Investment strategy musings

Wider investment strategy discussions not dealt with elsewhere
bejocomo
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Investment strategy musings

Postby bejocomo » December 18th, 2016, 10:21 am

I'm finding it difficult to decide upon an investment strategy because there is such an abundance of information regarding investment returns.

To this end I have purchased a number of books on the subject, but they are yet to be delivered and I have been reading whatever I can find on the internet in the meantime.

The articles I have read (Why Dividends Matter - Gareth Atkinson Funds and Means, Ends and Dividends - Blackrock amongst others) state that the overwhelming majority of the total returns derived from equities come from dividends, and the reinvestment of those dividends. If this is true, why are there so many investments that target 'growth'? If each investor is aiming to maximise total returns (ignoring other objectives such as preserving capital for a moment), then it would be logical to invest predominantly in dividend paying investments. Does the dividend versus growth divide merely distinguish between businesses that are established and have limited opportunity to grow further and those that need to reinvest cash to grow the business?

Looking to a scenario where an investor is trying to build a portfolio to support them in retirement, this can be simplified into a 'building' phase and a 'drawing' phase. During the building phase, the aim must surely be to grow the total capital value as quickly as possible, whether that comes from dividend income or capital growth, or a combination of the two. In order to draw an income come the 'drawing' phase, this could be achieved by investing in income generating investments or by selling growth investments that offer a lower yield.

History seems to show us dividend paying equities are likely to outperform over the long term. Should investments targeting growth just be seen as an alternative to diversify an investment portfolio, or am I misunderstanding the purpose of 'growth' investments? Does it matter all that much anyway?

Thoughts welcome.

Itsallaguess
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Re: Investment strategy musings

Postby Itsallaguess » December 18th, 2016, 10:59 am

bejocomo wrote:
I'm finding it difficult to decide upon an investment strategy because there is such an abundance of information regarding investment returns.

....

Looking to a scenario where an investor is trying to build a portfolio to support them in retirement, this can be simplified into a 'building' phase and a 'drawing' phase. During the building phase, the aim must surely be to grow the total capital value as quickly as possible, whether that comes from dividend income or capital growth, or a combination of the two.

In order to draw an income come the 'drawing' phase, this could be achieved by investing in income generating investments or by selling growth investments that offer a lower yield.


I think many of us here will fully understand your dilemma, as finding an investment strategy that 'suits us' from both a personal/personality point of view and also of course one that will ultimately deliver your desired 'investment-outcome' is of course something we all struggle with. Often that struggle might last a lifetime, of course, and I think it's great when we read posts here from people who have found a methodology that can cover both of the above bases, no matter what the actual 'strategy' itself consists of.

The question I'd ask initially though, given your two statements quoted above, is -

If you're struggling to find one strategy that suits you, why make it hard for yourself to actually have to find two different ones; one for your 'growth' phase, and then a different one later on for your 'drawing' phase? How easy do you think that's likely to be, and what's the chances of two strategies that might take completely different investment approaches being 'successful' in terms of what you need to get out of them both?

I've personally decided that a 'general' HYP (High-Yield-Portfolio) method suits me both personally, where the strategy is something that I can 'live with' for the long term, without it affecting me too emotionally in a negative way, and also strategically in terms of looking like it'll deliver my ultimate aim which is a regular dividend-income with which to supplement my retirement plans.

I feel incredibly lucky that I've found something that suits both aspects, as when I first started investing in equities I discovered fairly quickly that there's lots of other 'methods' that definitely don't suit my 'investment personality', and gave me far too many issues. So many, in fact, that I nearly walked away from equities many times before I discovered the HYP approach, as I simply thought I was never 'cut out' to have any amount of money in the stock market for any length of time.

But with the above said, I think one of the huge benefits, to me at least, of the HYP strategy, beyond the two aspects mentioned above, is that it covers both the 'growth' phase and the 'drawdown' phase in one strategy, with the one difference being simply how you implement the use of the dividend-income stream -

1. During your 'growth' phase, when you don't need the dividend income and you want the overall investment-pot to grow as simply as possible, you just re-invest the dividends as they come in, when they've amounted to a suitable level of cash that justifies a new purchase or a top-up to existing owned-equities. Doing this over many years will see the level of re-investment grow quite rapidly, snowballing future income do generate yet further dividend-returns in future years.

