Moderator Message:
The following posts about annuities were split off from this thread about HYP1. - Chris
The following posts about annuities were split off from this thread about HYP1. - Chris
Dod101 wrote:HYP1 shows resilience until it doesn't. But you really ought to define 'resilience'. Remember the whole idea of a HYP is that it is an income strategy, Capital appreciation is very much secondary. So resilience in this context presumably means 'able to maintain and hopefully increase income'.
In the context of real terms, after RPI inflation, that has long since failed. A retiree would have had to take some other action in earlier years in order to maintain the inflation adjusted purchase power of the initial income provided at the start. As I recall it the HYP was proposed as a alternative to a annuity and annuity options include inflation adjustment of provided income.
Concentration wise and HYP1 is no different to what might be expected. LEXCX for instance operates on a similar model/method and from its 1930's start date of 30 stocks is down to around 20 stocks with the largest around 50% of the total portfolio value. Fundamentally runs winners rather than reducing out of them to add to other stocks - which does lead to concentration risk.
Yes mathematically the inflation adjusted income subsequently recovered, on paper, ignoring the shortfalls that would have had to be endured in earlier years that otherwise involve either spending less (taking a 'pension' cut), or selling shares to fill the hole, or not spending all of the income and reinvesting some, akin to taking a lower SWR.
Unnecessary/uncompensated (income and concentration) risks that can be easily addressed.