HYP with limited monthly contribution

[newguy]

Hi all,

I'm new round these parts but was previously registered on the fool website. I had built up a high yield portfolio using Stephen Bland foruma and in fact I used to be a subscriber to the Dividend Newsletter. Unfortunately, as I wanted to buy a house I had to cash in all my holdings so am now 40 and want to start building again. The problem is that I can only afford £250 a month.

It would appear to me that building 10-15 holdings at £250 would be too time consuming and would mean that I would have problems with diversification for a long time. I could potentially use the Halifax Share Builder service but the issue is that I would like my new portfolio to be setup in a tax efficient manner. My strategy is to build until retirement and then use the dividend income.

Is there a better approach using funds of some sort? Is there a way to replicate Stephen Bland HYP strategy in a tax efficient manner putting in £250 per month and if so is there any particularly funds /etc that I should be looking at? I realise at the £250 level fund charges are likely to be potentially quite high!

Thank you
New guy

[Alaric]

It would appear to me that building 10-15 holdings at £250 would be too time consuming and would mean that I would have problems with diversification for a long time.

Not to mention that dealing commission will erode your return before you start.

For that sort of investment, the most cost effective approach is likely to be to set up an ISA on a platform which doesn't charge dealing commission on OEICs with a view to switching at a later date to individual shares when their charging as a percent of fund value becomes expensive and when the dealing commission isn't a material % of the amounts be switched.

The FTSE 100 currently has a dividend yield approaching 4.5%, so that's highish yield in its own right.

[Itsallaguess]

It would appear to me that building 10-15 holdings at £250 would be too time consuming and would mean that I would have problems with diversification for a long time. I could potentially use the Halifax Share Builder service but the issue is that I would like my new portfolio to be setup in a tax efficient manner. My strategy is to build until retirement and then use the dividend income.

Is there a better approach using funds of some sort? Is there a way to replicate Stephen Bland HYP strategy in a tax efficient manner putting in £250 per month and if so is there any particularly funds /etc that I should be looking at? I realise at the £250 level fund charges are likely to be potentially quite high!

Welcome to The Lemon Fool newguy. Hopefully there's a few names that you'll recognise from the Motley Fool days still plugging away with income-investments.

There are self-select ISA accounts that allow for the type of cheap 'Regular Investment' options that you're probably going to want to use, but be careful to check for ongoing account-charges, as there are not many shares-ISA accounts around now that don't charge some sort of account-management fee of one sort or another. Even if you find one that doesn't, I'd be wary of that situation changing in the near future..

If you're starting from scratch again though, and given the current £2000 per year tax-free dividend allowance, are you absolutely sure that there's a need to start from the ground up, right now, inside an ISA account?

I'm only asking because a non-ISA Halifax account might still be suitable for you given that to reach the £2000 tax-free dividend limit, at a rough estimate of an overall portfolio yield of 5%, for the sake of illustration, then that would mean that you'd have to have around £40,000 in capital in a non-ISA Halifax account to hit the £2000 tax-free dividend allowance threshold -

£40,000 x 5% = £2000

So if you're putting away £250 per month, that would equate to around £3000 per year, which would clearly take some time to then reach the £40,000 level where you might begin to worry about any tax-free status of either capital or income, but I only say that with one eye on the fact that the current shares-ISA allowance is £20,000 per year, so even if you got to that level in your non-ISA, charge-free Halifax account, then you might then have the option of just using a single years worth of ISA allowance to then get that lot inside an ISA account, and then see how things go from there...

Given the above, is there any other over-riding reason that you might see for having to head down the ISA route right now, given the potential for account charges eating into your capital?

In addition to the above, have a think about rolling up some £250 monthly deposits before committing to your regular investments. There's a risk that investing £250 per month might mean that some previous purchases turn into investments that you might prefer not to continue with, so there's a chance that you may end up with lots of small holdings running alongside your more permanent investments that you continue to top-up. Investing £250 every month of course means a four-weekly drum-beat for your investment-schedule as well, which might not actually suit you after having such a long time away.

If you rolled up at least 2, or perhaps even 3 or four, monthly slugs of £250 into a more substantial capital sum before investment, that might well help to mitigate both issues, so you'd not potentially end up with lots of small slugs of £250 investments that you might not fancy as much later on, and it would also give you a bit more time between each capital-commitment to enjoy the selection process at a more leisurely pace.