2. When you decide that your 'growth' phase now needs to turn into a 'drawdown' phase, you just re-direct the dividend-income stream from a direction of re-investment to simply point to the bank-account that you'll use for your monthly outgoings*.

So in the HYP method, you've got two strategies in one really - one growth strategy using the dividend-reinvestment to generate future 'growthy' returns, and also a 'drawdown' strategy using the same dividend stream, but re-directed to your pocket instead of being reinvested.

What's not to like?

Cheers,

Itsallaguess

* I'd actually recommend a slightly different approach, where dividend payments are directed towards a 'holding account', where all the generally 'lumpy' dividend payments from the various portfolio holdings will accumulate in an 'invisible' way, and then, depending on the level of yearly dividends expected, and the cash amount you're likely to want to keep in it for 'cash-buffer' type purposes, you can then pay a regular standing order of £xxxx per-month into your actual bank account that you will use for your own personal outgoings.

That way, you don't get bogged down in the detail of seeing all the individual dividend payments into your 'real' bank account, and what you see in reality is what will seem like a 'monthly retirement wage' moving from your dividend-holding-account into your 'actual' bank account, which seems like a much more civilised way to live your hopefully long and happy retirement....

Urbandreamer
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Re: Investment strategy musings

Postby Urbandreamer » December 18th, 2016, 11:12 am

bejocomo wrote:Blackrock amongst others) state that the overwhelming majority of the total returns derived from equities come from dividends, and the reinvestment of those dividends. If this is true, why are there so many investments that target 'growth'? If each investor is aiming to maximise total returns (ignoring other objectives such as preserving capital for a moment), then it would be logical to invest predominantly in dividend paying investments. Does the dividend versus growth divide merely distinguish between businesses that are established and have limited opportunity to grow further and those that need to reinvest cash to grow the business?


Well, it's only really true that total returns from equities come from dividends if you manipulate your figures (without suggesting dishonesty) to show it that way.

In simple terms total returns are greatly influenced by re-investment and compound growth.

One way to achieve this is to reinvest the dividends that you recieve, another is for a company to reinvest its profits.

However it's difficult if not impossible to compare those two methods. It's comparing apples and pears. Some companies simply can not find a good investment use for their profits, hence give it to their owners who may have less difficulties. Of course as a individual you may then use the money to buy more shares in the same company, but you are buying them from someone else. Hence your total returns are inflated by reinvestment while the company itself is not growing.

Let us take two shares that I own as examples. Hill & Smith and SSE. Hill & Smith are growing their buisness by seeking new makets for their motorway crash barriers. SSE however produce electricity, how do you grow that buisness? More to the point how could you compare them or indeed argue that one was "better" than the other without saying what "better" is. All studies on total returns make the assumption that you are buying the index (as a place to start) and work out what fraction of total returns is due to reinvesting dividends. However no consideration is made of existing biase inherent in the choice of initial selection.

I should also point out that not all investors ARE targeting total returns. In particular HYP (there is such a board here) was not initially intended to do so. The original intention was that the dividends be used to buy food, pay for fuel and keep a roof over the head of Doris (a fictional lady of mature years who doesn't work).

Raptor
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Re: Investment strategy musings

