Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to johnstevens77,Bhoddhisatva,scotia,Anonymous,Cornytiv34, for Donating to support the site

Over-tinkering cap

For discussion of the practicalities of setting up and operating income-portfolios which follow the HYP Group Guidelines. READ Guidelines before posting
Forum rules
Tight HYP discussions only please - OT please discuss in strategies
csearle
Lemon Quarter
Posts: 4762
Joined: November 4th, 2016, 2:24 pm
Has thanked: 4809 times
Been thanked: 2083 times

Over-tinkering cap

#453787

Postby csearle » October 28th, 2021, 9:28 am

Some HYPers, like me, have certain self-imposed safely limits, which determine in practice how much they top-up, or whether they will take action at all. I've just thought of another one that might be of use to anyone that self-identifies as an over-tinkerer. How about the idea of setting a (maybe percentage of portfolio) cap on the amount of transaction fees one is prepared to pay in any given year? Once this limit is reached you have to keep your fingers off the keyboard. Might help such HYPers think twice each time.

(Or, maybe there is no-one that identifies as such - I don't?)

Chris

Arborbridge
The full Lemon
Posts: 10366
Joined: November 4th, 2016, 9:33 am
Has thanked: 3599 times
Been thanked: 5227 times

Re: Over-tinkering cap

#453799

Postby Arborbridge » October 28th, 2021, 10:04 am

csearle wrote:Some HYPers, like me, have certain self-imposed safely limits, which determine in practice how much they top-up, or whether they will take action at all. I've just thought of another one that might be of use to anyone that self-identifies as an over-tinkerer. How about the idea of setting a (maybe percentage of portfolio) cap on the amount of transaction fees one is prepared to pay in any given year? Once this limit is reached you have to keep your fingers off the keyboard. Might help such HYPers think twice each time.

(Or, maybe there is no-one that identifies as such - I don't?)

Chris


Nice idea in theory, but it might box one into a corner. You need an emergency quick release routine!

moorfield
Lemon Quarter
Posts: 3523
Joined: November 7th, 2016, 1:56 pm
Has thanked: 1546 times
Been thanked: 1402 times

Re: Over-tinkering cap

#453800

Postby moorfield » October 28th, 2021, 10:06 am

csearle wrote:Some HYPers, like me, have certain self-imposed safely limits, which determine in practice how much they top-up, or whether they will take action at all. I've just thought of another one that might be of use to anyone that self-identifies as an over-tinkerer. How about the idea of setting a (maybe percentage of portfolio) cap on the amount of transaction fees one is prepared to pay in any given year? Once this limit is reached you have to keep your fingers off the keyboard. Might help such HYPers think twice each time.

(Or, maybe there is no-one that identifies as such - I don't?)

Chris



Surely for a "proper" HYPer that transaction fees cap would be 0 (zero) ? ;)

But seriously, I measure costs (custody charge + dealing commission + stamp duty) as a percentage of overall dividend income, and portfolio churn (or turnover) (discussed here earlier this year). Some years have been quiet, others busy.



It feels impractical to have a costs cap, as they can vary (usually upwards, as AJ Bell have done this year). Instead my "fingers off the keyboard" switch is a comparison of overall (forecast) income versus target (see also here) which was reached in August, no further top ups needed until Q1/Q2 next year, and unless dividends start getting slashed again I'm not expecting to be selling anything until 2023 at the earliest.

88V8
Lemon Half
Posts: 5768
Joined: November 4th, 2016, 11:22 am
Has thanked: 4097 times
Been thanked: 2560 times

Re: Over-tinkering cap

#453808

Postby 88V8 » October 28th, 2021, 10:36 am

csearle wrote:How about the idea of setting a (maybe percentage of portfolio) cap on the amount of transaction fees one is prepared to pay in any given year?

Interesting idea.
My HYP is with ii to whom I pay a monthly fee offsetable against trades. So I could tinker twelve times a year for nothing.
Is that a lot?

V8

Gengulphus
Lemon Quarter
Posts: 4255
Joined: November 4th, 2016, 1:17 am
Been thanked: 2628 times

Re: Over-tinkering cap

#453855

Postby Gengulphus » October 28th, 2021, 1:10 pm

csearle wrote:Some HYPers, like me, have certain self-imposed safely limits, which determine in practice how much they top-up, or whether they will take action at all. I've just thought of another one that might be of use to anyone that self-identifies as an over-tinkerer. How about the idea of setting a (maybe percentage of portfolio) cap on the amount of transaction fees one is prepared to pay in any given year? Once this limit is reached you have to keep your fingers off the keyboard. Might help such HYPers think twice each time.

