Creating a SIPP HYP - input welcome

[idpickering]

I would hold Legal & General in stead of Aviva. L & G has a much better record although Aviva seems to have a new lease of life under the relatively new CEO.

I would not hold Kingfisher or for that matter Sainsbury. Retailers are such an unknown quantity. And I think one miner is quite enough. They are very volatile.

You could add some stodge in the form of Unilever and a windfarm operator like Greencoat or SSE.

Still much too exposed to high yields for my liking although I am basically an income investor as I live off my dividends.

On the whole you need to give yourself the chance of some capital growth as well as income.

Anyway in the end it is up to you and whatever you do you will not get it all right. A good learning curve.

Dod

I agree with Dod regarding preferring LGEN to AV. pretty much for the reasons he stated in his post.

Ian.

[Dod101]

Advice?.

Hope that helps.

Enjoy!

Ian

Ian - thanks so much for this. Lots of thought provoking stuff in there which is immensely valuable for my learning curve.

Best wishes
Femi

And as always, treat all advice you get (including mine) with caution. Not all of it will turn out to be of value. All of us more or less seasoned investors have our own style (and our own requirements) and so very little of it will be 'correct' for your requirements. Were I you, I would now be buying say 15 or so shares and get into the market. That is where your 'learning' and understanding will come from, not from reading forums, and some tentative conclusions can be drawn in about five years time.

Good luck.

Dod

[Femi]

Thanks everyone - yes very sensible input from Dod in the last post and that's exactly what I will be doing ... but it's always nice to have others opinions and thoughts for or against certain things. Ultimately it will of course be my decision how I go forward with it but the input everyone has given makes it more enjoyable for me and I very much appreciate people taking the time to share their perspectives and knowledge which I have no doubt is hard earned over a long time and I don't take it for granted.

Cheers
Femi

[Charlottesquare]

I intend to reinvest dividends whenever they total more than £1000

Just a quick aside, but isn't that amount a little too low for efficient allocation of dividend re-investment?

I only ask because I always try to make sure that my own personal re-investment dealing costs are kept below 1% wherever possible, and many years ago I landed on a sum of around double the amount you've mentioned above, and so I now tend to keep a watchful eye out for any of my share-accounts that accumulate £2000 or above before I look to re-invest it.

Some quick sums based on typical trading costs of £10 and taking into account stamp duty of 0.5% shows the following percentage cost charges at those two levels -

Invested Sum   |      Percentage Trading Costs
    £1000      |              1.495%
    £2000      |              0.9975%

When looking into this myself many years ago, I also ran the numbers for a £3000 re-investment level, which comes out at a general trading cost of 0.83%, so I personally felt like it was worth holding on for the £2000 level, but from that point onwards I felt like the bulk of the benefit had been gained, with less inclination to hold on until more had accumulated for less of an additional benefit.

In addition to the above, and as my income-portfolio grew over the years, I also felt that I benefited quite a lot from having a slower re-investment drum-beat in terms of portfolio-management as well, with less time having to be spent thinking about it, and more time doing other things, so unless there's a particular benefit in paying 50% more in trading costs than you might have to, then it could be worth re-considering that particular trigger-level...

Of course the above doesn't take into account the potential 'opportunity-cost' of uninvested cash, which might also be a driver in your process, but even then, for me personally, the improved portfolio-management benefit of much fewer trades trumped that consideration as well.

Whilst I'm here, and just in case you weren't aware in terms of the HYPTUSS 'Overview' functionality that you've used to generate your portfolio tables, if you go to the main sheet and click the 'Toggle Sector / Super-Sector' button, then the Overview process will then generate the portfolio table based on that setting, which might have highlighted sooner some of the 'Super-Sector' concerns that have been mentioned earlier in the thread.

The relevant 'Sector' and 'Super-Sector' allocations for each share in the tool is held in the following columns of the 'Company Data Sheet', and by design they are user-configurable if anyone wants to manually allocate more appropriate sector definitions, depending on their particular views -

• Sector -Company Data Sheet - Column D

• Super-Sector -Company Data Sheet - Column I

If any of the 'Super-Sector' definitions are missing from the vanilla HYPTUSS download, then looking at similar EPICS on the data-sheet can usually offer up an appropriate one to copy from elsewhere in Column I.