Postby Raptor » December 18th, 2016, 11:30 am

I agree with both posters. I followed itsallaguess suggestion for many years, growing my HYP from 15 shares 12 years ago to 20 two years ago. Then I moved into a "hybrid" situation. I could have retired completely and lived off the income from dividends in my HYP plus a DB pension that I first drew when I was 50 (some years ago). Then started thinking about the future (my mum was in early stage dementia and I was managing her money and portfolio), what would happen if I no longer wanted to or could run the portfolio's and did I really want to retire fully now. Havr decided to go part-time so as not go up the wall at home.
Now have a HYP of 23 shares (inherited my mum's portfolio since) kept in a trading account, ISA and SIPP. The dividends in the ISA are re-invested back into topping-up existing shares, the trading account is paid away to my bank account to be used to "fund" holidays etc (hopefully excess will be funded back into the ISA).
The SIPP was initially set-up with 50/50 spit on shares and IT's (the IT's were my way of thinking of the problem going forward of my daughter having to manage the fund for me and letting someone else worry about growing the portfolio). All dividends in the SIPP are used to top-up the IT part, so over time that will grow. I took the complete 25% Tax free portion in 2015 and that has funded some great holidays this year and next year will allow me to have an "extension" built on the back (got the plans back from council. whoopee).
My opinion is to get a plan together that you are comfortable with, but keep an open mind and modify as you learn and progress. I have changed both my buying "criteria" and top-up "criteria" over the years......

Whatever you do, enjoy the experience, I have...

Raptor.

seekingbalance
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Re: Investment strategy musings

Postby seekingbalance » December 18th, 2016, 11:39 am

I agree, it is indeed a confusing world, the investment world.

Logically "growth" should work faster, grow your funds more, and leave you with a bigger pot to move into dividends driven income generation at drawing time.

This can be true, but in practice tends to be quite difficult. Especially when the world is in turmoil, economies are stalling, interest rates might be going up, lending complexity to any choices you make.

For outright growth to work you have to buy the right growth share. In hindsight this is easy - Amazon, Google, Netflix, Sage, Next. Bought at the right time a £10k investment in each of these would have made you a millionaire by now. But when to buy? What to buy? AOL was a great buy, until it wasn't. Microsoft was a fantastic buy, then faded for years, then surged again. Did you buy low, sell high, buy lower? Dell was the success story of the 90's then the dog of noughties. I could go on but you get the point! Picking winners is hard, selling them as they peak is almost as hard again, and not buying them back on the way down is harder still.

Picking funds based on growth sectors would have perhaps worked better, and I have learned that for the growth part of my own portfolio it is the safer and easier path. I do have a mix of growth -Scottish Mortgage, FTSE250 tracker, NASDAQ tracker, Lindsell Train.

But mostly I now ascribe to your first point - income and growth via a mix of funds, trackers and individual shares that have proven records of growth of the dividends and a long history of it too. I follow approximately the HYP principle, but not slavishly, buying some lower dividends and some "too high" also. I never buy small punt growth shares anymore, having consistently lost money on the next great thing over the years. By having the trackers and funds I am picking up some of the growth oriented shares, and occasionally I may even buy a growth sector fund, like biotech.

Growth can work if you are lucky, clever, and decisive. But generally I have found that it is much easier and much more dependable to buy solid companies who pay me to own them, either directly or indirectly via funds and trackers, and just let the inherent growth in the world economies and the tendency for markets to rise over time, and use the magic of compounding that dividend reinvestment allows, to deliver a reliable total return that will never beat the lucky ones who pick the right growth engines, but it will never lose half my money by going bust or fading to next to nothing. I have proven I can make money from the stock market, but I have also proven to myself that I am basically not lucky, clever or decisive!

Degsy67
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Re: Investment strategy musings

Postby Degsy67 » December 18th, 2016, 12:03 pm

I would echo what Itsallaguess said. In the early days, try a few alternate strategies and find out which suits your temperament best and which match your risk appetite in terms of volatility as well as the time and effort each of them takes to operate.

There was one area of your post however which I thought it was worth highlighting...

bejocomo wrote: ...During the building phase, the aim must surely be to grow the total capital value as quickly as possible, whether that comes from dividend income or capital growth, or a combination of the two...


I think you're missing an important concept here regarding selecting an investment strategy and that is the risk profile of the strategy itself along with the volatility of investment returns. Embedded within this is the concept of diversification to spread and moderate investment risk.

