Ever want to shout AAAARGGGHHH ?

[thebarns]

IGG follows a long line of HYP shares, reasonably widely held and tipped by some, not all, with poor, putting it mildly, recent performance.

I have only been at this HYP lark for a few years, trying to provide income for imminent retirement - I have no final salary pension scheme with all their guarantees, virtually zero risk and often rising incomes that bear none of the risk and worry that many inexperienced investors will have to put up with in their own retirements.

IGG, Lloyds, Morisons, Cobham, Tesco, Centrica, Pearson, Sainsburys, Carillion, Amec Foster, BLT - many cutting dividends or look likely in the future, all reducing capital (I know that does not matter in HYP) but it is normally reflective of a concern over an ability to generate future profits, similar or rising dividends. Many of those companies were pretty widely tipped to hold as part of a broad HYP portfolio.

Then to top it all recently the better HYP ones - Astra, National Grid, Imperial Brands, BATS, GSK all shedding 10-20% of capital value in the last couple of months.

I am not making a particular point, other than to shout AAAARRRGGGGHHHH, but it does show the difficulties that exist and lie ahead for those reliant on providing for their own retirement without final salary pensions.

Maybe it is just a point in time and it will pass but all these fairly recent ones, with the exception of Lloyds, have happened whilst the FTSE is at a reasonably high level, so what happens if we hit another crisis.

I know, keep the faith.

And kick me when I am down and tell me I should be on the Strategy Board and not HYP Practical !

[Arborbridge]

thebarns - have a good shout, then sit back and have a cuppa and think around it.

It's very alarming to see thing falling apart - if that is indeed what they are doing - but take a look at the income from your whole portfolio and how it is progressing. Maybe, just maybe, that might make you feel better (well, I'm hoping so!).

Back in April this year, my 12 month forecast income was 6.6p per per unit - now it is 6.8p. That may or may not come true, but what it's saying is that despite the prices coming back, my possible income (possibly!) isn't. That includes all those shares you've mention who have cut dividends. Taken overall, the situation is acceptable, with some modest cutters, some bad cutters, some increases and only one real duffer - that's TESCO. I guess it was always thus, so let's not beat ourselves up over a sticky patch.
Taking my experience of investing over the past 30 years, I will continue to do what I've always done: invest when things look dodgy and trust to the capitalist system. Yes, I know, "in long run we are all dead" but one each previous occasion I've found things do come right, in the long run.

There are real dangers out there which might bring the whole system crashing down, that's undeniable, but you only have two other choices: invest in an annuity or invest in income producing ITs, or carry on working until you drop - if anyone will have you. One takes one's choice. I've made mine and I'm sticking with it: a mixture of HYP, ITs and OEICS.

Cheer up, and view this as a chance to get in with some lower prices.

Arb.

[BarrenWuffett]

I share your sentiment and for probably the same reasons I decided a couple of years back that I would abandon individual shares and move to much more diverse global index funds - actually, Vanguard Lifestrategy 60 and also a few investment trusts.

On reflection, I believe the hyp approach is more likely to disappoint over the longer term as very few are prepared for the extra volatility. I suspect we hear mostly from those die-hards who can cope with the volatility but not from the majority who have tried, found it wanting and moved on.

I think it offers good rewards for those of a certain temperament but I now firmly believe most small investors would be better served by investing in a low cost globally diverse index fund(s).

[Lootman]

IGG follows a long line of HYP shares, reasonably widely held and tipped by some, not all, with poor, putting it mildly, recent performance.

IGG, Lloyds, Morisons, Cobham, Tesco, Centrica, Pearson, Sainsburys, Carillion, Amec Foster, BLT - many cutting dividends or look likely in the future, all reducing capital

In the bond market the phrase "high yield" is synonymous with high risk, and HY bonds are also known as junk bonds. That should be a clue that if one consistently invests one's money in securities that yield more than the average then the risk may well be more than the average as well.

On a good day (or year, or decade) that can work in your favour, and you will be rewarded for your courage. But you should reasonably expect and plan for the reverse.

