moorfield wrote:Arborbridge wrote:If excessively high yield were useful as an indicator, should we not be using it as a "sell and replace" signal?
As you may know Arb I already use twice x City of London IT (CTY) yield (which I find is a very good proxy for FTSE100) as a signal to not top up holdings rather than sell them - that encourages me to put new cash elsewhere in the meantime. Until yesterday that signal applied to VOD, but its “rebased” yield has now moved back into top-uppable range.
It’s certainly been useful for me to help limit the damage of the cut to my overall portfolio income this year. Lesson learnt and applied having been seduced too much by the Carillion yield.
A quick check indicates that CTY is currently yielding 4.5% The FTSE-100 itself yields about 4%.
That means that your danger zone starts at 9%. If that is what works for you then fine, but it seems awfully high to me. If anyone could get a 9% income with little risk then he should take it. Even if you bought a basket of shares yielding 8% I would not be confident of positive cashflows over time, and certainly not of doing better than a simple index fund yielding 4%.
In the late 1980s you could have bought a basket of gilts for an average yield of 12% with minimal risk to capital. Such a portfolio would have done spectacularly well. So a HY approach can work. But after it working for 35 years and political turmoil swirling around, I'd be less sure now. My own personal red flag is the number of sectors I find to be uninvestible right now - banks, support services, utilities, retail, phones . .