Is a Capital Gain Capital at Risk

[taken2often]

I have a lot of PIBS and most are showing a good profit. A year or two ago I could not envisage selling any of them as the spread was so bad, I thought bought for life. The income was good and gross in the Sipps and ISA. Recently I have been badly burned by Manchester 8% and may have to wait years if at all for the interest to start again. The last time this happened I bought Northern Rock Pibs for buttons and made a good profit when they were redeemed. At the weekend I noticed a comment about Skipton Building Society messing about with clients investments and decided to take that as a bad sign, so I have sold off some of my stock.

This has now made me consider the others. It is a fact that the good profits will disappear when the interest rates start rising. Most governments want this to help wipe out their massive debts, so I think 2018 will be the year both in the UK and USA. So I will sell more but still hold on to some.

There is no Capital Gains tax on Pibs in the taxable account so that is good. I ran a screen today and found 36 shares and IT's that have a dividend of
over 6%. I will aim for 6.5% which should replace the income lost due to the sale of the PIBS. I may buy some new shares and top up existing shares to replace the PIBS. Spread the load.

As in the heading a capital gain is capital at risk.

Bob

[Lootman]

I
I ran a screen today and found 36 shares and IT's that have a dividend of
over 6%. I will aim for 6.5% which should replace the income lost due to the sale of the PIBS. I may buy some new shares and top up existing shares to replace the PIBS.

I would be very nervous about picking shares and ITs that yield over 6%. Or even 5% for that matter. There are probably some very good reasons why the market is pricing them that way. Care to list a few and invite commentary and feedback?

[77ss]

I would be very nervous about picking shares and ITs that yield over 6%. Or even 5% for that matter. There are probably some very good reasons why the market is pricing them that way. Care to list a few and invite commentary and feedback?

ITs, I would agree.

Looking at my holdings, I have four giving me a running yield of over 6%:

Carillion, Connect, Galliford Try, and Pearson. I doubt that I would buy Carillion or Pearson today, that's history, but I am reasonably relaxed about the other two. I would note that buying at high yields can work very well, should the share involved get re-rated. Care needed of course.

As for the 5-6% band, surely this contains a number of worthy candidates?

GSK, HSBA, LGEN, RDSB, SSE, VOD to name but a few.

As always, the higher the yield, the more carefully one should look at a share. But don't fall into the 'zone' delusion.

[hiriskpaul]

I have a lot of PIBS and most are showing a good profit. A year or two ago I could not envisage selling any of them as the spread was so bad, I thought bought for life. The income was good and gross in the Sipps and ISA. Recently I have been badly burned by Manchester 8% and may have to wait years if at all for the interest to start again. The last time this happened I bought Northern Rock Pibs for buttons and made a good profit when they were redeemed. At the weekend I noticed a comment about Skipton Building Society messing about with clients investments and decided to take that as a bad sign, so I have sold off some of my stock.

This has now made me consider the others. It is a fact that the good profits will disappear when the interest rates start rising. Most governments want this to help wipe out their massive debts, so I think 2018 will be the year both in the UK and USA. So I will sell more but still hold on to some.

There is no Capital Gains tax on Pibs in the taxable account so that is good. I ran a screen today and found 36 shares and IT's that have a dividend of
over 6%. I will aim for 6.5% which should replace the income lost due to the sale of the PIBS. I may buy some new shares and top up existing shares to replace the PIBS. Spread the load.

As in the heading a capital gain is capital at risk.

Bob

Sorry to hear you were a Manchester PIBS holder. That BS has been in a mess for some time and the PIBS prices had shown peculiar resilience.

If you are very overweight PIBS and other subordinated debt, then by all means reduce your holdings until you are comfortable. However, I see no reason to panic over future interest rates. 10 years ago BoE base was over 5%, yet undated PIBS, bank prefs, etc. were on higher prices then than now. What matters is the long end of the yield curve, not the short end. If anything, I think that prices could actually rise from here as interest rates rise as that should enable banks/BS to be more profitable, boost reserves and so reduce the risk of default.

You had a bad experience with Manchester PIBS, but high yielding ordinary shares carry far more risk than most undated PIBS and bank prefs. Don't forget that most of them continued to pay right through the worst banking crisis in a generation and banks/building societies have since been forced to hold a lot more capital and be more prudent with lending.

[taken2often]

Well the deed is done and I have sold off a substantial number of PIBS over my 5 portfolios. So all have cash available for investment.
I also sold Balfour Beatty and Morrisons. One breaking even and the other a small gain. The largest cash holding was in my taxable account.
The initial benefit is the saving on tax 20% down to 7.5%. I purchased 13 items of stock today some top ups and some new. Yield on cost is a fraction under 7%. Three were Prefs. I do not have the time to name all the stock but I will give you the code and yield.

ADN 7.33, NCYF 7.06, HSD 8.48, IPE 6.36, JPI 8.35, EMG 5.42, MXF 6.61, NWBD 6.55, P2P 7.31 SANB 6.22, STAB 6.26, SWEF 6.38, SMIF 7.39

Most are investment Trusts. Keep in mind I no longer worry about capital growth. Keep paying the income and growing it is my concern

Bob

[taken2often]

A further update of what has been purchased.

ISA Ticker and yield code LGEN 5.50%,RDSB 5.44%, SHRS 5.45%, THRL 5.62% Average yield on cost 5.5% about 1% below my target.

One of my SIPPs All American Closed End Funds (a bit like out Investment Trusts) EOS 7.81%, ETJ 11.94%, GGT 8.84% THW 10.30%. some of these pay monthly and there is no US tax to pay. Yield on cost 7.6%. I must say I am confused by this as all the yields are above this. I used cash against cost.On average is shows 9.72%. I think the spread and Exchange costs reduced the yield.

Still have two other SIPPs to go

Bob