It's going to be very strange that we'll still be calling you 'newguy' in a few years time, you know......

Cheers,

Itsallaguess

[Itsallaguess]

It would appear to me that building 10-15 holdings at £250 would be too time consuming and would mean that I would have problems with diversification for a long time.

One other thing I meant to add in my earlier post is to ask, in relation the the 'diversification' issue that you mention above, if you'd considered High-Yield Investment Trusts as part of your new income strategy?

Given that they often invest in a spread of income-investments themselves, they offer a high level of 'instant diversification' that is extremely difficult to emulate from the sort of 'standing-start' that you're currently planning.

I should add that I've been HYP investing for many years now, and started off with a typical PYAD-like HYP, with single-company income-investments, but for a number of reasons I've gravitated towards income-oriented Investment Trusts over recent years, and I almost exclusively invest dividends and new capital into my Investment Trusts, leaving the single-share side of my HYP to run down or get regularly traded away as part of my yearly tax/CGT planning processes.

I think that if I had the chance to give my younger self one single bit of income-investment advice, it would be to steer towards Investment Trusts much, much sooner than I did....

Cheers,

Itsallaguess

[tjh290633]

So you are 40 and starting out afresh by putting away £250 per month. Nothing wrong with that, and the sensible route would be to do it in a share ISA. At this stage your best route might be to pickup an ISA manager with percentage fees, hopefully capped at a sensible level. If your dealing charges are also percentage based, then you can invest your monthly subscriptions but, if not, do it every 4 months or so.

There is no need to do it in a hurry. 5 years to get to the minimum 15 holdings is not unreasonable. I started my portfolio in a PEP, so was limited to £2,400 in year one, then £3,000 and then £6,000 in subsequent years. I had the benefit of percentage fees, and was adding 3 or 4 holdings each year. I only subscribed for the first 4 years, resuming later after using the PEP allowance to protect other holdings in funds.

You may wish to swap managers later, when you have achieved critical mass. That should be easy. The main thing is to stick at it and, if you can, raise your subscription if you can afford it.

TJH

[Gengulphus]

I'm new round these parts but was previously registered on the fool website. I had built up a high yield portfolio using Stephen Bland foruma and in fact I used to be a subscriber to the Dividend Newsletter. Unfortunately, as I wanted to buy a house I had to cash in all my holdings so am now 40 and want to start building again. The problem is that I can only afford £250 a month.

It would appear to me that building 10-15 holdings at £250 would be too time consuming and would mean that I would have problems with diversification for a long time. I could potentially use the Halifax Share Builder service but the issue is that I would like my new portfolio to be setup in a tax efficient manner. My strategy is to build until retirement and then use the dividend income.

Is there a better approach using funds of some sort? Is there a way to replicate Stephen Bland HYP strategy in a tax efficient manner putting in £250 per month and if so is there any particularly funds /etc that I should be looking at? I realise at the £250 level fund charges are likely to be potentially quite high!

I'm afraid I can't say anything much about approaches using funds - not saying anything against them, just that I have virtually no experience of them and so don't qualified to give any advice about them. But I can suggest some approaches that don't use them...

If you want to invest in a HYP using an ISA, let the cash accumulate in the ISA for four months, then choose and buy a HYP share with the resulting £1k, and repeat - except that the subsequent purchases will each be with all available cash - i.e. the £1k of regular savings plus any dividends (and possibly corporate action proceeds as well, though that's pretty unlikely until the portfolio has grown substantially) that the growing portfolio has produced during the four months). It takes 5 years to reach 15 shares, which I'll agree is rather slow, but the amount at risk isn't all that high in retirement income terms, and you do diversify pretty nicely over time - i.e. you're unlikely to be hit badly by investing at a market high during those five years, because you'll invest at regular intervals and so are highly likely to invest near both the low and the high points of the market, getting a reasonably average result overall.

