The Lemon Fool

As part of a general drive to reduce the maintenance overhead of my retirement investments, I'd like to reduce the number of holdings I have in my HYP (currently 20) and put them into a couple of ITs. I realise this means the overall cost of my portfolio will go up though, but that's fine. BTW everything is in an ISA, so I assume no CGT.

The plan I have is to sell off anything that yields less than what the ITs are doing, plough the proceeds into the ITs, then re-balance the remainder to form a sort of "midi-HYP" (looks like about 10 holdings). Any divis from those then go into the ITs until I retire, but I'll try and keep the HYP as balanced as possible otherwise.

Does that sound like a sane plan? I suppose the scary bit is that I'd need to transact all in one go as I don't want things out of the market for too long.

Gilgongo wrote:As part of a general drive to reduce the maintenance overhead of my retirement investments, I'd like to reduce the number of holdings I have in my HYP (currently 20) and put them into a couple of ITs. I realise this means the overall cost of my portfolio will go up though, but that's fine. BTW everything is in an ISA, so I assume no CGT.

The plan I have is to sell off anything that yields less than what the ITs are doing, plough the proceeds into the ITs, then re-balance the remainder to form a sort of "midi-HYP" (looks like about 10 holdings). Any divis from those then go into the ITs until I retire, but I'll try and keep the HYP as balanced as possible otherwise.

Does that sound like a sane plan? I suppose the scary bit is that I'd need to transact all in one go as I don't want things out of the market for too long.

Sounds perfectly sane and there will be no tax implications if all is currently in an ISA or ISAs. It occurs to me that you might be better to hold say 4 ITs and transfer everything into them. It will give you a better spread of IT managers and then you will only have four investments to worry about. You will probably in any case wonder why you are holding a few individual shares as well as the collectives so why not just complete the job in one go. I am not going to comment otherwise on the pros and cons since you appear to have decided that tis is the way to go.

Dod

you might be better to hold say 4 ITs and transfer everything into them.

Yes, I suppose I (perhaps naively) thought that if I sold up holdings that were yielding substantially more than the ITs, then I'd be missing out?

Gilgongo wrote:Does that sound like a sane plan? I suppose the scary bit is that I'd need to transact all in one go as I don't want things out of the market for too long.

I've done exactly the same and for the same reasons, with no regrets.

I have 10 HYP shares and 13 IT's (most are income, but some growth too).

Gilgongo wrote:The plan I have is to sell off anything that yields less than what the ITs are doing, plough the proceeds into the ITs, then re-balance the remainder to form a sort of "midi-HYP" (looks like about 10 holdings). Any divis from those then go into the ITs until I retire, but I'll try and keep the HYP as balanced as possible otherwise.

Does that sound like a sane plan? I suppose the scary bit is that I'd need to transact all in one go as I don't want things out of the market for too long.

You could do one a month, rather than a big bang.

Like Dod, I would want more than two ITs. Otherwise, if you want to slim down the HYP hobby, it sounds like a reasonable plan.

When deciding which shares to kill off, I would use forward rather than historic yields, in view of the tumult we have been through. Also there are special cases such as BHP where we know the divi will reduce, and GSK where a 35% cut is anticipated, so choose your Retained Ten (as Luni might call them) carefully.

For income, the ITs I hold and current yields are:
AXI 6%
ASEI 5.6%
BIPS 6.2%
CTY 4.6%
HFEL 7.9% (but capital perfomance poor)
JCH 4.2%
JEGI c4.5%
MCT 4.3%
MRCH 4.7%
NCYF 8.1%
SEQI 6.1%
SHRS 4.9%

I have a couple of others where the yields are no longer competitive.

Sorry about the epics, easily looked up in AIC here https://www.theaic.co.uk/aic/find-compare-investment-companies?sortid=Name&desc=false

V8

You could do one a month, rather than a big bang.

Ah yes much less stressful. In fact I think I get a monthly free trade with Interactive Investor so that might save some money too.