I would suggest a slight amendment, that it's a cap on the amount of transaction costs rather than the amount of transaction fees - the point being that from a practical financial point of view, any money paid as a result of a transaction other than the actual price of the assets being acquired (if any - sales have transaction costs as well) is a transaction cost. Whether it's a broker commission, stamp duty or a PTM levy makes no difference to whether it's a transaction cost - whereas stamp duty is very arguably not a transaction fee, and it's apparent from some of the responses in the thread so far that some people don't regard it as such.

Things are however liable to get complicated for those with large unsheltered holdings, as CGT on the capital gains and losses realised by sales of those holdings fit that definition of a transaction cost - and can easily turn out to dwarf all the other transaction costs. But it's a type of transaction cost that doesn't simply get added to by each sale, but can also get subtracted from by loss-realising sales, can be affected in both of those ways by sales outside the HYP, and can even be affected by financial transactions that aren't sales at all (e.g. Gift-Aided donations to charity can change the applicable CGT rate from 20% to 10%). Also, it's a transaction cost that is typically paid about 10-22 months after the transaction...

So that definition of transaction costs probably needs some sort of exclusion for CGT...

Gengulphus

tjh290633
Lemon Half
Posts: 8208
Joined: November 4th, 2016, 11:20 am
Has thanked: 913 times
Been thanked: 4096 times

Re: Over-tinkering cap

#453966

Postby tjh290633 » October 28th, 2021, 7:52 pm

csearle wrote:Some HYPers, like me, have certain self-imposed safely limits, which determine in practice how much they top-up, or whether they will take action at all. I've just thought of another one that might be of use to anyone that self-identifies as an over-tinkerer. How about the idea of setting a (maybe percentage of portfolio) cap on the amount of transaction fees one is prepared to pay in any given year? Once this limit is reached you have to keep your fingers off the keyboard. Might help such HYPers think twice each time.

(Or, maybe there is no-one that identifies as such - I don't?)

Chris

If your transaction fee is a fixed amount, then you simply time your top-ups to use the defined limit of fees, but top-slicing and reinvesting could scupper the isea. You still have stamp duty, of course.

TJH

MDW1954
Lemon Quarter
Posts: 2358
Joined: November 4th, 2016, 8:46 pm
Has thanked: 526 times
Been thanked: 1011 times

Re: Over-tinkering cap

#453985

Postby MDW1954 » October 28th, 2021, 8:44 pm

I'm surprised that no one has mentioned Buffett's bus ticket, or whatever it was. That's what I have in mind when switching/ swapping etc. (Which is why I almost never do it.)

MDW1954

moorfield
Lemon Quarter
Posts: 3523
Joined: November 7th, 2016, 1:56 pm
Has thanked: 1546 times
Been thanked: 1402 times

Re: Over-tinkering cap

#454009

Postby moorfield » October 28th, 2021, 10:05 pm

MDW1954 wrote:I'm surprised that no one has mentioned Buffett's bus ticket, or whatever it was. That's what I have in mind when switching/ swapping etc. (Which is why I almost never do it.)



It was a 20-slot punchcard iirc. Yes that might be a better way of doing it - 1 trade per month / 12 trades per year perhaps ?

csearle
Lemon Quarter
Posts: 4762
Joined: November 4th, 2016, 2:24 pm
Has thanked: 4809 times
Been thanked: 2083 times

Re: Over-tinkering cap

#454018

Postby csearle » October 28th, 2021, 11:10 pm

88V8 wrote:
csearle wrote:How about the idea of setting a (maybe percentage of portfolio) cap on the amount of transaction fees one is prepared to pay in any given year?

Interesting idea.
My HYP is with ii to whom I pay a monthly fee offsetable against trades. So I could tinker twelve times a year for nothing.
Is that a lot?

V8
Some of mine is in now ii too. Isn't it the case that only half the tinker is free? I.e. the sale but not the purchase of something to replace the top-sliced shares?

