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Overall portfolio yield compared to a collective IT, such as CTY

General discussions about equity high-yield income strategies
Alaric
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Re: Overall portfolio yield compared to a collective IT, such as CTY

#368594

Postby Alaric » December 22nd, 2020, 1:43 am

Gengulphus wrote: the originally forecast 4.8% yield on a £75k investment would have produced £3.6k annual income - which in that link's words is a "useful income", but by no means sensible as someone's entire retirement income.


In the context of someone retiring in 2000 after a lifetime's service in the public sector and presuming their scheme rules had not been changed, then a lump sum of £ 75,000 could come from a final salary of £ 50,000 alongside an annual indexed pension income of £ 25,000.

The formula being final salary * (3n/80) for the lump sum and final salary * (n/80) for the income. n being the number of years of service to a maximum of 40.

Itsallaguess
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Re: Overall portfolio yield compared to a collective IT, such as CTY

#368603

Postby Itsallaguess » December 22nd, 2020, 6:11 am

Gengulphus wrote:
Itsallaguess wrote:
As an income-investor, I would hope to see an initial income that's 'good-enough' from a broadly diversified portfolio of investments, and after that I want to see that income generally rise, reliably and predictably, over long periods of time...

The pink ARBIT line (IT-income-portfolio) on Arb's chart clearly delivers on those expectations, and the dark blue ARBHYP line (HYP) clearly doesn't, or at least doesn't to my eyes - others may have different views, of course...


I don't agree that they indicate anything useful about your first expectation..
....
However, I entirely agree that the lines on Arb's chart indicate delivery on your second expectation, and that what they indicate is that the IT portfolio has delivered on it and that the HYP hasn't, which I think is the main point you are making.


Yes, thanks Gengulphus - I perhaps didn't make the distinction clear enough that what I meant by "I would hope to see an initial income that's 'good-enough'" would be a separate earlier consideration taken with no reliance on any 'subsequent-performance charts' like the ARBIT/ARBHYP comparison (https://i.imgur.com/IG10Ai3.jpg), so basically a 'Well, that's my starting income sorted, where I can manage on the initial yield - now does the subsequent long-term performance of any given income-strategy then deliver on my 'income generally rising, reliably and predictably, over long periods of time' requirements?', which is where these types of performance charts really do start to deliver some of those answers, for me at least...

On the subject of 'risk' in the initial HYP strategy articles, or the absence of that subject in any real and useful detail, I just don't think it was covered and explained clearly enough, that's all. A casual observer with little investment experience reading words such as '[The HYP approach] is for those who can ignore the fluctuations in capital value and accept that there is a risk that the income will not, in fact, rise. But I consider that latter risk quite small.' could clearly be forgiven for thinking that risk was being undersold, especially given the subsequent near-50% drop in dividend-income seen from HYP1 recently..

A few mentions of the word 'risk' here and there, with no further details covering just what those long-term risks might be when looking to start a long-term income-strategy, and what processes can be used to mitigate against them (cash-buffers, revenue-reserves, spare income-capacity etc..), doesn't seem appropriate for an income-strategy that the man-on-the-street with little investment experience might be looking to pick up, and I really can't fathom why a couple of additional paragraphs, or even just a single extra 'risk-based article' covering those aspects wasn't considered, as I think doing so would have both clearly raised awareness of those more detailed long-term risks, and also at a stroke removed much of the criticism that the HYP strategy has subsequently attracted over the years due to that lack of 'risk-covering' detail...

Cheers,

Itsallaguess

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Re: Overall portfolio yield compared to a collective IT, such as CTY

#368641

Postby 88V8 » December 22nd, 2020, 9:41 am

Itsallaguess wrote:....the criticism that the HYP strategy has subsequently attracted over the years due to that lack of 'risk-covering' detail...

Luni often referred to 'derisking' in the form of a revenue reserve.

Failing to set aside a notional reserve when comparing one's HYP performance against a collective, is a newbie error into which I no doubt would have fallen. As it is we are in a happy position of income surplus so reserve or no reserve is academic.
But to anyone for whom it matters, it matters.

V8

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Re: Overall portfolio yield compared to a collective IT, such as CTY

#368722

Postby moorfield » December 22nd, 2020, 12:27 pm

ReallyVeryFoolish wrote:Or a cynic might deduce risk was deliberately down played in the interests of audience participation and resulting revenue?