Thanks for the advice on the "Retained Ten" - will give it some more analysis.

As an alternative to ITs, some of the Vanguard ETFs have minimal yearly charges of around 0.1%. I'd be cautious of ITs unless you can find them at a decent discount.

MrFoolish wrote:As an alternative to ITs, some of the Vanguard ETFs have minimal yearly charges of around 0.1%. I'd be cautious of ITs unless you can find them at a decent discount.

Never mind the quality, feel the width. You are looking for dividend income, not lowest costs.

This is my HYP, ranked by yield.

Rank   EPIC   Yield 
   1   RIO    12.14%
   2   BHP    10.10%
   3   ADM     8.12%
   4   IMB     7.70%
   5   LGEN    6.43%
   6   BATS    6.33%
   7   IGG     5.65%
   8   VOD     5.44%
   9   TW.     5.42%
  10   SSE     5.18%
  11   AV.     4.83%
  12   PHP     4.83%
  13   NG.     4.57%
  14   UU.     4.11%
  15   BA.     4.05%
  16   TATE    4.03%
  17   BP.     3.91%
  18   ULVR    3.82%
  19   BT.A    3.74%
  20   SMDS    3.49%
  21   GSK     3.24%
  22   SHEL    3.23%
  23   PSON    3.18%
  24   TSCO    3.10%
  25   BLND    3.10%
  26   RKT     3.01%
  27   KGF     2.92%
  28   LLOY    2.39%
  29   AZN     2.36%
  30   S32     2.13%
  31   DGE     2.05%
  32   SGRO    1.77%
  33   IMI     1.43%
  34   CPG     0.79%
  35   MKS     0.00%
  36   MARS    0.00%

My median yield is 3.78%, although the portfolio yield is about 4.2%. I could usefully switch from those with yields below, say, 3% into one or more ITs, like those listed in viewtopic.php?p=481017#p481017 and combine portfolio simplification with income increase, were I so minded.

TJH

What you're saying is that instead of holding individual shares, you want to move to a scenario where you're holding what will probably be substantially the same shares, but held inside ITs at higher cost.

What exactly are the maintenance issues that you're trying to avoid???

MDW1954

MDW1954 wrote:What you're saying is that instead of holding individual shares, you want to move to a scenario where you're holding what will probably be substantially the same shares, but held inside ITs at higher cost.

What exactly are the maintenance issues that you're trying to avoid???

MDW1954

Yes, that's the plan. And I agree it's not for everyone. But I'm gearing up for retirement in the next few years and one of the things I'm wanting to do is become less involved with finance, and more involved with women, cars and drugs.

I have 40 ITs in my ISA, perhaps some would consider it overkill but i get a nice spread of dividends every month should i decide to withdraw them automatically on retirement as a tax free income. I buy 2 new ITs every year.

However, going forwards I will put all my ISA subs and dividends into something like VHYL because I am running out of sensible dividend paying ITs to invest in.

One of my ITs is Primary Health Properties (PHP) which is a REIT.

Gilgongo wrote:But I'm gearing up for retirement in the next few years and one of the things I'm wanting to do is become less involved with finance, and more involved with women, cars and drugs.

Unfortunately that'll probably be the hygienist, taxis and Paracetamol but I wish you luck

RC

Myfyr's IT list is surely overkill. There must be a deal of overlap there. Strangely he holds very few of my ITs but then most of mine are held for growth not income. The only exceptions I think are the two Murray Trusts.

To hold 40, mostly income trusts and to be planning to add to them! That is the opposite extreme to the OP.

PHP is not an Investment Trust. It is a REIT but not an investment trust as per most of his others on the list and is not comparable with them.

Dod

Myfyr wrote:I have 40 ITs in my ISA, perhaps some would consider it overkill but i get a nice spread of dividends every month should i decide to withdraw them automatically on retirement as a tax free income. I buy 2 new ITs every year.

