A practical discussion on the use of an 'income-reserve' or 'cash buffer'..

[Dod101]

Correct RVF. HYP has always been an uncomfortable strategy for me and no one should be relying on the purist HYP for an income, especially the creed of 'The highest sustainable dividend available' when accompanied by the nonsense of Strategic Ignorance. Anyway I will be shot down so I will stop now.

Dod

Not by me or a few others you wont. Nobody else seems to have viable bullets to fire at you. You're one of the most sensible regular commentators here anyway.

RVF

Thanks. Spare me my blushes!

Dod

[Itsallaguess]

I hold the non voting because apart from no vote they are exactly the same as the voting shares with the same dividend and yet are considerably cheaper and thus have a much higher yield.

For obscure reasons, non-voting shares aren't included in the normal indexes. This presumably makes them unattractive to trackers and benchmark huggers. Does this result in a consistently lower price? I suppose if there were ever to be a contested takeover, there wouldn't be much point in buying up non voting shares.

That's probably something for a different topic to discuss Alaric.

Ian earlier asked about Schroders non-voting, and he's now got the EPIC for it, so any further discussion of them on this thread would be off-topic.

Cheers,

Itsallaguess

[Dod101]

Am I confused or have Arb's posts been removed?

Dod

[Arborbridge]

Am I confused or have Arb's posts been removed?

Dod

I've no idea as I've been out. Was it something I said? Perhaps someone could message me.

OTOH I can see a few comments below discussing HYP which are arguable OT, but which remain.

Arb.

[Wizard]

Am I confused or have Arb's posts been removed?

Dod

Which ones? The ones from earlier this morning are on the previous page, last one I can see is 7.55am. Were there some after that?

[CryptoPlankton]

I am not a HYP investor in the strict sense it is understood here. But I do have half my portfolio in "usual suspect" income stocks. Only two are paying a full dividend so far this year. L&G and RGL. I am fortunate in the respect that I hadn't quite reached the point of needing the dividend income just yet. But I retire at the end of July so this is a mortal blow to my planned dividend income stream.

RVF.

Indeed, and the guiding lights of this strategy are worryingly silent at the present time. I have been wondering what Doris will do when she finds out her current account is overdrawn every month. What would Doris do now? I for one, would love to know actually.

RVF.

He is, but my question still stands. What does Doris do next? The silence is deafening.

RVF

I at least partly answered it by remarking that she needs to lower her sights a bit and in the short term pull in her belt.

Dod

Yes, and if that's the best anyone can up with then it's a very sad situation that the strategy failed in such a disastrous fashion. Predictable as it was. Maybe this thread needs to be continued on the strategies board. The posters normally full of ideas about what to do with HYP portfolios are silent. Including the guru himself.

RVF.

Hi Fred (it is old Fred, isn't it?)

Forgive me for saying, but you are coming across a little like one of these so-called 'entitled' millennials we often hear about. My first rule of investment (and I think it should be for everyone who doesn't put their capital in the hands of a third party) is that I take full responsibility for my own decisions. We are currently dealing with an unprecedented situation with the effective shutdown of large parts of the global economy and uncertainty about how quickly and fully things will get back to normal. This has an impact on everyone, not just people with 'HYP's'. Like yourself and Dod, I am not what you could call a pure HYPer, but I do have enough invested in FTSE dividend stocks for these cuts to have a potentially nasty impact on my "warm fuzzy feeling" (as I believe you used to call it...).

Others have already mentioned some ideas, but here is a summary of my way of dealing with the situation. Some of it involves an element of contingency planning, so I'm afraid that won't help anyone who hasn't done any - but then, those people can't really blame anyone but themselves. (As ARB pointed out, Doris was stinking rich so she would probably be simply carrying on almost oblivious to events.)

Anyway:

1. As part of a diversified income strategy, my 'HYPish' shares have been projected to generate about 20% (more or less - likely less now!) of my future income.

2. As discussed in this very thread (remember the title?), I have a dedicated income reserve associated with this part of my investments - roughly equivalent to a year's worth of dividends (that might prove to be two years' worth now!).