There is a basic investment principle regarding the link between the level of investment risk and the potential returns. If you simply think that the growth phase is about building the total capital value as quickly as possible then this will lead you towards higher risk and adventurous investment strategies. If you value the ability to sleep at night and to take the longer term view then you're much more likely to seek one or more investment strategies which match your personal risk tolerance and which take into account your investment timescales.

It is for this reason that adopting more than one investment strategy may be a better answer for you.

For example, my investment education began when I put £1000 into a startup pharma company based on a share tip I saw in a newspaper. I then spent the next two years watching the value evaporate until the company was bought by a big pharma company for peanuts following discovery of financial irregularities. That was my most valuable investment lesson.

Fortunately, in the meantime, I discovered HYP and spent 5 or 6 years and £50k exploring this strategy, being comfortable with it to a degree and learning about the risks as a number of companies in my portfolio stopped paying dividends. I realised that when I retire and I'm living off the income that I will want a way to manage the associated income risks.

Fortunately, in the meantime, I discovered IT Baskets and ETFs so I explored around 5 different strategies based around both income generation and growth. I spent around 4 years and £100k across these 5 strategies.

When it came to consolidating my various DC pensions and setting up a SIPP, the capital value was quite significant. I had learned a lot by then and realised that asset allocation was extremely important. I researched various AA strategies and settled on a Tim Hale 70/30 lazy portfolio with a couple of value tweaks implemented using ETFs. 10 years earlier I would have had no idea what the sentence I just wrote actually meant.

Learning about investing is a journey. Don't expect to be able to match your risk appetite to an investment style by reading books. You need to experience investing to get a feel for it. Having said that, the more you read then the more you will understand that there isn't one simple right way to invest. It's a case of matching your personal level of tolerance for risk and the amount of effort you're prepared to put into running a strategy with the risk and return features of individual strategies.

Degsy

Snorvey
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Re: Investment strategy musings

Postby Snorvey » December 18th, 2016, 12:26 pm

The target is an income in retirement and your not comfy building a HYP, Just buy a Vanguard UK Equity Income tracker. Or one )or more) of the cheap B7/B8 investment trusts and you'll be fine.

mc2fool
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Re: Investment strategy musings

Postby mc2fool » December 18th, 2016, 1:08 pm

Urbandreamer wrote:
bejocomo wrote:Blackrock amongst others) state that the overwhelming majority of the total returns derived from equities come from dividends, and the reinvestment of those dividends. If this is true, why are there so many investments that target 'growth'? If each investor is aiming to maximise total returns (ignoring other objectives such as preserving capital for a moment), then it would be logical to invest predominantly in dividend paying investments. Does the dividend versus growth divide merely distinguish between businesses that are established and have limited opportunity to grow further and those that need to reinvest cash to grow the business?


Well, it's only really true that total returns from equities come from dividends if you manipulate your figures (without suggesting dishonesty) to show it that way.

Well, it's not a matter of manipulating figures as understanding what the figures represent and contain.

bejocomo, as Urbandreamer goes on to say, it's a matter of re-investment and compound growth. Here's some example figures to illustrate:

4% compound growth over 30 years will turn £100 into £324
8% compound growth over 30 years will turn £100 into £1,006

Notice how a 2x increase in the rate (4% to 8%) results in more than tripling of the end value, and for higher rates and/or longer periods it gets even more pronounced. E.g. over 50 years the two above will turn into £711 & £4,690 and over 100 years (a period often quoted in these statements) it's £5,050 & £219,976!

Now, it doesn't matter where that 8% comes from, the results will be the same irrespective. What matters is that it is a true 8% that's being compounded. If you have a non-dividend paying company whose share price grows by 8%pa that's easy. And if you have a company whose share price grows by 4%pa and which pays out 4% in dividends each year, that too is 8%pa, and will compound at that rate as long as you reinvest the dividends. Similarly for any combination of growth+dividends that comes to 8%, as long as you reinvest the dividends.

And that's the rub, as some investors focus on the share price (everyone's looking for a ten-bagger, right...?) and just treat the dividends as beer money. But if you spend the dividends then, while your 4% growth + 4% dividends company is giving you an 8% annual total return, you will only get a 4%pa compound growth, and hence the lower end values above. So, if you want the bigger end amount, don't spend the dividends! Reinvest them.