However, going forwards I will put all my ISA subs and dividends into something like VHYL because I am running out of sensible dividend paying ITs to invest in.

An interesting idea putting your future investments into VHYL which doesn't yield much, when you have so many which yield more. So the obvious question is why not buy more of the ones you already have?

I do rather agree with Dod - 40 seems quite a high number. Nothing wrong with that, though it depends if you do much record keeping. If you just in effect ignore them and get on with life, then 40 is no problem.

I cut down on numbers over the past few years: I would prefer book substantial dollops of dividends coming in, rather than mess about with many more small amounts.


Arb.

Arborbridge wrote:

Myfyr wrote:I have 40 ITs in my ISA, perhaps some would consider it overkill but i get a nice spread of dividends every month should i decide to withdraw them automatically on retirement as a tax free income. I buy 2 new ITs every year.

However, going forwards I will put all my ISA subs and dividends into something like VHYL because I am running out of sensible dividend paying ITs to invest in.

An interesting idea putting your future investments into VHYL which doesn't yield much, when you have so many which yield more. So the obvious question is why not buy more of the ones you already have?

I do rather agree with Dod - 40 seems quite a high number. Nothing wrong with that, though it depends if you do much record keeping. If you just in effect ignore them and get on with life, then 40 is no problem.

I cut down on numbers over the past few years: I would prefer book substantial dollops of dividends coming in, rather than mess about with many more small amounts.

I have as I said 10 ITs to which I add another 20 or so individual shares. The individual shares provide me with the income I need to live off and I will harvest some of the growth from the ITs from time to time, and put that into my higher yielding shares to add some income. These days I almost never add any new funds to the portfolio. 30 or so holdings is quite enough for me to look after.

Dod

MDW1954 wrote:What you're saying is that instead of holding individual shares, you want to move to a scenario where you're holding what will probably be substantially the same shares, but held inside ITs at higher cost.

What exactly are the maintenance issues that you're trying to avoid???

MDW1954

With a portfolio of HYP shares vs a lesser number of ITs you are likely to have to spend more time processing admin, maybe corporate actions, possibly even more time fretting over reduced/stopped divis etc.

I'm in my mid 50s, been with TMF/TLF for 20+ years, started a HYP (inspired by TMF) about 10 years ago as I started to think about converting portions of my long term funds/trackers (in ISAs and GAs) into income producing things. I've been mostly a self employed contractor and didn't have any significant pensions in place/plan.

I was originally intending to step back from work a little (what's the correct term for doing no/little proper work but not retiring) in summer 21 after my youngest would be finishing school, but haven't done so yet as covid would have restricted many initial plans. Roll on summer 22 for take 2.

But I did start some rehearsal of what less-work would like like and a year ago converted a significant chunk of funds/trackers and some less-favoured HYP shares into a group/basket of income focused ITs, all in ISAs split across myself and my wife's accounts. We've been drawing target income initially at 50%, now at 75% of our current needs. 80% of this is IT derived, and is fairly predictable, and in the spirit of 'rehearsing' less-work, it gives off a warm comfortable feeling. The other 20% is still HYP shares derived - more volatile, more exciting, capital swings with oil prices, war in Ukraine.

The rehearsal period has showed me a few things about myself and the various aspects I might face as I work less, both to do with income, and certainty, but also for example that I know I'm not ready to go for 100% work to 0% work in one go.

Depending on an individual's approach to risk, their appetite for involvement, decision-making, and other aspects, an income group ITs can provide a similar strategic outcome as an income HYP, but with more comfort and less input.

I still hold a smaller HYP of about 18 shares, and still enjoy the day-to-day of market news and activity, but it's not the bread and butter. Over time I may convert some/all of this.

I think there's a psychological parallel in this IT/HYP thing similar to the one about not paying the mortgage off and using the lending to invest and generate higher returns elsewhere. Yes that can be true, but for many people there can be more comfort derived from the certainty of finishing the mortgage. I think it also relates to lifestage where many people are comfortable they have built the pot, and now it's more about preserving the pot than aggressively increasing it.