C.

daveh
Lemon Quarter
Posts: 2191
Joined: November 4th, 2016, 11:06 am
Has thanked: 409 times
Been thanked: 807 times

Re: Over-tinkering cap

#454062

Postby daveh » October 29th, 2021, 8:55 am

csearle wrote:
88V8 wrote:
csearle wrote:How about the idea of setting a (maybe percentage of portfolio) cap on the amount of transaction fees one is prepared to pay in any given year?

Interesting idea.
My HYP is with ii to whom I pay a monthly fee offsetable against trades. So I could tinker twelve times a year for nothing.
Is that a lot?

V8
Some of mine is in now ii too. Isn't it the case that only half the tinker is free? I.e. the sale but not the purchase of something to replace the top-sliced shares?

C.


At II your £9.99 a month fee gets you one free trade (of £7.99) each month and you have 3 months to use it, so you can have at most 3 free trades waiting to be used at any one time. I tend to try and keep 2-3 free trades in hand to use if needed and make a trade just before a free trading credit lapses to use it up. Works for me as there are generally enough dividends coming in and needing investing most months to allow for a top up when I need to use up a credit, but I like to have a couple of trading credits in hand in case I need to do something unexpectedly.

Gengulphus
Lemon Quarter
Posts: 4255
Joined: November 4th, 2016, 1:17 am
Been thanked: 2628 times

Re: Over-tinkering cap

#454087

Postby Gengulphus » October 29th, 2021, 10:47 am

Gengulphus wrote:
csearle wrote:Some HYPers, like me, have certain self-imposed safely limits, which determine in practice how much they top-up, or whether they will take action at all. I've just thought of another one that might be of use to anyone that self-identifies as an over-tinkerer. How about the idea of setting a (maybe percentage of portfolio) cap on the amount of transaction fees one is prepared to pay in any given year? Once this limit is reached you have to keep your fingers off the keyboard. Might help such HYPers think twice each time.

I would suggest a slight amendment, that it's a cap on the amount of transaction costs rather than the amount of transaction fees - the point being that from a practical financial point of view, any money paid as a result of a transaction other than the actual price of the assets being acquired (if any - sales have transaction costs as well) is a transaction cost. Whether it's a broker commission, stamp duty or a PTM levy makes no difference to whether it's a transaction cost - whereas stamp duty is very arguably not a transaction fee, and it's apparent from some of the responses in the thread so far that some people don't regard it as such.

Things are however liable to get complicated for those with large unsheltered holdings, as CGT on the capital gains and losses realised by sales of those holdings fit that definition of a transaction cost - and can easily turn out to dwarf all the other transaction costs. But it's a type of transaction cost that doesn't simply get added to by each sale, but can also get subtracted from by loss-realising sales, can be affected in both of those ways by sales outside the HYP, and can even be affected by financial transactions that aren't sales at all (e.g. Gift-Aided donations to charity can change the applicable CGT rate from 20% to 10%). Also, it's a transaction cost that is typically paid about 10-22 months after the transaction...

So that definition of transaction costs probably needs some sort of exclusion for CGT...

Some further thoughts: the quote from csearle's post is easily read as conflating two different ideas, namely limiting the amount a HYPer tops up and limiting the amount they tinker. But they are two different ideas, especially considering that tinkering in HYP terms is voluntary selling and topping up is buying - and furthermore, all safety limits on topping up that I've encountered are limits on the amount any particular share is topped up, not limits on the total amount of topping up that's done. If e.g. three companies in one's 15-share HYP all happen to be taken over in quick succession, releasing ~20% of the HYP's value to be reinvested, the safety limits don't say "No, you cannot reinvest all that money now - keep much of it as cash for reinvestment in future years", but just "spread the reinvestments out over multiple shares, avoiding making the HYP seriously overweight in any one share or sector".

I'm not saying that csearle intended that conflation, just that his post can easily be read that way. I suspect that he intended his proposed cap to be a similar measure to HYPers' self-imposed safety limits, but a separate one aimed at the very different issue of restricting the amount of tinkering one does. However, what that does point out is that one needs to think clearly about what is and isn't tinkering. In particular:

* Buying (and corporate actions that are effectively buying, such as a rights issue that one subscribes to) is never tinkering.

* Completely involuntary selling such as happens on a takeover for cash (or for a combination of cash and shares) is never tinkering.