Of course, the same is also true for the capital growth. If you were to reinvest the dividends but sell off and spend the capital growth each year you'd also have only 4%pa compound growth, and the same lower end values above, but as that's a lot more convoluted to do (and doesn't fit into the "looking for a ten-bagger" mentality) you don't hear anyone saying, don't spend the capital growth.

Lootman
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Re: Investment strategy musings

Postby Lootman » December 18th, 2016, 2:47 pm

mc2fool wrote:Of course, the same is also true for the capital growth. If you were to reinvest the dividends but sell off and spend the capital growth each year you'd also have only 4%pa compound growth, and the same lower end values above, but as that's a lot more convoluted to do (and doesn't fit into the "looking for a ten-bagger" mentality) you don't hear anyone saying, don't spend the capital growth.

The tax system plays a part here too. If you don't draw any income from capital (using those words loosely) then you lose your annual CGT-allowance which, for unknown reasons, lets you roll over losses but not unused allowances.

Whilst the rate of tax on dividends, although lower than on normal income, is progressive and rises the more you receive.

So your after-tax returns will actually be superior, in most cases, if you withdraw just the right combination of capital gains and dividends although, as you say, it's more convoluted to do.

The other factor there is that, apart from accumulation units in some open-ended funds, dividends are not automatically reinvested but internal capital gains are. But personally I don't pay too much attention to the distinction between dividends and capital because, in the end, it's the total return that matters. If you feel that strongly about one over the other, there are ways to artificially boost either at the expense of the other.

bejocomo
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Re: Investment strategy musings

Postby bejocomo » December 18th, 2016, 6:13 pm

Thank you to all that have added to the discussion.

You have made me realise the obvious...no investment strategy is perfect and every investment strategy is personal. As is so often touted, we cannot predict the future. So a diverse strategy is perhaps the best we can do...it may mean the best returns are missed, but the worst returns are hopefully avoided.

I had begun to think that dividends and the reinvestment of those dividends was the way forward, both from reading and my own experiences. I'm not convinced the stock market is at all good at valuing companies. It seems to be driven more by sentiment than fact, and that is nigh on impossible to predict. Whilst capital values fluctuate, a bit of cash in the form of a dividend is a return straight into your pocket.

The depiction of compounding, and how total returns can be derived, is particularly useful, so thank you for that. Logically, a global ETF automatically picks low yield high growth companies and high yield low growth companies because both of those characteristics make up the 'total return', and that is in theory the main contributor to any company valuation? A global ETF will include Facebook and ExxonMobil which seem to approximately fit these categories.

If there is a lesson to be learned from my past experiences, it is that AIM is rubbish and the boring blue chip companies I bought have been far more successful. In a sense what I have now is HYPish (although certainly not in its purest sense!)...some high yield blue chips, a UK equity income IT, and, now, a Global ETF. And some rubbish to remind me of my past mistakes!

Perhaps a combination like this is best. This blends my own stock picking (for fun if nothing else), and active and passive investment. Maybe I should just settle for one of the Vanguard Lifestrategy funds and be done with it? I think I'd get bored...

Onto risk. Losing some of a little is relatively inconsequential, but as a portfolio grows I realise an eye on capital preservation becomes increasingly important. Investor psychology is a big part of the story, and I don't think I'm particularly adept at it. Warren Buffet's be greedy when others are fearful and be fearful when others are greedy doctrine seems simple enough. It doesn't stop me buying when the markets are buoyant and running away when they are on their knees though! Hence the decision to move to monthly investments...it takes me out of the equation!

Urbandreamer
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Re: Investment strategy musings

Postby Urbandreamer » December 18th, 2016, 7:19 pm

bejocomo wrote:If there is a lesson to be learned from my past experiences, it is that AIM is rubbish and the boring blue chip companies I bought have been far more successful. In a sense what I have now is HYPish (although certainly not in its purest sense!)...some high yield blue chips, a UK equity income IT, and, now, a Global ETF. And some rubbish to remind me of my past mistakes!


