HYP1 is 24

[Newroad]

Hi Arb.

I hold VWRP in the main portfolio and if my intent had been to mislead, I could have suggested it as a benchmark.

However, that was not my intent.

Instead, it was to consider, using VHYG as the measuring stick but VHYL if ever implemented, as the one-stop retirement shop suggested. Circa 3% yield (additional income from sales if needed), 0.29% management charges and diversification from over 2000 global stocks makes it, in my opinion, a fair comparator use in, as you said "... which way a retiree might "jump" ...".

Regards, Newroad

[ElectronicFur]

If you cannot pay your bills unless your income yield is 5.5% then my first thought is that you do not yet have enough money to retire, since you have to reach well above the natural yield of the market to survive, which I would find to be a scary proposition.

Of course I have a buffer to smooth out dividend fluctuations. And you need it anyway as dividend payment dates and the amounts throughout the year make the income stream irregular. But if I was receiving a yield of just 2.9% yield instead of my HYP 5.5% yield, the fact is I'd be forced to sell some of the capital every year.

As it is, I've been able to depend on my HYP income without being forced to sell, since I switched to living off the income 7 years ago. I only sell to trim holdings that have grown too large or ones where the dividend has been cut, and then reinvest the proceeds.

[Lootman]

If you cannot pay your bills unless your income yield is 5.5% then my first thought is that you do not yet have enough money to retire, since you have to reach well above the natural yield of the market to survive, which I would find to be a scary proposition.

Of course I have a buffer to smooth out dividend fluctuations. And you need it anyway as dividend payment dates and the amounts throughout the year make the income stream irregular.

That seems very reasonable. But of course the HYP1 data provided has no such buffer, so it appears to be purely a hypothetical portfolio rather than one to rely upon in the real world.

And if a cash buffer (10%? 20%?) were applied to HYP1 then its capital and income records would be correspondingly lower. Although nothing about the concept requires anyone to commit 100% of their capital to it, and a £75,000 initial outlay might make sense if say you had £100,000 to start out with.

[1nvest]

I benchmark to the FTSE250 index, total returns (assumed dividends reinvested), as I also prefer SWR style withdrawal measures, 4% SWR for instance is 4% of the start date portfolio value drawn at the offset, where that £££ amount is increased by inflation as the amount drawn as income/spending in subsequent years (so a regular inflation adjusted income year after year). HYP1 was originally intended as a alternative to a annuity - where its income also rises consistently with inflation (assuming a inflation index linked annuity).

Near identical 6.3 total accumulated return gain actors for both (far right two columns).

Conceptually you might have bought VMIG (FTSE 250 accumulation fund or suchlike) and sold shares out of that each year to the same amount as provided by HYP1 ... to similar overall effect/outcome.

Slight misalignment as FTSE 250 data is for end of November measures, excluding the most recent where the most recent FTSE250 dividend yield has been applied to the most recent index value (as the 'income' value figure).

The FTSE250 includes a sizable number of Investment Trusts - that each do their own thing (may invest in foreign, commodities, bonds, whatever). Single stock weightings are also inclined to be low, as larger stocks are ejected out and into the FTSE100. As are those that falter and fall out of the bottom replaced with newer (perhaps better) replacements. So unlike HYP where single stock weightings can rise to perhaps uncomfortable levels, the FTSE250 has less single stock concentration risks. But incurs costs (yearly fund managers fees etc.), however so also might HYP incur costs (splits/takeovers/whatever). Either might have successfully been used as a annuity alternative to similar overall effect, however risk wise and I'd say that HYP is the higher risk of the two. Same rewards with higher risk = lower Sharpe Ratio (FTSE250 = better risk adjusted reward). As is SWR safer for income (consistent inflation adjusted income year after year).

[NeilW]

the "risk" you refer to I don't believe exists

The risk is systemic. The game since Gordon Brown crippled the pension funds has been to play capital whack-a-mole, where asset prices continue to increase simply due to a shortage of assets relative to the flow of money. That's been a function of the boomer demographics which is coming to an end.

You'll have noticed that young people are getting rather restive and are voting in people who will rebalance the system towards their needs. That will reduce the flow of money towards capital assets and force those capital assets down to what they are actually worth - what they can extract from the flow due to value add.

Nobody really believes Tesla is worth a 71 P/E ratio.

Within HYP a tight focus on firms that are genuinely extracting a value add is vital. Ultimately in economic terms that's the only place where a return can come from.

[1nvest]

the "risk" you refer to I don't believe exists

The risk is systemic. The game since Gordon Brown crippled the pension funds has been to play capital whack-a-mole, where asset prices continue to increase simply due to a shortage of assets relative to the flow of money. That's been a function of the boomer demographics which is coming to an end.

You'll have noticed that young people are getting rather restive and are voting in people who will rebalance the system towards their needs. That will reduce the flow of money towards capital assets and force those capital assets down to what they are actually worth - what they can extract from the flow due to value add.

Nobody really believes Tesla is worth a 71 P/E ratio.

Within HYP a tight focus on firms that are genuinely extracting a value add is vital. Ultimately in economic terms that's the only place where a return can come from.

There are price appreciation, income/dividends, volatility potential gain factors. HYP targets income (at the expense of price appreciation). Rewards from volatility require trading (such as via periodic rebalancing to target weightings) that non changed HYP intentionally avoids. The general gains from volatility (rebalancing) is broadly similar to the benefit of concentration, 50/50 initial weight two assets and you may end up with 80/20 weightings some time later in the better/poorer performing asset, similar to as though you'd 65/35 yearly rebalanced the best/worst, so non changed will capture volatility like benefits up to the point of that all being lost as/when the best case mean-reverts (relatively lags).

The later gen's appear to be more focused upon alternatives such as volatility based choices, 10% in bit coin, 90% in cash deposits, held for a year and maybe a year later being left at 95% (bitcoin crashes, some interest on cash deposits), or being 15% up (bitcoin doubles + some cash interest) ... type focus. Consider Tesla being on a 71 PE as a indicator of high crash and burn or soar potential volatility.

[csearle]

Moderator Message:
Some off-topic posts moved here. Please keep this thread about HYP1 (and possible benchmarks) rather than comparing alternative HY strategies. Thanks.

I've just noticed Itsallaguess's related thread. Discussion of income and capital diversification would best be done there. - Chris