The rehearsal period has also highlighted one or two areas where I'd taken the eye off the ball. We don't use our annual CGT allowances most years. I have been following many of the recent total return threads, where the argument has been that you can generate better income by following TR and then just selling units as required for income. With income ITs + HYP providing the bulk of income, it will be my intention to use excess funds to rebuild the balances in our GAs with simple world trackers, then flip them annually and sell units within the CGT allowances.

Apologies for the ramble, but the simple comment above on HYP vs IT prompted some thoughts about these and the various things that can be going on under the surface, at least in the heads of some people. I think I've paid too much attention to the last year's rehearsal....
BigB

Gilgongo wrote:

MDW1954 wrote:What exactly are the maintenance issues that you're trying to avoid???

MDW1954

Yes, that's the plan. And I agree it's not for everyone. But I'm gearing up for retirement in the next few years and one of the things I'm wanting to do is become less involved with finance, and more involved with women, cars and drugs.

At least 2 of those will be higher maintenance than your portfolio.

DAMHIK - IJK - OK?

Paul

DrFfybes wrote:At least 2 of those will be higher maintenance than your portfolio.

Nothing that regular lubrication won't fix.

Best wishes


Mark.

Arborbridge wrote:

Myfyr wrote:I have 40 ITs in my ISA, perhaps some would consider it overkill but i get a nice spread of dividends every month should i decide to withdraw them automatically on retirement as a tax free income. I buy 2 new ITs every year.

However, going forwards I will put all my ISA subs and dividends into something like VHYL because I am running out of sensible dividend paying ITs to invest in.

An interesting idea putting your future investments into VHYL which doesn't yield much, when you have so many which yield more. So the obvious question is why not buy more of the ones you already have?

I do rather agree with Dod - 40 seems quite a high number. Nothing wrong with that, though it depends if you do much record keeping. If you just in effect ignore them and get on with life, then 40 is no problem.

I cut down on numbers over the past few years: I would prefer book substantial dollops of dividends coming in, rather than mess about with many more small amounts.


Arb.

I bought 2 a year since ISAs started, sometimes 3 (now maybe 4) when accumulated dividends allow.

VHYL yields about 3.25% which is not too bad. More than Witan and some others.

Either that or buy more ITs but going beyond 40 gets a bit silly. Maybe increase existing holdings going forwards - eg £12,500 book value upped to £15,000 by buying an extra £2,500 in each one (8 a year for a £20,000 investment and another 8 from the yearly dividends). Bit tricky with LTI though.

I very rarely sell. I sold SCIN as I didn’t want more JGGI and PLI as I didn’t want more MUT. There are a few other sales like this but I haven’t been trading, just buying and holding.

I hold 12 ETFs in my main crystallised SIPP (plus 5% cash) which is larger than my ISA.

Arborbridge wrote:

Myfyr wrote:I have 40 ITs in my ISA, perhaps some would consider it overkill but i get a nice spread of dividends every month should i decide to withdraw them automatically on retirement as a tax free income. I buy 2 new ITs every year.

However, going forwards I will put all my ISA subs and dividends into something like VHYL because I am running out of sensible dividend paying ITs to invest in.

An interesting idea putting your future investments into VHYL which doesn't yield much, when you have so many which yield more. So the obvious question is why not buy more of the ones you already have?

I do rather agree with Dod - 40 seems quite a high number. Nothing wrong with that, though it depends if you do much record keeping. If you just in effect ignore them and get on with life, then 40 is no problem.

I cut down on numbers over the past few years: I would prefer book substantial dollops of dividends coming in, rather than mess about with many more small amounts.


Arb.

I have an Excel spreadsheet full of all my ISA and SIPP transactions (all cash flows) going back to about 2003/2004.

It also shows assumed future dividends that I marked as received when they are paid.