Many times people have critisised the AIM market. They correctly point out that as a index its performance is horid. Others point out that a rash of chineese resource companies have behaved in ways that they could not do on a more regulated market to the great detriment of investors.

In response can I point out that the makers of Vimto list there and have a history as a moderatly sucsessful company. I don't own any of their shares, but I do have shares in two AIM listed companies that I regard as relatively safe. Boring? Well it depends upon ones description.

One yeilds 1.9% covered 3.4 times, so not a HYP candidate. I am however pleased at its growth and TBH its imeadiate future looks rosy (though it is in a cyclical buisness).

The other sells double glazing, hence you may feel free to joke at my expense. For those who dont dismiss AIM shares for a HYP portfolio it yeilds 3.9% covered 1.7 times.

In amongst the dross there are some sound companies on AIM, something that the performance of its index won't show.

Re combining stratergies, that is what I now do. Most of my portfolio is run on HYP terms but it's more a income and growth portfolio with some shares chosen dispite their yeild and a mix of IT's thrown in to help with international diversification and to shelve off some of the work to others. Financially I might be better off increasing the pension contribution that I make through work, but I enjoy researching and investing.

Itsallaguess
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Re: Investment strategy musings

Postby Itsallaguess » December 19th, 2016, 5:41 am

bejocomo wrote:
In a sense what I have now is HYPish (although certainly not in its purest sense!)...some high yield blue chips, a UK equity income IT, and, now, a Global ETF. And some rubbish to remind me of my past mistakes!

Perhaps a combination like this is best. This blends my own stock picking (for fun if nothing else), and active and passive investment.


I should probably add here, given that I didn't mention this sort of detail into my earlier post, that the above is similar to my own HYP make-up, and I'm happy to continue in that vein.

Originally, my HYP was a large regular selection of mega-cap blue-chips only, spread across the usual sectors, but I wanted to remove some of the clear 'operator bias' that will naturally occur with such a portfolio that I personally choose and own.

To counter the above, I bought a few income-oriented Investment Trusts, to get a feel for how they'd align with my income-needs, and found that they are a great addition to my HYP.

What small price there is to pay with regards to yield, in terms of managerial costs, is balanced, I feel, by what they bring in terms of a 'segregated' approach to High-Yield-companies and sectors, which often don't align with my own HYP share-holdings, along with their revenue-reserves and natural 'discount control' mechanisms over market cycles, so I'd be more than happy to recommend that as an additional approach to income-investing for retirement.

Like you, I think I'll always want to own individual equities for income whilst I have the interest in them, and that's something I'd not want to be without, but countering (if that's the right word...) our own individual biases with other approaches gives some good 'background income' that's detached enough from our own processes to bring a good layer of safety-related diversification, I think, certainly from the 'operator error' side of things at least.

The other important aspect of owning income-oriented Investment Trusts as part of my HYP retirement-income planning, is that the ones I currently own act as a 'safety-net' if anything were to happen to me. If my faculties start to wander, and I find that individual HYP shares are too much hard work, I won't have any issues with selling them and re-investing the proceeds into the income-IT's that exist in the same portfolio. My wife is under the same instructions if the worst was to happen, to help remove some of the worry of owning such a portfolio. I'm more than happy that the vast majority of the income-oriented Investment Trusts in there will simply plod along doing their job, with none of the 'excitement' created by the individual shares, so it's nice to have that situation as a fall-back position if things get messy in the future....

Cheers,

Itsallaguess

Raptor
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Re: Investment strategy musings

Postby Raptor » December 19th, 2016, 8:34 am

Itsallaguess. Wish we had a rec tool....

Ditto. My thoughts exactly. Have a blend of 23 Shares and 5 IT's.

Raptor.

bejocomo
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Re: Investment strategy musings

Postby bejocomo » December 20th, 2016, 1:41 pm

I am sure not everything on AIM is rubbish, but once bitten twice shy! I played about with O&G explorers and that ended with similarly dismal results. Thankfully I learnt this lesson when I could afford to lose the money invested. I think there are sufficient alternatives that I can safely give it a wide berth, but good luck to you!