* Completely voluntary selling is always tinkering.

There are a number of grey areas between completely involuntary selling and completely voluntary selling. For instance, letting a rights issue lapse and receiving a lapsed-rights payment has similar financial effects to selling the rights (price and costs probably a bit different but not much, date you receive the cash a few weeks later), so it seems reasonable that they should either both be deemed to be tinkering or both not. But the former is the outcome of not taking any action and the latter of quite clearly voluntarily selling, i.e. tinkering, and it seems rather odd to deem failing to take any action to be tinkering! Another is when it's become clear that a company is going to be taken over for cash, so it's not a question of whether you're going to sell, but only of when and for how much. There are probably other such grey areas, and I'm not saying either that HYPers have to treat them as tinkering or that they mustn't - I think that's a matter for each HYPer to decide for themselves. (But if they post about how much they've tinkered, it would aid good communication if they say how they've treated any transactions in those grey areas.)

So I would suggest that if one wants a cap such as csearle suggests, for the purpose of restricting over-tinkering, it should be on the transaction costs of only those transactions that are clearly tinkering or in a grey area that the HYPer considers to be tinkering. But note that I also think that transaction costs should mean any money paid as a result of a transaction other than the actual price of the assets being acquired - so the transaction costs of a completely voluntary sale would typically be not just the broker commission (and possible PTM levy) on that sale, but also the transaction costs of reinvesting the sales proceeds - i.e. 0.5% of them to allow for stamp duty, plus a suitable amount to allow for broker commissions and possibly PTM levies. ("Typically" because a tinkering sale might be done to raise money for other purposes than reinvestment in the HYP, such as a house purchase, acting as the 'bank of Mum and Dad' or making a charitable donation.)

I guess that this post and my previous one (especially its comments about CGT) can be summarised as saying that if one wants a measure to be capped to restrict the amount of tinkering one does, some clear thinking needs to go into what actually constitutes tinkering and how to measure its potential impact on costs incurred by the portfolio - and the resulting measure might well end up rather more complex than one would really want.

Gengulphus

JohnnyCyclops
Lemon Slice
Posts: 301
Joined: November 15th, 2016, 9:19 pm
Has thanked: 201 times
Been thanked: 124 times

Re: Over-tinkering cap

#454229

Postby JohnnyCyclops » October 29th, 2021, 7:56 pm

We HYP with II with a pair of ISAs. They've raised their fees over the decade. Plus, we started with one account, then made it two. Initially we could group as 'family accounts' so the fees only arose on the first account. Now they charge the same rate each month on both accounts.

For those mentioning the II trade credits of £7.99 p/m don't forget the regular investing day for buys (I think monthly, first Wednesday, but don't quote me). Yes, it's intended to set a regularly recurring monthly investment but it's possible to setup for one month only and then remove it immediately after. If reinvesting cash already in the account then make sure not to tick to update the monthly investment amount else it will pull in more cash from the linked direct debit or card. Those regular investment days are free of commission but still incur stamp duty. We used it heavily on 6 Oct when we bought six new holdings and topped up another 13, all for 'free'.

Anyway, here's the year-by-year look at total costs (fees, commission and stamp duty) of the HYP held in ISAs. The recent increases in the ratio to income is a result of both II increasing the fees and the HYP being under-invested plus the income reduction due to Covid.

As my own "investment manager" we're running our portfolio at ~0.5%, although I don't charge for my labour :-)


csearle
Lemon Quarter
Posts: 4762
Joined: November 4th, 2016, 2:24 pm
Has thanked: 4809 times
Been thanked: 2083 times

Re: Over-tinkering cap

#454248

Postby csearle » October 29th, 2021, 9:42 pm

Gengulphus wrote:I'm not saying that csearle intended that conflation, just that his post can easily be read that way.
I think you possibly credit me with more thinking than actually goes on. Unintended conflation is a speciality. :)

In my head a tinker is a voluntary sale, which in my case is almost always coupled with a purchase (the time to buy is now). In fact I almost always have a suitable purchase in mind before I sell. I've probably referred of such tinkers as the sale and the associated purchase but am equally happy with a (better thought out) definition of it just being the sale.

Chris


Return to “HYP Practical (See Group Guidelines)”

Who is online

Users browsing this forum: No registered users and 15 guests