Cheers,

Itsallaguess

I tend to calculate reinvestment more based on what I potentially lose re dividends by not being invested and only receiving very low rates of interest on the cash sums accrued, if a broking fee is say £11.95 for £1,000 but if I get it invested I might get say 2% dividend in the next say 2 months, there may be something to be said for buying now with the £1,000

[funduffer]

As regards costs of re-investing dividends, we should recall the formula from our dear departed friend, Gengulphus:

A = SQRT (200 * C * I / R)

where,

A is the top-up amount (£)
C is the cost per trade (£)
I is the amount invested each year (£)
R is the annual rate of return expected beyond interest on cash (%)

Example

If a trade costs £5 (eg iWeb), and say £4000 is invested annually in top-ups, and the rate of return over cash is say 4%, then

A = SQRT (200 * 5 * 4000 / 4) = £1000

Please don't ask me to justify this formula, as the logic now escapes me and our dear friend is no longer with us to explain!

FD

[Charlottesquare]

As regards costs of re-investing dividends, we should recall the formula from our dear departed friend, Gengulphus:

A = SQRT (200 * C * I / R)

where,

A is the top-up amount (£)
C is the cost per trade (£)
I is the amount invested each year (£)
R is the annual rate of return expected beyond interest on cash (%)

Example

If a trade costs £5 (eg iWeb), and say £4000 is invested annually in top-ups, and the rate of return over cash is say 4%, then

A = SQRT (200 * 5 * 4000 / 4) = £1000

Please don't ask me to justify this formula, as the logic now escapes me and our dear friend is no longer with us to explain!

FD

I also do not follow the why re the formula but do deduce( I think) that it assumes dividends (R) flow evenly across the year. Given they often tend not to, they are often lumpy, I suspect I will stick at looking at my prospective target purchase and when I will get my dividends from same to catch up any increased frictional costs from more frequent purchases than might be indicated by mere percentages.

Of course share pricing itself is not immune to latent dividends, a share coming towards a dividend payment may price higher and of course tends to drop ex div, however my experience is that ex div drops are often short lived so as I do like dividends I tend to ignore this and really look at whether say a £1,000 purchase right now is justified. My full holdings tend to be circa £16k each and excepting these small purchases, where the broking costs can be justified by a soon impending div, I tend to more normally buy at circa a 1/4 holding size, around the £4k mark, but if what I want does have a fast approaching div and is not ex div I can be tempted to plunge in piecemeal- I tend , most of the time, to be near 100% invested in equities, maybe I have a latent impatience.

[Femi]

Hi everyone - first off thanks everyone for your invaluable input when I asked my original question. It's clear the community have a massive amount of hard earned experience and a mix of passionately held views/opinions, all very healthy stuff in my opinion.

I've spent the last few weeks building a portfolio during the market weakness and ended up with the following - I wanted to say thank you all and have the decency to show where I ended up. I know I've probably broken a few cardinal rules in my choices but they are mine and I take full responsibility for them Hopefully I have got some right (and no doubt some wrong also) - time will tell ...

I invested an equal amount in each of the shares and, as you would expect, there has been some movement - so this is my current position. I have one more to buy but still debating what that will be

                                                                                 Value     Div    Fcst 
Share                           Epic    Sector                                  %Total  %Total   Yield
Taylor Wimpey                   TW      Household Goods & Home Construction      6.49%   7.60%   9.10%
Phoenix Group Holdings (DI)     PHNX    Life Insurance                           6.52%   8.05%   9.60%
Imperial Brands                 IMB     Tobacco                                  6.70%   6.98%   8.10%
NatWest Group                   NWG     Banks                                    6.83%   6.81%   7.75%
British American Tobacco        BATS    Tobacco                                  6.75%   7.29%   8.40%
IG Group Holdings               IGG     Financial: Gambling                      6.59%   5.51%   6.50%
Investec                        INVP    Investment: Management                   6.44%   5.80%   7.00%
British Land Company            BLND    Retail REITs                             6.82%   6.58%   7.50%
Glencore                        GLEN    Mining.                                  7.03%   7.46%   8.25%
Woodside Energy Group           WDS     Oil & Gas Producers                      6.42%   9.09%  11.00%
The Renewables Infrastructure   TRIG    IT - Renewable Energy Infrastructure     6.96%   5.68%   6.34%
SSE                             SSE     Electricity                              6.66%   4.54%   5.30%
M and G                         MNG     Fund Manager                             6.49%   8.51%  10.20%
Smith (DS)                      SMDS    General Industrials                      6.71%   5.70%   6.60%
Kingfisher                      KGF     General Retailers                        6.59%   4.42%   5.21%