Alternatively, don't bother with the ISA to start with, instead using Halifax ShareBuilder or a similar account. That allows you to diversify up to 15 shares in 15 months (or indeed more quickly than that if you buy more than one share per month, though I really doubt that the few months saved are worth the extra charges). Then shift to adding further shares (if there's a very good candidate), but mostly topping up existing holdings (of course not topping up holdings that have ceased to be decent HYP purchases). After 5 years, you might reasonably hope to have a 20ish-share portfolio worth about £17-18k, which you could then 'bed-and-ISA' using a single year's ISA allowance, or after 10 years, you might reasonably hope to have a 25ish-share portfolio worth about £40-45k, which could similarly be 'bed-and-ISAed' using two years of ISA allowances and probably a bit of a third year. The price you pay for that earlier diversification is the cost of the 'bed-and-ISAing' - in the 5-year case and using Halifax's monthly £3.95 dealing offer, the cost for the 5-year case might reasonably be expected to be 20 selling commissions plus a bit under 20 buying commissions (there will probably be a few holdings that have disappointed and aren't worth re-purchasing), which comes to around £150, plus 0.5% stamp duty on the total value (about £90), for a total of about £240 (about 1.3-1.4% of the portfolio value). In the 10-year case, the equivalent total is about £400 (about 1% of the portfolio value).

Note I'm not saying that the earlier diversification is definitely worth paying that price for - just that the price is a sufficiently low percentage that I think it's a judgement call without an obvious answer. Also note that the calculations do depend on various things continuing - the size of the ISA allowance (and indeed ISAs themselves) and Halifax's monthly offer. Obviously there's a risk they (or some equivalents) won't continue (and a judgement call how big that risk is), and one should be prepared to alter the plan if needed and possible - e.g. to respond to announced adverse changes to ISA allowances by bringing the 'bed-and-ISAing' forward.

A lower-risk option than anything involving shares or funds may also be worth considering: assuming you now have a substantial mortgage, devote the £250 per month to paying it off more quickly. That reduces your outgoings and so brings forward the future point at which you can make substantially larger regular retirement savings. It's also an effectively tax-free form of investing, and it reduces the risk you run from substantial interest rate rises. Those merits do however depend substantially on the type of mortgage you have, what rate taxpayer you are and various other things, so I'm only saying the approach is worth considering, not that it's definitely a good one.

Gengulphus

[newguy]

Hello guys

Firstly thank you for the warm welcome and for all those that all provided such useful advice. It is good to see a number of old fools here! I will go through your messages and reply to all your posts but first i wanted to try and give more information about my current situation. If I am honest it is probably more for my benefit as I'm hoping that by writing this it helps me work out what I actually want to achieve. I hope that my musing are understandable!

I couldn't figure out how to post this this at this forum but I've created an image file that shows my current pension provision, shareholdings and cash in hand. This can be seen here -1drv.ms/u/s!AivkGBf-k88ziqJzmnaXM_3lIn1Cjg

A little bit about me
I am a 40 year old single male that now owns a house. My outstanding mortgage is about £130K and I'm on a 10 year fix at 2.49%. I can overpay the mortgage by 10% each year. I've been doing everything possible to pay it down and I am currently overpaying it by £600 per month. Could this overpayment be used to build up my HYP - perhaps! Given how cheap money is at the moment perhaps investing is is better than paying the mortgage now. If am honest I've yet to make up my mind about this one!

As you will see from the graphic my current pension pot is around £171K. Clearly nowhere were it needs to be. These are old style pension plans were I can choose the funds. Albeit a pension consultant helped me with the choices. The new Standard Life plan which my employer is paying into is all tracker type funds.

Current Level of Risk
Well you will see that a lot of my holdings are on the higher level of risk. Lots of high risk small caps shares and funds. In the past I have bought some very dodgy high risk shares and I am probably not very good at it. I do subscribe to the Small Company Sharewatch newsletter.

What I am trying to achieve
1. To be able to afford to retire. In fact to be able to enjoy my retirement. Lots of foreign trips and not having to worry about money.
2. To also provide more of a safety night for life's ups and downs. Yes I've currently got nearly £16K of cash/premium bonds but who knows what life is going to through up.
3. Reduce my risk level. (perhaps!)
4. Increase income
5. I want to be able to access funds if required.
6. If I am honest I would like to reduce the management time required to run the new HYP (whatever that is!). Previously with the Dividend Share letter I simply added one of the recommendations ever so often and job was done. Is an investment trust or EFT more suitable. Perhaps
7. I think I want to do this in as tax efficient manner as possible.
8. This new pot is about income but over the period I expect the pot to grow.

The heading of this thread is building an HYP with limited monthly contributions. Strictly speaking if I was to use the mortgage overpayment I would be able to increase the monthly contribution to £850. But do I want to use the next 8 year (of the 10 year fix) to really pay down the mortgage.