3. I have a safety margin of about 25% - so I haven't been taking all of the dividends, but reinvesting some.

4. I have actually reduced the amount I am withdrawing for the time being as a) I don't desperately need it and b) I seem to be spending less at the moment anyway.

5. I am monitoring the situation and in time (it is far too soon to be chopping and changing at the moment) I anticipate having a bit of a reshuffle. I am quite pragmatic, so whether this involves maintaining the same level of exposure to "HYP" shares or diverting some funds elsewhere will depend on what we find when the fog clears.

6. I am keeping calm and carrying on...

Well, I suspect I am not one of the people you were seeking answers from, but I hope my perspective helps a little. In defence of the "guru", I don't believe HYP was proposed as an exclusive "all eggs in one basket" strategy. If taking responsibility is my first rule of investing then my second is most definitely diversification.

Good luck with your retirement plans.

CP

[Wizard]

Hypers who have been around for a while expected something of this sort, so what's the surprise? Why should they be making some sort of noise about it? Our only question now is whether the preparations we've been making for ten years are robust enough.

Those critics of HYP who perversely like to pop up here whenever there is a set back, have to answer how they survive when their own "much vaunted" ideas have a set back. You presumably fall back on your cash reserves which every alternative tachnique would encompass - apart from those lucky enough to have a "proper" pension, or who had an annuity. I doubt those with an annuity would be particularly interested in reading this board anyway. And the TR merchants are in a similar boat to HYPers with not disimilar decisions to be made.

Doris was rich - which, whatever you invest in, is rule number one for a relaxed retirement. Those less so will pull in their horns.

Whether I've changed my mind, I'll let you know in a few years - if I can afford the internet fees

Arb.

My bold.

Maybe that needs to be added to the board guidance, "HYP is only really a good idea if you are rich enough to deal with a 50% cut in income..."

[Arborbridge]

Hypers who have been around for a while expected something of this sort, so what's the surprise? Why should they be making some sort of noise about it? Our only question now is whether the preparations we've been making for ten years are robust enough.

Those critics of HYP who perversely like to pop up here whenever there is a set back, have to answer how they survive when their own "much vaunted" ideas have a set back. You presumably fall back on your cash reserves which every alternative tachnique would encompass - apart from those lucky enough to have a "proper" pension, or who had an annuity. I doubt those with an annuity would be particularly interested in reading this board anyway. And the TR merchants are in a similar boat to HYPers with not disimilar decisions to be made.

Doris was rich - which, whatever you invest in, is rule number one for a relaxed retirement. Those less so will pull in their horns.

Whether I've changed my mind, I'll let you know in a few years - if I can afford the internet fees

Arb.

My bold.

Maybe that needs to be added to the board guidance, "HYP is only really a good idea if you are rich enough to deal with a 50% cut in income..."

Given my income reserve etc etc, I don't think there's a problem. The problem is with this particular share which I have owned for many decades and which will crystalise a huge loss. So it's the risk/reward of acting now or letting things work their way out. As I've often said, selling a share and choosing another appears to result, on average, only in a 50/50 chance of an advantagious outcome. Not good enough to cause me to do it often.

Arb.

[Wizard]

An interesting discussion on Newsnight at the moment. A lot of talk of business having to make some pay back, having been massively supported by Govt. / future taxpayers. They had the UK head of Burger King on who said he thought it pretty well accepted in many businesses that taxes are going to be significantly higher to try and put the country's finances back on a reasonable foundation. If this in anyway gives a clue to the next few years I think a lot more companies will be reducing / not reinstating / not increasing dividends for what is being suggested could be a five to ten year timeline.

If this is anything like a valid view of the future HYPers may want to plan to stretch those Income Reserves for as long as possible.

Indeed, and the guiding lights of this strategy are worryingly silent at the present time. I have been wondering what Doris will do when she finds out her current account is overdrawn every month. What would Doris do now? I for one, would love to know actually.

RVF.

My bold.

Not at all, on page 3 of this very thread...

