out that property was not the way to go.

You pay your money,you take your chance.

The 2 stock portfolio should produce a million,there is a chance it will not.HOWEVER,it will always be totally ignored.

Choose your path to follow,come up with silly things.Should I top slice this silly acronym,what does everybody else think I should do .I want somebody to tell me what I want to hear. Then convince themselves great minds think alike.

When we all think alike no one is thinking, which one is real.

[everhopeful]

I cannot understand most of what Pastcaring is writing. It would be useful to have a concise description from him of what he is exactly suggesting the OP does in the context of the original question bearing in mind that he will not perhaps have the luxury of the level of rental income, pension income and dividends that Pastcaring enjoys. Is he really advocating buying just one or two shares in that situation and if so perhaps he could tell us what shares to buy.

[Dod101]

Sadly, I agree with the broad principles of what Pastcaring is saying, ignore IFA advice, ignore portfolio theories and think for yourself. I would not though be happy with 40% of my capital in one share no matter how reliable a company I might consider it to be.

Furthermore it sounds as if he has probably taken more risks than many of us would be happy with, but it seems to have worked for him so good luck to him. It would though be helpful if he were to make his points without the unpleasant and overbearing attitude he is displaying on this thread.

As it happens I have never held RBS (nor for that matter CBA) because I saw it from very early on as a car crash waiting to happen, and never liked George Mathewson, the Chairman who I think recruited the infamous Fred Goodwin.

Dod

[Itsallaguess]

I cannot understand most of what Pastcaring is writing.

It would be useful to have a concise description from him of what he is exactly suggesting the OP does in the context of the original question bearing in mind that he will not perhaps have the luxury of the level of rental income, pension income and dividends that Pastcaring enjoys.

Is he really advocating buying just one or two shares in that situation and if so perhaps he could tell us what shares to buy.

He seems to be advocating being him.

Or winning the lottery, so that we've then got enough money to not care about investment risk.

He seems to not fully appreciate survivorship bias....

https://en.wikipedia.org/wiki/Survivorship_bias

He seems to think that there's two extremes in life, one extreme where he is, where you are rich anyway, and hence don't care about investment risk, and one where no-one does anything except get up in the morning and put the chicken-little suit on....

The fact that these boards are chock full of people in the middle of those two extremes seems to be passing him by, but I have a sneaking suspicion that he's beyond the 'taking the goggles off' stage...

Cheers,

Itsallaguess

[Itsallaguess]

Sadly, I agree with the broad principles of what Pastcaring is saying, ignore IFA advice, ignore portfolio theories and think for yourself. I would not though be happy with 40% of my capital in one share no matter how reliable a company I might consider it to be.

Well there's some of what he's saying that I feel broadly has merit too, but I think it's being delivered in a way that feels like a sermon, where anything but 'this one true path' gets us reaching for the chicken-little suit....

I totally agree with you that 40% of capital in one share, even for someone with diversified income-streams, looks to lack merit, and so I think on that aspect alone we should be able to challenge what seems to be a risk-free assumption in the life-lesson being delivered...

Furthermore it sounds as if he has probably taken more risks than many of us would be happy with, but it seems to have worked for him so good luck to him.

It would though be helpful if he were to make his points without the unpleasant and overbearing attitude he is displaying on this thread.

Agreed...

Cheers,

Itsallaguess

[scrumpyjack]

I think what pastcaring is saying is that those who have made serious money have generally done it with leverage and concentrated investment in one or two things.- not by paying investment advisers to spread it around.

Also that those who have made substantial sums, by the time they get to retirement, will have multiple income sources (property rents, pension, dividends etc etc) so that any one source could fail completely and they are still fine financially. They will be paying the highest rates of tax and their income will be many times the expenditure they need for a comfortable lifestyle.

I guess there are a number of LFs in that state, but most will not be, and will not be paying a 60% IT rate (>100k) or the 45% rate (>150k). If you are that fortunate, an HYP strategy may not be advisable – all that income incurring loads of tax!

But I don't think pc’s approach would be sensible for those who depend on their dividend income and are using it as an alternative to an annuity.

each one to his own!

[funduffer]

Back to the original OP, a word on income producing investment trusts.

Some of these have not cut their dividend for more than 50 years.

https://www.ftadviser.com/investments/2 ... -revealed/

Of course, that doesn't mean they never will again, but with a bit of cash reserve and not spending 100% of dividends you would be pretty unlucky if a portfolio of these trusts caused you more trouble than a portfolio of individual company shares, or risking a 4% SWR from selling down trackers.

I have a portfolio of high income IT's with a yield of >4%, which so far have been a slow and steady way to draw income, that keeps pace with inflation and my spending needs.

Worth considering, even if this approach is combined with some other strategies.

FD

[tjh290633]

I guess there are a number of LFs in that state, but most will not be, and will not be paying a 60% IT rate (>100k) or the 45% rate (>150k). If you are that fortunate, an HYP strategy may not be advisable – all that income incurring loads of tax!

If they have any sense they will have got all their assets inside an ISA. In that case the tax aspects can be ignored until you get to the Inheritance Tax stage. If you have thought about it in advance, you may be able to mitigate that by careful charity donations.

TJH