Portfolio Running Yield = 7.77%

                                                  Value      Div
Sector                                           %Total   %Total
Household Goods & Home Construction               6.49%    7.60%
Life Insurance                                    6.52%    8.05%
Tobacco                                          13.45%   14.27%
Banks                                             6.83%    6.81%
Financial: Gambling                               6.59%    5.51%
Investment: Management                            6.44%    5.80%
Retail REITs                                      6.82%    6.58%
Mining.                                           7.03%    7.46%
Oil & Gas Producers                               6.42%    9.09%
IT - Renewable Energy Infrastructure              6.96%    5.68%
Electricity                                       6.66%    4.54%
Fund Manager                                      6.49%    8.51%
General Industrials                               6.71%    5.70%
General Retailers                                 6.59%    4.42%
Total                                           100.00%  100.00%

Note: 1...'Value %Total' is the portfolio value of the share as a % of the total portfolio
      2...'Div %Total' is the expected dividend of the share based on forecast yield
                       as a % of the total portfolio expected dividend

[monabri]

SSE forward yield needs tweaking down, rebased dividend being 60p.

[Femi]

SSE forward yield needs tweaking down, rebased dividend being 60p.

Yes - forgot to do that

                                                                                 Value     Div    Fcst 
Share                           Epic    Sector                                  %Total  %Total   Yield
Taylor Wimpey                   TW      Household Goods & Home Construction      6.49%   7.73%   9.10%
Phoenix Group Holdings (DI)     PHNX    Life Insurance                           6.52%   8.19%   9.60%
Imperial Brands                 IMB     Tobacco                                  6.70%   7.10%   8.10%
NatWest Group                   NWG     Banks                                    6.83%   6.93%   7.75%
British American Tobacco        BATS    Tobacco                                  6.75%   7.42%   8.40%
IG Group Holdings               IGG     Financial: Gambling                      6.59%   5.60%   6.50%
Investec                        INVP    Investment: Management                   6.44%   5.90%   7.00%
British Land Company            BLND    Retail REITs                             6.82%   6.70%   7.50%
Glencore                        GLEN    Mining.                                  7.03%   7.59%   8.25%
Woodside Energy Group           WDS     Oil & Gas Producers                      6.42%   9.25%  11.00%
The Renewables Infrastructure   TRIG    IT - Renewable Energy Infrastructure     6.96%   5.78%   6.34%
SSE                             SSE     Electricity                              6.66%   2.84%   3.26%
M and G                         MNG     Fund Manager                             6.49%   8.67%  10.20%
Smith (DS)                      SMDS    General Industrials                      6.71%   5.80%   6.60%
Kingfisher                      KGF     General Retailers                        6.59%   4.50%   5.21%

Portfolio Running Yield = 7.64%

                                                  Value      Div
Sector                                           %Total   %Total
Household Goods & Home Construction               6.49%    7.73%
Life Insurance                                    6.52%    8.19%
Tobacco                                          13.45%   14.52%
Banks                                             6.83%    6.93%
Financial: Gambling                               6.59%    5.60%
Investment: Management                            6.44%    5.90%
Retail REITs                                      6.82%    6.70%
Mining.                                           7.03%    7.59%
Oil & Gas Producers                               6.42%    9.25%
IT - Renewable Energy Infrastructure              6.96%    5.78%
Electricity                                       6.66%    2.84%
Fund Manager                                      6.49%    8.67%
General Industrials                               6.71%    5.80%
General Retailers                                 6.59%    4.50%
Total                                           100.00%  100.00%

Note: 1...'Value %Total' is the portfolio value of the share as a % of the total portfolio
      2...'Div %Total' is the expected dividend of the share based on forecast yield
                       as a % of the total portfolio expected dividend

[Dod101]

Just noticed this post and I must say that the selection looks perfectly reasonable to me. Some I do not hold of course and some that I do. Clearly it would be helpful if say in a year's time Femi were to provide an update.

