HY and capital preservation

[G3lc]

Does the board think it likely in todays market to get a 5% PA return and say a 10 year capital preservation on a lump sum invested today in a HYP - any pointers and all views would be appreciated.

[tjh290633]

Does the board think it likely in todays market to get a 5% PA return and say a 10 year capital preservation on a lump sum invested today in a HYP - any pointers and all views would be appreciated.

Who knows? The market is low by historical standards, so the answer is possibly yes. But you might encounter a black swan somewhere along the way.

By return do you mean dividend yield or total return?

Here is the annual return of my HYP and the FTSE100 over the last 32 years:

Yr to 05 Apr   Annual IRR   FTSE100
        1987                       
        1988       -6.23%    -4.82%
        1989       41.81%    10.68%
        1990        6.44%     8.80%
        1991       19.60%    10.31%
        1992        3.31%    -0.68%
        1993       21.94%    16.51%
        1994       17.67%    12.84%
        1995        1.80%    -2.01%
        1996       22.37%    18.21%
        1997       15.92%    15.70%
        1998       58.44%    37.71%
        1999        7.17%     5.47%
        2000       -0.23%     4.41%
        2001        3.06%   -13.86%
        2002        6.79%    -6.79%
        2003      -28.67%   -31.17%
        2004       34.80%    21.34%
        2005       23.60%    11.60%
        2006       30.46%    21.87%
        2007       19.51%     5.76%
        2008      -11.65%    -5.72%
        2009      -40.73%   -33.98%
        2010       67.93%    46.32%
        2011       17.50%     2.85%
        2012       10.38%    -3.13%
        2013       23.12%     9.19%
        2014        7.75%     7.13%
        2015       15.75%     2.06%
        2016        0.33%   -10.86%
        2017       16.22%    20.22%
        2018       -3.20%    -3.64%
        2019        8.19%     5.53%

As you can see, there are high points and low points.

TJH

[idpickering]

Does the board think it likely in todays market to get a 5% PA return and say a 10 year capital preservation on a lump sum invested today in a HYP - any pointers and all views would be appreciated.

Good morning, and welcome to HYP Practical, and the Lemon Fool Boards. There are no certainties in investing with regards to capital preservation. This is HYP where we're mostly concerned about the income anyway. Capital returns are secondary. There are many shares that pay a yield of 5% and over, so fill your boots. Watch out for dividend cover and company debt though.

Ian.

[G3lc]

Thank you for your response TJH - I mean 5% yeald pa - with not being bought by a capital loss over say 10 years - I appreciate no one knows for certain about anything in the future - its just peoples views and thoughts with the market highs, low interest rates, money printing and the general situation I’m keen to hear what financially astute peoples views are.

[tjh290633]

Thank you for your response TJH - I mean 5% yeald pa - with not being bought by a capital loss over say 10 years - I appreciate no one knows for certain about anything in the future - its just peoples views and thoughts with the market highs, low interest rates, money printing and the general situation I’m keen to hear what financially astute peoples views are.

The yield will be determined by the value from time to time. If the market takes off, then the yield could fall dramatically, but what you need to consider is the cash value of the dividends received, which is likely to rise steadily. Not guaranteed, as 2008-10 tells us, but barring another similar event, very probable. Your choice of shares will influence the outcome.

If the market has a setback, your 5% could rise to 10% for a while, but more likely it will fall to nearer 3%. Just remember that it is the dividends paid out which matter, not the yield from time to time.

TJH

[G3lc]

I take your point Ian, and thank you, but at 5% it takes 20 years draw down on ones capital and be left with nothing, with no risk to the capital or the 5% during this time, so I would suggest capital an important consideration.

[Dod101]

Does the board think it likely in todays market to get a 5% PA return and say a 10 year capital preservation on a lump sum invested today in a HYP - any pointers and all views would be appreciated.

If you are saying 'If I invest £100,000 today and draw a 5% return from the fund over 10 years, am I likely to end up with at least the same £100.000 at the end', then I think you would need to be very unlucky not to. After all, you could construct a portfolio of high yielding shares such as are regularly discussed on this Board and get a yield of circa 5% without too much difficulty. Over 10 years you could even reasonably expect some capital appreciation I think.