To be fair pyad has answered that charge, and since I also thought that once I should share his reply here see: viewtopic.php?p=357088#p357088

Alaric
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Re: Overall portfolio yield compared to a collective IT, such as CTY

#368738

Postby Alaric » December 22nd, 2020, 12:42 pm

Itsallaguess wrote:A few mentions of the word 'risk' here and there, with no further details covering just what those long-term risks might be when looking to start a long-term income-strategy, and what processes can be used to mitigate against them


There would be at least two alternative income seeking approaches where the risks of income cancellation should be lower than a 100% allocation into high dividend equities. One as mentioned earlier would be Investment Trusts, another would be Pref Shares and Corporate Bonds. In the latter case the risk of income cancellation increases with the yield as you move into junk territory. Bonds standing above par also offer the ability to convert capital into income.

Arborbridge
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Re: Overall portfolio yield compared to a collective IT, such as CTY

#368743

Postby Arborbridge » December 22nd, 2020, 12:56 pm

This morning's thought about my HYT v ArbIT chart for income: perhaps now is not the time to be re-balancing in favour of the ITs as one might do if influenced by that history.
It's quite possible that HYP income will bounce back vigorously in the next two years, whereas IT income will almost certainly not increas quickly as they will be rebuilding reserves. Not carring on with the "HYP medicine" could be the equivalent of selling out at the share price bottom.

Just a thought :) I shall probably do the usual: a steady as she goes course, buying what seems reasonable at the time. I certainly have no plans to wholesale dismantle the HYP.

Arborbridge
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Re: Overall portfolio yield compared to a collective IT, such as CTY

#368749

Postby Arborbridge » December 22nd, 2020, 1:01 pm

Alaric wrote:
Itsallaguess wrote:A few mentions of the word 'risk' here and there, with no further details covering just what those long-term risks might be when looking to start a long-term income-strategy, and what processes can be used to mitigate against them


There would be at least two alternative income seeking approaches where the risks of income cancellation should be lower than a 100% allocation into high dividend equities. One as mentioned earlier would be Investment Trusts, another would be Pref Shares and Corporate Bonds. In the latter case the risk of income cancellation increases with the yield as you move into junk territory. Bonds standing above par also offer the ability to convert capital into income.


I don't pretend to be knowledgeable about bonds, but I do have a core holding in IP Monthly income Plus which has about 20% in equities and the rest in bonds of various sorts. This saves me having to think about it. It does not shoot the lights out and the income is more or less fixed. However, it has been a very useful repository for cash, giving around 5% dividend, and its XIRR is higher than many of my other investments - on average I believe higher than my HYP and higher than CTY for instance.

I was going to sell it down, but I'm wondering about buying more: it is now bigger than my CTY holding simply because the price has held steady and CTY hasn't.

Arb.

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Re: Overall portfolio yield compared to a collective IT, such as CTY

#368758

Postby daveh » December 22nd, 2020, 1:32 pm

Arborbridge wrote:This morning's thought about my HYT v ArbIT chart for income: perhaps now is not the time to be re-balancing in favour of the ITs as one might do if influenced by that history.
It's quite possible that HYP income will bounce back vigorously in the next two years, whereas IT income will almost certainly not increas quickly as they will be rebuilding reserves. Not carring on with the "HYP medicine" could be the equivalent of selling out at the share price bottom.

Just a thought :) I shall probably do the usual: a steady as she goes course, buying what seems reasonable at the time. I certainly have no plans to wholesale dismantle the HYP.


I'm hoping for a strong bounce back in the dividends from my Income portfolio. I'm expecting some fairly significant capital returns (from the WMH takeover, Tesco special and perhaps something from Pennon*). I'll be reinvesting that money across a mix of my HYP-shares (probably top-ups of existing holdings) and "foreign" ITs such as HFEL, MCT etc plus I may bring some additional ITs on board again for non-UK diversification.

* Pennon is now not particularly high yield, I'll wait and see what they do with the proceeds of the Viridor sale, but if they don't use it sensibly to bring in more income I'll sell and reinvest the proceeds for an uplift in income.

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Re: Overall portfolio yield compared to a collective IT, such as CTY

#368780

Postby dealtn » December 22nd, 2020, 2:20 pm

Arborbridge wrote:... Not carring on with the "HYP medicine" could be the equivalent of selling out at the share price bottom.



Arborbridge wrote:... I'm wondering about buying more: it is now bigger than my CTY holding simply because the price has held steady and CTY hasn't.



Consecutive posts.

The first you think it wrong to sell at the bottom, the second you consider buying at the (relative) top.

Arborbridge
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Re: Overall portfolio yield compared to a collective IT, such as CTY

#368859

Postby Arborbridge » December 22nd, 2020, 5:15 pm

dealtn wrote:
Arborbridge wrote:... Not carring on with the "HYP medicine" could be the equivalent of selling out at the share price bottom.