I am fortunate in that I do not rely on dividends to support myself, and can afford a portfolio that has a yield that is more in line with the market. The resultant portfolio has proven resilient with decent growth of dividends and share price. But I would feel nervous if I had to reach and stretch for yields much north of 4% in order to pay my bills.

So one rule of thumb that I think can be helpful is to target the lowest dividend yield that meets your objectives. That will typically give you better dividend cover, dividend growth, defensiveness and sectoral diversification. Because there is no reason to believe that your list of failed HY shares will be the last of it. And complacency after a stonking seven-year bull market for shares, near-zero gilt yields and a somewhat unpredictable US president elect make these interesting times.

[Crazbe7]

And another reason why a 15 share HYP is a poor investment choice. Discuss!!

[Arborbridge]

And another reason why a 15 share HYP is a poor investment choice. Discuss!!

Discuss by all means, and also other options such as a medium yield hyp - but please do so on the strategy board

[Lootman]

And another reason why a 15 share HYP is a poor investment choice. Discuss!!

Discuss by all means, and also other options such as a medium yield hyp - but please do so on the strategy board

Arb, no disrespect or nothing but I would argue that the following topics are all within scope for the practical running of a HYP:

1) What is a good number of shares to balance diversification with simplicity?

2) How does one manage the potentially higher risk of investing only in high yielding securities?

3) How does one decide on the best target yield for a HYP?

[jackdaww]

IGG follows a long line of HYP shares, reasonably widely held and tipped by some, not all, with poor, putting it mildly, recent performance.

IGG, Lloyds, Morisons, Cobham, Tesco, Centrica, Pearson, Sainsburys, Carillion, Amec Foster, BLT - many cutting dividends or look likely in the future, all reducing capital (I know that does not matter in HYP) but it is normally reflective of a concern over an ability to generate future profits, similar or rising dividends. Many of those companies were pretty widely tipped to hold as part of a broad HYP portfolio.

Then to top it all recently the better HYP ones - Astra, National Grid, Imperial Brands, BATS, GSK all shedding 10-20% of capital value in the last couple of months.

=======================

morrisons and BHP have come back to almost what i paid , and in the meantime ive had the dividends.

for the "better ones" , shedding 20% is not abnormal , many of them have been much lower in recent years .

but some should probably not have been selected anyway .

[GeoffF100]

Fortunately, I do not have IGG. I bought 3i, which has been doing well so far. I have not had any big losers since AMFW and Tesco, and some of my losers have recovered, e.g. Balfour Beatty and Rentokil. Nonetheless, it has not been good lately. The FTSE 100 has gained 6% on my UK portfolio in a matter of months, after lagging for a long time. Thank goodness for my bonds and overseas trackers.

[kempiejon]

Shares go up, shares go down, dividends ditto, some even stop altogether. Or stay in cash more or less safe from such vagaries.

I will be adding to Imperial Brands tomorrow, their dividend yield has recently in the ascendant. Last month it was British Land, SSE and Pennon on my shopping list.

[thebarns]

Some wise words........

I think I face a problem that many are going to have, including me, and that is the seduction or is it a need for a high yield ? Take your choice and live off 2.5% of £500K or 5% of £500K - I think legions of inexperienced investors could come a cropper in this because they have a need for the 5% income that HYP can theoretically give.

Arb mentions I could go for an annuity but if I went down that route I'd get a 2.5-3% return on a capital sum, lost to the estate forever, assuming I go for an annuity that leaves my wife 50% and that the annuity grows by inflation or 2-3% annually. So very expensive, meaning I need at least double the capital sum to generate the same yield and lost to the estate.

I could go for ITs/ETFs which in general yield less and have higher charges, though less prone to such dramatic ups and downs as these single shares. I would then need to accept a lower income.

Or as Loot mentions I could go for a natural yield on a well balanced global portfolio of all sort which is likely again to only yield 2-3%.

So again that route would mean I need double the capital sum.

Or I keep working for a number of years to build a larger capital sum and that is not an attractive prospect either !