Every time there's a setback with wide div cuts, and such events are inevitable, some people question whether this marks the end of a proven long term income strategy like HYPs. Well, I can tell you that it has survived div cutting before and gone on to recover income well. It will happen with this one too. Actually I'd say that it's a good time to be launching a new portfolio. No guarantees though, equity income investing is risk income investing.

As I've said innumerable times, if you can't face the risks and occasional rough periods don't invest in HYPs. Probably best to avoid equities altogether in that case.

Not sure that is exactly the message Doris was given at the time

[Dod101]

Am I confused or have Arb's posts been removed?

Dod

Which ones? The ones from earlier this morning are on the previous page, last one I can see is 7.55am. Were there some after that?

Sorry. It is me. I went out to walk shortly after and when I returned the Board had filled up!

Dod

[Wizard]

Indeed, and the guiding lights of this strategy are worryingly silent at the present time. I have been wondering what Doris will do when she finds out her current account is overdrawn every month. What would Doris do now? I for one, would love to know actually.

My bold.

Not at all, on page 3 of this very thread...

Every time there's a setback with wide div cuts, and such events are inevitable, some people question whether this marks the end of a proven long term income strategy like HYPs. Well, I can tell you that it has survived div cutting before and gone on to recover income well. It will happen with this one too. Actually I'd say that it's a good time to be launching a new portfolio. No guarantees though, equity income investing is risk income investing.

As I've said innumerable times, if you can't face the risks and occasional rough periods don't invest in HYPs. Probably best to avoid equities altogether in that case.

Then I withdraw that comment. Thank you for pointing it out to me. Clearly the comment was unjustified on my part.

RVF

I’m not sure you need withdraw the whole comment. The input from PYAD was pretty brief and certainly gave no insight as to what Doris should do in the current situation other than, to paraphrase, ‘suck it up, she knew what she was getting herself into’. Which is odd, because I thought the whole idea was that Doris knew nothing of investing and why the one time investment, no tinker approach was the one she should adopt.

[Bouleversee]

Do we know that all Doris's wealth was invested in HYP shares? This Doris has an annuity and state pension plus SERPS, max. holding of premium bonds, some NS&I index linked certs., a cash ISA, a regular saver account into which £250 p.m. has been paid for some years. some HYP shares, mostly shares for total return, a couple of one-off fund ISAs (which have probably done at least as badly as my share p/fs recently; haven't yet compared as I have several of the latter and the valuations change daily and I haven't totted them all up recently) but a statement came in this morning showing that my Invesco European Equity and European Smaller Companies Accumulation Shares have dropped from £16,461.12 on October 5.10.19 to £12,343.40 (which is about 25%), a dealing account and 3 ISAs which contain a mixture of HYP, Value, Growth and AIM shares and a couple of ITs (Scottish Mortgage and Monks). Yes, I am cross with myself for not getting around to cashing in the fund ISA as I had planned to do before the balloon went up and not taking profits on the shares which had risen dramatically but that's typical Doris and if she is in a similar position she doesn't need to worry about paying the grocery bills or that from the Wine Society (the only things that have gone up recently) or the other basics and since she can't go anywhere or buy anything or have any work done and is aware that the govt. will be clobbering her and her estate for tax, she probably really just wants to get on with the gardening which has got a bit out of hand, with some shrubs looking as if they've had a visit from Covid-19, and forget about money. If only...

[AJC5001]

I hope RVF is right with L & G. If they pay in full I will not be too concerned. Doris needs to lower her sights a bit and buy lower yielding shares, many of which are still paying.

Just to compound the flaw in a HYP, ITs and OEICs are not allowed in a 'pure' HYP so Alaric is strictly speaking off topic

Dod

He is, but my question still stands. What does Doris do next? The silence is deafening.

RVF

I at least partly answered it by remarking that she needs to lower her sights a bit and in the short term pull in her belt.

Dod

Just to try and stop this pointless point-scoring, Doris is an ex-investor, just like a Norwegian Blue.
She will be doing nothing - you're on your own.

[TUK020]

I’ve been toying with buying some Schroders, you hold the none voting shares if I remember right Dod? Would the epic be SDRNV? A serious question tbh.

Ian.

SDRC