I have already increased my DC pension salary sacrifice so this is on top of/instead of that and I have a vague intention to potentially draw some income from this 'secondary' investment portfolio in maybe 15 years or so.

I can relate to the 'operator error' comments and this is why I am starting to lean towards ITs and ETFs. For relatively low cost they offer simplicity and much greater diversification than I could hope to achieve. Plus in the case of an IT someone is keeping a watchful eye on things!

Would you be willing to share which income ITs you have chosen, and why? I spent some time interrogating aicstats before choosing my first IT, and I will be using the Morningstar X Ray Tool kindly provided by Hamzahf before picking my next to minimise duplication.

Urbandreamer
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Re: Investment strategy musings

Postby Urbandreamer » December 20th, 2016, 3:45 pm

bejocomo wrote:Would you be willing to share which income ITs you have chosen, and why? I spent some time interrogating aicstats before choosing my first IT, and I will be using the Morningstar X Ray Tool kindly provided by Hamzahf before picking my next to minimise duplication.


DYR and your milage may vary, however I have:

FRCL for it's long history of increasing dividends, note it doesn't pay a high dividend.
HFEL for its high dividend and exposure to the pacific rim. Many would choose a different IT for that, but I'm happy.
SMT for growth, though a recent article claimed that they haven't done badly for dividends over the last 10 years.
FCS for growth

Finally
IBT, because I felt like it! Though they do intend to return up to 4% of NAV from capital in the future so will provide some income.

Re "once bitten twice shy". Your absolutly right and I'm glad you made the mistake early and could afford the price of learning. As I say, not all AIM shares are bad, but it IS a stock pickers market. Mistakes are easy, research more difficult and it's easy to be lead astray by price charts and glowing journalism.

However when a storm washes away train lines, destroys railway embankments, damages sewage works and destroys bridges it's not rocket science to guess that a company maintaining and reparing such might do well. I bought Renew Holdings (AIM) in 2014 as a "no brainer" after the storms of that year.

LooseCannon101
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Re: Investment strategy musings

Postby LooseCannon101 » December 21st, 2016, 6:36 pm

I have been investing for about 20 years and would say that a boring strategy of pound-cost averaging by monthly saving into a highly diversified global growth investment trust or world equity ETF, has and will continue to deliver just over 8.00% per annum on a total return basis. Of course there will be the odd boom and bust to liven the pulse.

The financial press uses terms like 'growth' and 'income' usually to push a particular product to retail investors i.e. you and me. These terms should be treated with the utmost scepticism.

An excellent book - 'The Long and the Short of It' by John Kay has just been re-published. The original edition appeared about 8 years ago. 'The Intelligent Investor' by Benjamin Graham is another great read.

bejocomo
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Re: Investment strategy musings

Postby bejocomo » December 21st, 2016, 7:24 pm

I had a look at Scottish Mortgage and Henderson Far East Income before and concluded that in the interests of minimising costs I was better off investing in a single IT for now. The other that takes my fancy after it was written about here and having done some research was Caledonia Investments.

I don't think I've got the attributes of a stock picker so avoiding AIM is probably wise in my case!

8% returns would be very welcome, but in the interests of prudence I'll plan for considerably less I think!

Book wise, Santa is bringing me Investing Demystified, The Long and the Short of It and Smarter Investing. Keeping Your Dividend Edge is on the shopping list. Thank you for the recommendations.

Urbandreamer
Posts: 25
Joined: December 7th, 2016, 9:09 pm

Re: Investment strategy musings

Postby Urbandreamer » December 22nd, 2016, 7:31 am

I started buying shares some 25 years ago, note buying shares NOT investing.

I gradually changed my stance to a more investment and less speculative approach. Now I run most of my portfolio based upon HYP principles.

HOWEVER, HYP was imagined as a lump sum portfolio with a limited life (possibly 30 years) and final capital value unimportant, because you will be dead. I include companies and IT's who don't pay out large amounts but are "growing" over time because I want to live off a stream of increasing dividends when I retire.