And more importantly do I really want to own an HYP of 10 to 15 shares when it would be much easier to get somebody else to manage that (obviously as long as the charges were low.

Guys sorry for the rambling post., So if you were in my position how would you structure things?

Many thanks
Newguy

[newguy]

It would appear to me that building 10-15 holdings at £250 would be too time consuming and would mean that I would have problems with diversification for a long time.

Not to mention that dealing commission will erode your return before you start.

For that sort of investment, the most cost effective approach is likely to be to set up an ISA on a platform which doesn't charge dealing commission on OEICs with a view to switching at a later date to individual shares when their charging as a percent of fund value becomes expensive and when the dealing commission isn't a material % of the amounts be switched.

The FTSE 100 currently has a dividend yield approaching 4.5%, so that's highish yield in its own right.

Alaric, you are absolutely right. My last HYP was with XO Shares and there commission was about £6 per share with no yearly account charges. My min purchase use to be £2000 for each share I purchased.

[newguy]

It would appear to me that building 10-15 holdings at £250 would be too time consuming and would mean that I would have problems with diversification for a long time.

One other thing I meant to add in my earlier post is to ask, in relation the the 'diversification' issue that you mention above, if you'd considered High-Yield Investment Trusts as part of your new income strategy?

Given that they often invest in a spread of income-investments themselves, they offer a high level of 'instant diversification' that is extremely difficult to emulate from the sort of 'standing-start' that you're currently planning.

I should add that I've been HYP investing for many years now, and started off with a typical PYAD-like HYP, with single-company income-investments, but for a number of reasons I've gravitated towards income-oriented Investment Trusts over recent years, and I almost exclusively invest dividends and new capital into my Investment Trusts, leaving the single-share side of my HYP to run down or get regularly traded away as part of my yearly tax/CGT planning processes.

I think that if I had the chance to give my younger self one single bit of income-investment advice, it would be to steer towards Investment Trusts much, much sooner than I did....

Cheers,

Itsallaguess

Thank you Itsallaguess. I do indeed recognise a couple of names and yours being one of them. In fact I'm sure you previously gave me some very good advise on the Fool boards.

You make a number of good points. Building up a 15 share HYP on £250 per month doesn't really require an ISA wrapper and going down the Investment Trust route solves the diversification issue and means that I can build up that holding over time without potentially having a lot of smaller holdings. Previously, I invested £2000 every 2 months and built up my HYP pretty quickly.

I was under the impression that many Investment Trusts were valued under their net asset value whereas the new style EFT was better at being nearer the asset value. Do you mind me asking what Investment Trusts you currently like? How do the charges affect your decision which ones to go for? I would be able to use my XO share account to by the Investment Trust.

Many thanks
Newguy

[newguy]

So you are 40 and starting out afresh by putting away £250 per month. Nothing wrong with that, and the sensible route would be to do it in a share ISA. At this stage your best route might be to pickup an ISA manager with percentage fees, hopefully capped at a sensible level. If your dealing charges are also percentage based, then you can invest your monthly subscriptions but, if not, do it every 4 months or so.

There is no need to do it in a hurry. 5 years to get to the minimum 15 holdings is not unreasonable. I started my portfolio in a PEP, so was limited to £2,400 in year one, then £3,000 and then £6,000 in subsequent years. I had the benefit of percentage fees, and was adding 3 or 4 holdings each year. I only subscribed for the first 4 years, resuming later after using the PEP allowance to protect other holdings in funds.

You may wish to swap managers later, when you have achieved critical mass. That should be easy. The main thing is to stick at it and, if you can, raise your subscription if you can afford it.

TJH

Thanks tjh290633 for taking the trouble to respond to me and you have given me a couple of points to thank about it.
Cheers
Newguy

[newguy]

I'm new round these parts but was previously registered on the fool website. I had built up a high yield portfolio using Stephen Bland foruma and in fact I used to be a subscriber to the Dividend Newsletter. Unfortunately, as I wanted to buy a house I had to cash in all my holdings so am now 40 and want to start building again. The problem is that I can only afford £250 a month.

It would appear to me that building 10-15 holdings at £250 would be too time consuming and would mean that I would have problems with diversification for a long time. I could potentially use the Halifax Share Builder service but the issue is that I would like my new portfolio to be setup in a tax efficient manner. My strategy is to build until retirement and then use the dividend income.