Arborbridge wrote:... I'm wondering about buying more: it is now bigger than my CTY holding simply because the price has held steady and CTY hasn't.



Consecutive posts.

The first you think it wrong to sell at the bottom, the second you consider buying at the (relative) top.


Well, doesn't that just say it all :lol: Investments decisions are full of these sorts of push and pull choices - but maybe I'm one of the few honest enough to write about them?

In my defence, I was only wondering about buying more of the IP monthly income plus and it isn't at its peak so not expensive (I note your term "relative") and it isn't subject to huge peaks and troughs anyway, which is the whole point of having spare "cash" in it.
And I am not at all thinking of selling CTY at the bottom or otherwise. On both accounts I think you "do me wrong" sir :)

Case dismissed.

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Re: Overall portfolio yield compared to a collective IT, such as CTY

#368865

Postby dealtn » December 22nd, 2020, 5:21 pm

Arborbridge wrote:
dealtn wrote:
Arborbridge wrote:... Not carring on with the "HYP medicine" could be the equivalent of selling out at the share price bottom.



Arborbridge wrote:... I'm wondering about buying more: it is now bigger than my CTY holding simply because the price has held steady and CTY hasn't.



Consecutive posts.

The first you think it wrong to sell at the bottom, the second you consider buying at the (relative) top.


Well, doesn't that just say it all :lol: Investments decisions are full of these sorts of push and pull choices - but maybe I'm one of the few honest enough to write about them?

In my defence, I was only wondering about buying more of the IP monthly income plus and it isn't at its peak so not expensive (I note your term "relative") and it isn't subject to huge peaks and troughs anyway, which is the whole point of having spare "cash" in it.
And I am not at all thinking of selling CTY at the bottom or otherwise. On both accounts I think you "do me wrong" sir :)

Case dismissed.


Not meaning to be critical, and agree it is difficult to apply consistency to principles we try to follow such as buy low, sell high (and not the opposite). Amusing (to me at least) it happened in consecutive posts. I admire the brutal honesty you often display here - unlike many others!

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Re: Overall portfolio yield compared to a collective IT, such as CTY

#368868

Postby Arborbridge » December 22nd, 2020, 5:29 pm

dealtn wrote:Not meaning to be critical, and agree it is difficult to apply consistency to principles we try to follow such as buy low, sell high (and not the opposite). Amusing (to me at least) it happened in consecutive posts. I admire the brutal honesty you often display here - unlike many others!



Thanks.
In the end, my investment activity is probably that I do a "bit of this and a bit of that". I really admire people who are incredibly solid in their convictions and just stay on one set of rails - I have far too much self doubt for that, mixed with a curiosity about what alternative ideas might produce which leads me to experiment.


Arb

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Re: Overall portfolio yield compared to a collective IT, such as CTY

#368912

Postby Itsallaguess » December 22nd, 2020, 8:05 pm

ReallyVeryFoolish wrote:
Perhaps the degree of risk to future income stream simply wasn't understood adequately?

Or a cynic might deduce risk was deliberately down played in the interests of audience participation and resulting revenue?


I think it was really just a matter of simplicity rather than anything more cynical, and I personally wouldn't ever wish to think otherwise to be honest.

With that said, I do think it was a mistake to take that approach, when it really wouldn't have taken too much additional coverage to properly discuss the income-risk side of things in at least a bit more detail, and briefly explain some of the common processes that can be easily employed to mitigate against most of those risks...

To choose to not do that, when laying out an income-investment strategy for the man-in-the-street to be able to follow, was a mistake, I think.

Cheers,

Itsallaguess

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Re: Overall portfolio yield compared to a collective IT, such as CTY

#368915

Postby Alaric » December 22nd, 2020, 8:15 pm

Itsallaguess wrote:To choose to not do that, when laying out an income-investment strategy for the man-in-the-street to be able to follow, was a mistake, I think.


Looking backwards from 2000, had there been any widespread dividend cancellations as later seen in 2007-8 and in 2020 ? There had been the Black Monday crash in 1987, but that was market prices. Conventional wisdom at the time may have attached an income strategy to investment mostly in Gilts and Corporate Bonds.

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Re: Overall portfolio yield compared to a collective IT, such as CTY

#368919

Postby Itsallaguess » December 22nd, 2020, 8:32 pm

ReallyVeryFoolish wrote:
I can understand why risk to income might be played down under the circumstances of the original story.

Doris was wealthy, so a drop or hiatus in dividend income stream wouldn't have been so important as it obviously is for the ordinary Joe in the street.


If the playing down of HYP risk were to stem from the protagonist of the story not being appropriately aligned to the target audience, then perhaps that in itself was the main error of judgement...

Cheers,

Itsallaguess


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