I hold SSE and had not appreciated that the rebasing will drop the yield so far, but of course the value of a diverse portfolio is that one low yield does not have a dramatic effect on the overall portfolio yield.

Dod

[Femi]

Hi Everyone - not quite a year (nearer 10 months) but I thought I would give an update on this. My current report from HYPTUSS looks like this:

                                                                                 Value     Div    Fcst 
Share                           Epic    Sector                                  %Total  %Total   Yield
Taylor Wimpey                   TW      Household Goods & Home Construction      7.49%   7.75%   7.00%
Phoenix Group Holdings (DI)     PHNX    Life Insurance                           7.06%  11.58%  11.10%
Imperial Brands                 IMB     Tobacco                                  6.30%   7.82%   8.40%
NatWest Group                   NWG     Banks                                    9.26%   7.66%   5.60%
British American Tobacco        BATS    Tobacco                                  6.85%  10.23%  10.10%
IG Group Holdings               IGG     Financial Services                       6.62%   6.07%   6.20%
Investec                        INVP    Financial Services                       6.73%   6.77%   6.80%
British Land Company            BLND    Retail REITs                             7.74%   6.63%   5.80%
Glencore                        GLEN    Mining.                                  6.50%   2.50%   2.60%
Woodside Energy Group           WDS     Oil & Gas Producers                      4.54%   5.10%   7.60%
The Renewables Infrastructure   TRIG    IT - Renewable Energy Infrastructure     5.45%   5.80%   7.20%
SSE                             SSE     Electricity                              5.46%   2.91%   3.60%
M and G                         MNG     Financial Services                       6.05%   8.76%   9.80%
Smith (DS)                      SMDS    General Industrials                      7.58%   5.71%   5.10%
Kingfisher                      KGF     General Retailers                        6.38%   4.72%   5.00%

Portfolio Running Yield = 6.77%

                                                  Value      Div
Sector                                           %Total   %Total
Household Goods & Home Construction               7.49%    7.75%
Life Insurance                                    7.06%   11.58%
Tobacco                                          13.15%   18.05%
Banks                                             9.26%    7.66%
Financial Services                               19.40%   21.60%
Retail REITs                                      7.74%    6.63%
Mining.                                           6.50%    2.50%
Oil & Gas Producers                               4.54%    5.10%
IT - Renewable Energy Infrastructure              5.45%    5.80%
Electricity                                       5.46%    2.91%
General Industrials                               7.58%    5.71%
General Retailers                                 6.38%    4.72%
Total                                           100.00%  100.00%

Note: 1...'Value %Total' is the portfolio value of the share as a % of the total portfolio
      2...'Div %Total' is the expected dividend of the share based on forecast yield
                       as a % of the total portfolio expected dividend

I have reinvested dividends during the year and anticipate at least one more reinvestment before the end of June

PHNX at 477.96p per share
BATS at 2518.76p per share
NWG at 216.8p per share

To date my unrealised gain on the investments is 5.82% and a dividend yield of 5.25%. If I include dividends not yet received but already declared for payment before the end of June then the yield is 6.85%.

Biggest winner to date is NWG - biggest loser is WDS

I'm quite happy with this given that I don't really take much notice of it and have no need to take the dividends for some considerable time so they will just be reinvested probably once a quarter.

Again thanks for all your input last year it was very helpful and much appreciated.

Femi

[micrographia]

Always good to see updates on a portfolio. If you are still reinvesting dividends for a good while you are essentially using the HYP approach to build a portfolio over time rather than in one shot, like a few of us here are doing. Worth bearing in mind that you aren't limited to topping up your initial 15 choices forever. So for example, given GLEN and SSE have reduced their dividends you could look at adding the likes of RIO and NG instead - same sector, better yield. Or you could add previously unattractive shares in new sectors as and when they cycle into HYP territory. Or add shares on lower starting yields in new sectors simply to diversify your income stream.

This does mean you will need to work out how you want to approach reinvesting dividends, but since you have already been through the thought processes behind doubling up on the likes of BATS/IMB in your portfolio I'm guessing you should be comfortable with this.

You will need to figure out what you want to do with your DS Smith investment later this year as well .

EEM