Is there a better approach using funds of some sort? Is there a way to replicate Stephen Bland HYP strategy in a tax efficient manner putting in £250 per month and if so is there any particularly funds /etc that I should be looking at? I realise at the £250 level fund charges are likely to be potentially quite high!

I'm afraid I can't say anything much about approaches using funds - not saying anything against them, just that I have virtually no experience of them and so don't qualified to give any advice about them. But I can suggest some approaches that don't use them...

If you want to invest in a HYP using an ISA, let the cash accumulate in the ISA for four months, then choose and buy a HYP share with the resulting £1k, and repeat - except that the subsequent purchases will each be with all available cash - i.e. the £1k of regular savings plus any dividends (and possibly corporate action proceeds as well, though that's pretty unlikely until the portfolio has grown substantially) that the growing portfolio has produced during the four months). It takes 5 years to reach 15 shares, which I'll agree is rather slow, but the amount at risk isn't all that high in retirement income terms, and you do diversify pretty nicely over time - i.e. you're unlikely to be hit badly by investing at a market high during those five years, because you'll invest at regular intervals and so are highly likely to invest near both the low and the high points of the market, getting a reasonably average result overall.

Alternatively, don't bother with the ISA to start with, instead using Halifax ShareBuilder or a similar account. That allows you to diversify up to 15 shares in 15 months (or indeed more quickly than that if you buy more than one share per month, though I really doubt that the few months saved are worth the extra charges). Then shift to adding further shares (if there's a very good candidate), but mostly topping up existing holdings (of course not topping up holdings that have ceased to be decent HYP purchases). After 5 years, you might reasonably hope to have a 20ish-share portfolio worth about £17-18k, which you could then 'bed-and-ISA' using a single year's ISA allowance, or after 10 years, you might reasonably hope to have a 25ish-share portfolio worth about £40-45k, which could similarly be 'bed-and-ISAed' using two years of ISA allowances and probably a bit of a third year. The price you pay for that earlier diversification is the cost of the 'bed-and-ISAing' - in the 5-year case and using Halifax's monthly £3.95 dealing offer, the cost for the 5-year case might reasonably be expected to be 20 selling commissions plus a bit under 20 buying commissions (there will probably be a few holdings that have disappointed and aren't worth re-purchasing), which comes to around £150, plus 0.5% stamp duty on the total value (about £90), for a total of about £240 (about 1.3-1.4% of the portfolio value). In the 10-year case, the equivalent total is about £400 (about 1% of the portfolio value).

Note I'm not saying that the earlier diversification is definitely worth paying that price for - just that the price is a sufficiently low percentage that I think it's a judgement call without an obvious answer. Also note that the calculations do depend on various things continuing - the size of the ISA allowance (and indeed ISAs themselves) and Halifax's monthly offer. Obviously there's a risk they (or some equivalents) won't continue (and a judgement call how big that risk is), and one should be prepared to alter the plan if needed and possible - e.g. to respond to announced adverse changes to ISA allowances by bringing the 'bed-and-ISAing' forward.

A lower-risk option than anything involving shares or funds may also be worth considering: assuming you now have a substantial mortgage, devote the £250 per month to paying it off more quickly. That reduces your outgoings and so brings forward the future point at which you can make substantially larger regular retirement savings. It's also an effectively tax-free form of investing, and it reduces the risk you run from substantial interest rate rises. Those merits do however depend substantially on the type of mortgage you have, what rate taxpayer you are and various other things, so I'm only saying the approach is worth considering, not that it's definitely a good one.

Gengulphus

Gengulphus

Many thanks you raising some very good points. My previous approach was that each share had to be £2000 and I purchased a new share every 2/3 months so I built up my holding very quickly. Once I got to 15 shares, I simply started adding an additional £2000 to each of the shares I had taking the one with the highest dividend. Before I sold on my holdings I had nearly £100K saved up with this approach. It worked very well. Did i have some absolutely rubbish shares. Yes I still have £200 worth of RBS shares as I can't seem to hit the sell button on them! But the diversification was vitally important. There were some shares that I should probably have cut and run but back in the day the plan was to buy and hold forever.