No investing is without risk and you could be unlucky in your timing. A 5% yield would probably mean buying some of those shares which have not increased their dividend for some time though and they are not showing much capital growth.

Dod

[G3lc]

Thank you Dod yes that is exactly what I am trying to get a view on, what are ones chances of getting lucky if one were to make a lump sum investment into a HYP today?
When I look at the company’s that have, and are paying good dividends a lot have suffered a lower share price recently - while the more solid companies have a higher share price and consequently pay a lower dividend and it would seem the low interest rates have contributed to the high share prices we now have throughout the world, so as you suggest its a case of not being unlucky.

[Alaric]

If you are saying 'If I invest £100,000 today and draw a 5% return from the fund over 10 years, am I likely to end up with at least the same £100.000 at the end', then I think you would need to be very unlucky not to.

Much the same could be suggested about a FTSE 100 Tracker with a current running yield of around 4.5%. Mind you that index almost exceeded 7000 in December 1999 and has only recently within the past few years climbed above that level.

[Bagger46]

If you are saying 'If I invest £100,000 today and draw a 5% return from the fund over 10 years, am I likely to end up with at least the same £100.000 at the end', then I think you would need to be very unlucky not to.

Much the same could be suggested about a FTSE 100 Tracker with a current running yield of around 4.5%. Mind you that index almost exceeded 7000 in December 1999 and has only recently within the past few years climbed above that level.

Over the last 10 years, NET of a 5% withdrawal rate, a (perfect) FTSE tracker would have only achieved 2.68% average return. The snag being that RPI has averaged 2.97% over that period. So such a holder's capital would have declined in REAL terms.

So a portfolio with such aim would need to do rather better than the FTSE. In particular if a sensible capital performance is wanted to match a similarly sensible divi per income unit growth.

It is was easy to do over that period. With a variety of approaches all able go do so, but not using a tracker while taking 5% as income.

Bagger

PS As I have posted before, I prefer to use RPI to estimate real returns net of inflation, because CPI is way too low, and in any case most people's personal rate of inflation can easily exceed RPI.

[TUK020]

Does the board think it likely in todays market to get a 5% PA return and say a 10 year capital preservation on a lump sum invested today in a HYP - any pointers and all views would be appreciated.

Hi G3lc,
I am going to re-phrase/re-frame the question slightly, and then offer an answer. This probably would sit better on the HYP Strategies board than the practical.

Question
Is is possible to make a long term investment, get 5% annual return, which is secure (low risk to income), grows in line with inflation, and is sustainable (is not bought by using up the capital)?
This assumes the capital is still there, but does not try to predict the capital value at any point down the line.

Answer part 1
The benchmark for a professionally managed high yield portfolio with low risk (diversified, income smoothing) is probably the City of London Investment Trust (CTY)
https://markets.ft.com/data/investment- ... ?s=CTY:LSE
According to the FT, this is yielding 4.36% right now.
This IT has been paying out a growing dividend for over 50 years
Therefore if one took part of this as an income reserve, I think you could very easily achieve 4% with minimal risk.

Answer part 2
Could you achieve better than this by managing the portfolio yourself?
TJH's answer shows that with some level of skill in stock picking, a tried and tested system of top up/diversification management, and the time and discipline to running the portfolio, you can do better.
This is also picking up a level of risk, depending on the number of shares in your portfolio (I think TJH has about 40 shares).

My own approach
I am trying to emulate TJH's portfolio approach and discipline (well, not his rigorous record keeping).
At the same time I keep over 25% of the portfolio in Investment Trusts, for risk reduction, lower volatility and as a bench mark. It is likely over time that I shall also migrate more to ITs to reduce the overhead and attention required to run the portfolio (aka my long term gaga plan)

hope this helps
tuk020

[dspp]

Moderator Message:
A lot of alerts generally means HYP-P posts outside of HYP-P guidelines.

Too many alerts and the whole thread gets removed as being OT for HYP-P.

regards, dspp

[G3lc]

Thank you tuk020 for your considered and thoughtful response - so perhaps a mix of CTY and LTI, taking on board the the gaga potential.