My HYP shares (and I have not calculated it exactly) can probably get near to a 4.5 - 5% yield (as long as they stop these spectacular falls/dividend cuts !!), but in the last couple of years, I have become slightly spooked that this theoretical yield comes at a much higher risk of either income cuts or reduction in capital - this is just my personal recent experience and I am feeling grumpy and a bit nervous for what comes down the line....

I get the HYP concept and the focus on income, maybe I just picked a number of iffy shares.

I was not sure which Board to post it on, be gentle with me I am already nursing HYP wounds !

I just thought it vaguely relevant for this Board as practically I am/have picked a lot of duff HYP shares, many of which have been mentioned in this predecessor Board before.

Moderator Message:
I think you have 2 threads here, the first is valid on practical, discussing HYP, the second is Strategy. Can we keep this on your HYP and can posters stick to HYP please

[kempiejon]

Fortunately, I do not have IGG. I bought 3i, which has been doing well so far. I have not had any big losers since AMFW and Tesco, and some of my losers have recovered, e.g. Balfour Beatty and Rentokil. Nonetheless, it has not been good lately. The FTSE 100 has gained 6% on my UK portfolio in a matter of months, after lagging for a long time. Thank goodness for my bonds and overseas trackers.

Geoff, I have 3i and iii but I don't think they are like IGG, have they been similarly hit by the recent announcement?
I have Balfour BBY and Rentokil RTO, BBY has recovered to 5% above purchase cost and the income has just started up again. RTO Is still well below my initial purchase income amounts but it's capital has appreciated putting on several years of income.

[Lootman]

Or as Loot mentions I could go for a natural yield on a well balanced global portfolio of all sort which is likely again to only yield 2-3%.So again that route would mean I need double the capital sum.

Or I keep working for a number of years to build a larger capital sum and that is not an attractive prospect either !

My HYP shares (and I have not calculated it exactly) can probably get near to a 4.5 - 5% yield (as long as they stop these spectacular falls/dividend cuts !!), but in the last couple of years, I have become slightly spooked that this theoretical yield comes at a much higher risk of either income cuts or reduction in capital - this is just my personal recent experience and I am feeling grumpy and a bit nervous for what comes down the line

You've defined the central problem there. And it's about as practical as anything can be, because it crucially determines whether you can pay your bills or not.

The risk with HYP is that it seductively offers a running yield well in excess of what an annuity would offer you AND you get to retain the capital, thereby potentially benefiting your beneficiaries AND your income should grow over time.

But nobody is guaranteeing that the delivered income will continue to meet your growing budget. And if it does not, and you have to start running down capital during a bear market, then the likely lower capital growth of a HYP will cause your cash burn rate to become critical.

Put another way, the seductive lure of HYP may lead you to retire early with less capital than you otherwise would think you need, with the attendant risk that the strategy fails just when you are running out of alternative options.

Your concern is justified. Not to say that HYP isn't a good option, but rather that it isn't a silver bullet that obviates the need to build sufficient reserves. My own view is that HYP as stated can only be part of your retirement solution, and an unhealthy dependence on HYP alone is not without risk.

[Dod1010]

Of the shares mentioned by the OP I held only Cobham which I have since sold because I am not confident that a new management team will not 'kitchen sink' the results.

I hold only 20 shares in my HYP and am not in the least concerned about a 20% drop (if that is what it is) in the capital value of some of the shares. The peak was of course a bit of a bubble (with say Imperial Brands at £40). To cheer yourselves up you could look at HSBC where not only is the dividend looking very good in sterling terms but the capital value of the shares is rising quite steadily.

Apart from the State Pension (my travel fund) and a SIPP, I live entirely off the dividends in my HYP so I would have what Lootman calls an unhealthy dependence on HYP but I have been doing that for the last 20 odd years and it has not so far let me down, through the technology bubble of 2000 and the financial crisis of 2008/9. So fear not. I am not complacent and am always trying to find the next crisis but I think a HYP is the nearest thing you will get in the investing world which works for all seasons.

Do not be a philatelist and remember Peter Lynch who said something like 'the best share for a top up may be one you already hold'

[Raptor]

thebarns.