My mortgage currently stands at around the £130K mark and for the past few years I've been throwing everything available at reducing it. Currently over paying around £600 over payment per month. Part of me know wonders if this is a great strategy given the current uncertainty. The mortgage is fixed at 2.49% for another 8 years before the rate will no doubt rocket! My mortgage should be paid off at 2039, although its likely to be lot sooner if I keep up the overpayments.

I do wonder if cash is king at the moment. The last recession was a nervous time for me as I was concerned about job security. This time around I am more secure but I don't have any redundancy cover hence the cash and PB money. I do wonder if it would be better to save more, either through an HYP to deal with any potential issues.

Thank you Gengulphus

[monabri]

I think you should continue to pay off your mortgage first as you are doing - once that is done ..then it is done!

As for investments - you already have your pension investments so you are already investing in the market - hence the "pay off the mortgage" as you would be putting more eggs into the same basket if you were to decide to stop your mortgage overpayments in favour of investing in "the stock market".

I too would go for Investment Trusts (IT). At your age, I'd suggest you need to think long term and invest in ITs that are likely to grow your capital over the next 20 years or so. Then at retirement, you might decide to sell and change tack, investing in ITs that pay a reasonable divi.

So, my strategy would be - invest slowly in something like Foreign & Colonial IT (FCIT), Witan (WTAN) and perhaps the racier Scottish Mortgage (SMT). Then, as retirement approaches, perhaps change over to more income focused ITs.

I would avoid the risk of single shares - you can buy a basket of shares readily by investing in an investment trust.

[dealtn]

Hello guys


What I am trying to achieve
...
4. Increase income
...
8. This new pot is about income but over the period I expect the pot to grow.

Why the focus on income?

You already have sufficient income to be overpaying your mortgage by £600 each moth and have another £250 available for investment. With 25 years or so to what most would consider an approximate retirement age I would be focussing on your capital position at that time. Either paying off the mortgage further, or increasing "invested capital" (or both). You might be familiar with the phrase "snowballing" but overpaying your mortgage to that extent, and particularly should you increase this to £850 each month, you are soon going to be within sight of breaching that 10% capital overpayment rule (especially if it is a repayment mortgage).

Given you are looking to limit the management time of your investments I would be suggesting collective investments, over individual shares, and until you are entering a phase of your life where income actually is important, would be focussing on total return and low fees.

Regardless of how you decide to proceed you should be congratulated on what you have achieved so far and your general attitude to preparing for your financial future, which I would suggest is in advance to the thinking and planning of most of those of about your age.

[newguy]

I think you should continue to pay off your mortgage first as you are doing - once that is done ..then it is done!

As for investments - you already have your pension investments so you are already investing in the market - hence the "pay off the mortgage" as you would be putting more eggs into the same basket if you were to decide to stop your mortgage overpayments in favour of investing in "the stock market".

I too would go for Investment Trusts (IT). At your age, I'd suggest you need to think long term and invest in ITs that are likely to grow your capital over the next 20 years or so. Then at retirement, you might decide to sell and change tack, investing in ITs that pay a reasonable divi.

So, my strategy would be - invest slowly in something like Foreign & Colonial IT (FCIT), Witan (WTAN) and perhaps the racier Scottish Mortgage (SMT). Then, as retirement approaches, perhaps change over to more income focused ITs.

I would avoid the risk of single shares - you can buy a basket of shares readily by investing in an investment trust.

monabri you make a good point. Within 4 years I will be at the point were I will be paying back at the maximum level. Thereafter ever single other penny could be used for investments.

[newguy]

Hello guys


What I am trying to achieve
...
4. Increase income
...
8. This new pot is about income but over the period I expect the pot to grow.

Why the focus on income?

You already have sufficient income to be overpaying your mortgage by £600 each moth and have another £250 available for investment. With 25 years or so to what most would consider an approximate retirement age I would be focussing on your capital position at that time. Either paying off the mortgage further, or increasing "invested capital" (or both). You might be familiar with the phrase "snowballing" but overpaying your mortgage to that extent, and particularly should you increase this to £850 each month, you are soon going to be within sight of breaching that 10% capital overpayment rule (especially if it is a repayment mortgage).

Given you are looking to limit the management time of your investments I would be suggesting collective investments, over individual shares, and until you are entering a phase of your life where income actually is important, would be focussing on total return and low fees.

Regardless of how you decide to proceed you should be congratulated on what you have achieved so far and your general attitude to preparing for your financial future, which I would suggest is in advance to the thinking and planning of most of those of about your age.

monabri and dealtn

I think the point you guys are making about capital rather than income is probably the critical element to this.