Given how I started, I didn't keep great records. Indeed I only discovered IRR or XIRR formula in 2013. Since then my total return has been 9.55% but my portfolio yield is only 3.78% ie under the 4% "magic" suggested draw down rate. HFEL is 5% of my portfolio and IMHO it should only be bought as part of a portfolio.

I started buying more grenralist IT's because eventually I will not be able to pick shares and will need either a tracker or someone to pick them for me. Some people like trackers, I'm not one of them and it's my money.

Re pound cost averaging. It's somewhat accademic. Most are not in a position to make a choice. They either have recieved a large lump sum or they are investing monthly from their salary.

tjh290633
2 Lemon pips
Posts: 228
Joined: November 4th, 2016, 11:20 am

Re: Investment strategy musings

Postby tjh290633 » December 22nd, 2016, 11:24 am

Urbandreamer wrote:Given how I started, I didn't keep great records. Indeed I only discovered IRR or XIRR formula in 2013. Since then my total return has been 9.55% but my portfolio yield is only 3.78% ie under the 4% "magic" suggested draw down rate. HFEL is 5% of my portfolio and IMHO it should only be bought as part of a portfolio.


That yield is only to be expected if you buy shares or ITs with lower yields. It's a trade-off between yield and total return.

I have been following the HYP route, but not necessarily disposing of low and zero yield shares, if I think that they have a good chance of recovery.

This the record of my accumulation units, starting from each date on the left, to the present day:

Code: Select all

Since        Acc Unit   IRR   
31-Dec-98        5.89    8.14%
30-Dec-99        6.85    7.68%
31-Dec-00        6.68    8.35%
31-Dec-01        6.43    9.21%
31-Dec-02        5.23   11.53%
31-Dec-03        6.38   10.76%
31-Dec-04        7.59   10.11%
30-Dec-05        9.69    8.64%
31-Dec-06       12.25    7.00%
31-Dec-07       12.41    7.66%
31-Dec-08        7.41   15.90%
31-Dec-09       10.24   13.03%
31-Dec-10       12.32   11.86%
31-Dec-11       13.45   12.40%
31-Dec-12       15.80   11.18%
31-Dec-13       19.56    7.23%
31-Dec-14       20.34    8.91%
31-Dec-15       21.42   12.69%

This is the IRR since the date on the left. The current unit value is £24.08.

Sometimes it falls back a bit, sometimes it shoots ahead. That's the nature of the market. The current portfolio yield is 4.5%. My top 3 yielding shares are over 7%, and I have 3 more over 6%. On the other hand I have 3 very low yields at the bottom.

Code: Select all

Rank   EPIC      Yield
   1   CLLN      7.81%
   2   ADM       7.07%
   3   TW.       7.07%
   4   MKS       6.59%
   5   GSK       6.54%
   6   PSON      6.31%
   7   RDSB      5.95%
   8   VOD       5.95%
   9   BP.       5.92%
  10   SSE       5.87%
  11   LGEN      5.68%
  12   MARS      5.50%
  13   NG.       4.65%
  14   AZN       4.63%
  15   BLND      4.59%
  16   AV.       4.49%
  17   LLOY      4.43%
  18   IMB       4.35%
  19   UU.       4.28%
  20   WMH       4.01%
  21   TATE      3.89%
  22   BT.A      3.77%
  23   IMI       3.77%
  24   SGRO      3.63%
  25   BA.       3.54%
  26   BATS      3.42%
  27   SMDS      3.33%
  28   RIO       3.26%
  29   ULVR      3.23%
  30   KGF       2.93%
  31   DGE       2.84%
  32   INDV      2.58%
  33   CPG       2.20%
  34   RB.       2.18%
  35   BLT       1.68%
  36   S32       0.50%
  37   TSCO      0.00%
                     
       Median    4.28%
       Mean      4.28%
       Overall   4.48%


The overall yield reflects the contribution of each share to dividend income.

TJH


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