Have been through that pain as well. During building phase I certainly picked a few losers and have seen my capital nose dive and my dividend yield yo-yo. I have learnt that the capital should recover over time but the most important thing is your dividend income. How about listing your HYP portfolio in total. I assume the 12 at the beginning is not your total. My portfolio is currently showing a 4.9% for the year, good enough for me. Posting your portfolio and asking advice may surprise you with the wise words from the Lemons.

Whether running other strategies would work, that is for the other board. However, I run a HYP portfolio and an income IT portfolio. I know others run value portfolios as well. I believe that everyone has to do what they feel comfortable with but be open minded to change.

Raptor

[Lootman]

I would have what Lootman calls an unhealthy dependence on HYP but I have been doing that for the last 20 odd years and it has not so far let me down

Congratulations, fair play and, in fact, if you have had a HYP for more than 20 years then maybe Bland owes you some of the royalties he has received on "his" acronymic idea? Luniversal and TJH both also have been doing this for a long time and, in a different and rather less convincing way, so have I.

The other thing I reflect upon is that a HYP can be tax-efficient, given that basic-rate taxpayers pay only 7.5% on dividends and 10% on capital gains. Most other forms of income attract rather higher levels of tax.

[thebarns]

Thanks Raptor and Dod.

I am aware I need to keep this on topic for this board.

I am also useless with tables etc - maybe when I do eventually retire I will learn to how use tables properly, instead of fretting over my HYP shares, although all joking aside, an income will be needed to pay the bills.

I am aware of Dod's abbreviated portfolio and his own logic.

My own HYP does cover virtually all of the usual large suspects and some from the smaller ftse 350 pool such as Cobham, IGG etc.

It will not differ wildly from most HYPs that cover the usual suspects, I probably have too many but really do not have the skills to know which ones are going to come good or bad so just get most of them, many via snippets from this predecessor Board.

I must stay on topic for the practical Board but find some of these opservations really useful.

I wish running HYP was a hobby and pay heed to those that have worn the tee shirt for a number of years, unfortunately it is a necessity and one that does not come without stressing about its eventual outcome !

Unlike a number of my relatives with good final salary pensions !

[MDW1954]

Raptor/ thebarns,

I've been HYPing since 2005, when I decided to scale back my investments in trackers, and put new money into HYP shares instead.

Yes, I've suffered the slings and arrows of outrageous dividend cuts. But for the most part, I've been pleased. A large-ish SIPP, closed to new money, is largely income-centric ITs. I'm mulling switching another SIPP into income-centric ETFs.

But HYP shares, held in a very low-cost ISA brokerage account, bring the cost of earning that income down to ultra-low levels.

HYP does it for me -- and it's more fun, too!

MDW1954

[torata]

After taking a few years to gradually rejig my 'closed' ISA from a mish-mash, I now have an HYP of 30 shares, with no new money being added. It settled down into its current form around 2011.

Occasional trimming (maybe once, possibly twice a year) plus the odd capital return and reinvestment of dividends allow maybe 3, possibly 4, top-ups a year.

But here's the thing...

While capital values for some shares (usually more recently bought shares or topped up shares) may be in the red or not have gone anywhere, for the past 3 years, my dividend income by November has been greater than the total in the whole previous year. Every year I'm getting a month's worth of "free" money to reinvest.

That excel chart has a much more powerful effect than my unitization efforts or %return calculations.

I don't know how much is just luck (e.g. favourable exchange rates this year), but it feels like I'm on the cusp of a virtuous circle - long may it continue.

torata

[idpickering]

Raptor/ thebarns,

I've been HYPing since 2005, when I decided to scale back my investments in trackers, and put new money into HYP shares instead.

Yes, I've suffered the slings and arrows of outrageous dividend cuts. But for the most part, I've been pleased. A large-ish SIPP, closed to new money, is largely income-centric ITs. I'm mulling switching another SIPP into income-centric ETFs.

But HYP shares, held in a very low-cost ISA brokerage account, bring the cost of earning that income down to ultra-low levels.

HYP does it for me -- and it's more fun, too!

MDW1954

I agree with your sentiment there MDW1954. Hyping is fun and is just about my only hobby. I'm sorry for the capital losses sustained yesterday but hyping is about the income.

Regards

Isn