I do realise that HYP is all about income. However in my experience last time around it also lead to some very good capital gains. Plus I reinvested all the dividends back into the portfolio. Perhaps given my last experience of HYP I'm thinking of it as a capital and income method.

Maybe the approach should be to pay down the mortgage as quickly as possiblde. I took out the mortgage for 25 years and if I really concentrated on it I could pay it back within 13/14 years. Not a pad position to be in. And over the years substantially increase payment to growth funds.

Newguy

[TUK020]

I would echo the comments about paying off the mortgage early.

I did this nearly 15 years ago, and it had major benefits other than financial.
The position of being completely debt free is worth a lot in terms of feelings of security.

Early diversification of your portfolio via ITs such as FCIT or WTAN also makes a lot of sense.

[Itsallaguess]

I would echo the comments about paying off the mortgage early.

I did this nearly 15 years ago, and it had major benefits other than financial.

The position of being completely debt free is worth a lot in terms of feelings of security.

Amen to that....

Having now understood the wider situation with regards existing investments and also newlad's mortgage situation, I'd also agree that paying down the mortgage at a faster rate with any additional funds could be a really good approach.

The guaranteed 2.5% interest-rate saving on each additional pound paid off is not a bad risk-free return in the current climate, and when set against a really quite uncertain economic outlook generally at the moment, it offers a really good 'sleep at night' option for any additional funds.

I aggressively paid down my mortgage some years ago now, and it was one of the best financial decisions I've ever made, and your comment about it delivering 'other major benefits other than financial' is absolutely right - it's really quite amazing how removing what is often the largest debt we'll ever personally carry can completely alter your approach to long term work-commitments, and open up the possibility of really quite structural changes to your medium and long-term life plans....

Cheers,

Itsallaguess

[TUK020]

The guaranteed 2.5% interest-rate saving on each additional pound paid off is not a bad risk-free return in the current climate, and when set against a really quite uncertain economic outlook generally at the moment, it offers a really good 'sleep at night' option for any additional funds.

Worth stressing that this is 2.5% after tax, risk free

[SDN123]

The guaranteed 2.5% interest-rate saving on each additional pound paid off is not a bad risk-free return in the current climate, and when set against a really quite uncertain economic outlook generally at the moment, it offers a really good 'sleep at night' option for any additional funds.

Worth stressing that this is 2.5% after tax, risk free

I agree that paying down the mortgage is a great option, but I’m not sure that “risk free” is correct. Should you become a forced seller in a house long market crash you may well lose out compared to investing elsewhere. I’m sure that there are other scenarios too. As I said I think it’s a good option, one i’d probably take in the same circumstances, but I don’t think risk free. (Happy to be corrected though!)

SDN

[Itsallaguess]

The guaranteed 2.5% interest-rate saving on each additional pound paid off is not a bad risk-free return in the current climate, and when set against a really quite uncertain economic outlook generally at the moment, it offers a really good 'sleep at night' option for any additional funds.

Worth stressing that this is 2.5% after tax, risk free

I agree that paying down the mortgage is a great option, but I’m not sure that “risk free” is correct.

Should you become a forced seller in a house long market crash you may well lose out compared to investing elsewhere. I’m sure that there are other scenarios too. As I said I think it’s a good option, one i’d probably take in the same circumstances, but I don’t think risk free. (Happy to be corrected though!)

I was using the term 'risk free' to describe the fact that by paying off part of a debt that's currently being charged at a rate of 2.5%, the 'return' on that 'investment' (part-repayment...) is 'guaranteed' and hence 'risk free'.

I think what you're describing is what we'd normally see as a potential 'opportunity cost' of paying down a relatively low interest-rate debt, set against the potential for that part-repayment to be invested in something that might, with a fair wind, return more than the 2.5% return.

That's quite right, but I wouldn't mix up the two separate aspects to be honest, and would still describe a part-repayment of debt as 'risk-free' in terms of the absolute, guaranteed 'return' of not then having to pay 2.5% interest on any part-repayments that might be made...

Whilst I'm here I'll also acknowledge TUK020's very good point regarding the 2.5% 'return' on such part-repayments as being 'after-tax' risk free, so it's actually an even better 'return' than the 2.5% headline figure suggests....

Cheers,

Itsallaguess