What HYP

[G3lc]

With risk and tax free 4% cash ISAs available does this change one’s view on a HYP, and if it doesn’t why on a ‘good company’ does the share price stay low enough for the HY to continue (the share price goes up the yeald comes down).

[Arborbridge]

With risk and tax free 4% cash ISAs available does this change one’s view on a HYP, and if it doesn’t why on a ‘good company’ does the share price stay low enough for the HY to continue (the share price goes up the yeald comes down).

The first answer is "no" - because I am trying to obtain a rising income over time and in any case can obtain a better payout than 4% from my HYP or collection of ITs. Investing at 4% in fixed interest is a waste of time and many retirees suffer from this high risk averse approach which erodes their income. "I don't trust the stock market" must have ruined many a savings pot.

The second part is more difficult to answer, but if the market isn't in the mood for "risk on" then it will take the risk free return for the moment. From my POV, because I intend to leave my capital in the market for a very long time, I am interested in the long horizon rather than the short horizon which is concerned with immediate volatility.

As regards individual companies, that's yet another question. The market may have provided you with a buying opportunity, or an opportunity for egg on your face. When the market is general down, investors will see no reason to pay more for a "good company" - the panic infects all, good and bad.

Thus the expression that in the short term the market is a voting machine (subject to the instantaneous mood of the mob), and in the long term a weighing machine.

Arb.

[G3lc]

Yes Arb I agree, and this has been and probably is still my view, but with the high interest rates and hard times for the economy in the medium to long term I wonder if my HYP needs to be questioned with this new situation we find ourselves in, but quite how I am at a loss to know.

[Padders72]

Now is a great time to start a HYP portfolio. The only trouble is tomorrow may be even better. But it was always thus. If you are happy with 4% then you’d be mad to look beyond the ‘safety’ of the banks. I’m not personally I’d prefer double or treble that so as with Arb have a selection of ITs and single intruments inc FI. Some of those are yielding 7%, even the supposedly safe stuff.

[Arborbridge]

Yes Arb I agree, and this has been and probably is still my view, but with the high interest rates and hard times for the economy in the medium to long term I wonder if my HYP needs to be questioned with this new situation we find ourselves in, but quite how I am at a loss to know.

I've just put up a post with my HYP accumulation units, and while I know some people will have done considerably better, to my mind this makes investing in fixed interest at even 4% not very attractive.
I'm not a great investor, but even this result is better than sitting on shrinking money values.

Not also a lesson from my life, that all the scary moments which result in panic sell offs eventually look like little more than notches.
Never sell in such panic moments, but always looks to buy, either than or when the dust has settled. I learnt my first lesson in October 1987 when I did a partial sell off (to me credit, it was only a partial one!) but within a year or so, prices were back to normal and eventually 1987 looks like a non-event.

The risk is that one will meet a three-day week or 1929 situation when prices can fall 75% - but even then they recovered.

Arb.

[Dod101]

With risk and tax free 4% cash ISAs available does this change one’s view on a HYP, and if it doesn’t why on a ‘good company’ does the share price stay low enough for the HY to continue (the share price goes up the yeald comes down).

I am not a HYPer but with inflation running at about 10% what makes a 4% income risk free? HYPers or even just income investors tend not to be very adventurous investors but would you rather take a guaranteed loss rather than a chance of some real profit?

4% is not a decent income, only if you compare it to recent virtually nil income does it even enter my consciousness.

Ask your question the other way. Why put money on deposit at 4% when you could buy Legal & General and get 8% or so and the chance of some capital gain on top?

Dod

[G3lc]

If L&G is so good why hasn’t it been bought up to a lower dividend?

[funduffer]

With risk and tax free 4% cash ISAs available does this change one’s view on a HYP, and if it doesn’t why on a ‘good company’ does the share price stay low enough for the HY to continue (the share price goes up the yeald comes down).

I am not a HYPer but with inflation running at about 10% what makes a 4% income risk free? HYPers or even just income investors tend not to be very adventurous investors but would you rather take a guaranteed loss rather than a chance of some real profit?

4% is not a decent income, only if you compare it to recent virtually nil income does it even enter my consciousness.

Ask your question the other way. Why put money on deposit at 4% when you could buy Legal & General and get 8% or so and the chance of some capital gain on top?

Dod

I agree that inflation is very important in this discussion.

4% bank interest is probably what you could get by locking up your money for a year or two. Income fixed, capital fixed.

With dividends, you would expect that over a few years, both capital and dividends would broadly keep up with inflation. Equities have usually been a reasonably good hedge against inflation in the past. Often companies make higher profits in inflationary times, sometimes by 'greedflation' - putting up prices by more than the inflation rate. The excess profits are going to eventually filter through as higher dividends, or higher share prices. We are seeing a lot of companies doing share buybacks, which is probably a sign of this.

...but I think this is a fair question to ask.

My HYP and IT portfolios are both yielding in excess of 5% and I have to ask myself if the risk premium of 1%+ is worth it!

FD

[moorfield]

With risk and tax free 4% cash ISAs available does this change one’s view on a HYP, and if it doesn’t why on a ‘good company’ does the share price stay low enough for the HY to continue (the share price goes up the yeald comes down).

As an aside, the UK base rate was 6% in November 2000, and a certain investor we know well here returned 4.6% income on his portfolio in the following year. Make of that what you will!

[G3lc]

Also remember the ISA money is tax free, and successive governments are and will hit dividend income harder, don’t get me wrong, I have been an investor in the HYP principle since the Fool days, and have done very well from it, but what I am suggesting is should we be open minded and look at how to proceed in a changing world.

[Dod101]

Also remember the ISA money is tax free, and successive governments are and will hit dividend income harder, don’t get me wrong, I have been an investor in the HYP principle since the Fool days, and have done very well from it, but what I am suggesting is should we be open minded and look at how to proceed in a changing world.

We must always be open minded. Things do not stand still for long.

Dod

[moorfield]

... but what I am suggesting is should we be open minded and look at how to proceed in a changing world.

Or, alternatively, you could not be tempted to meddle, and try not to let press comment on your companies influence you, and not worry about the fluctuations in the underlying capital value of your shares that are certain to occur. Those who think they know etc. etc.

I can't remember who wrote that, it will come to me...

[Padders72]

If L&G is so good why hasn’t it been bought up to a lower dividend?

Wrong thread?

[idpickering]

I am not a HYPer but with inflation running at about 10% what makes a 4% income risk free? HYPers or even just income investors tend not to be very adventurous investors but would you rather take a guaranteed loss rather than a chance of some real profit?

4% is not a decent income, only if you compare it to recent virtually nil income does it even enter my consciousness.

Ask your question the other way. Why put money on deposit at 4% when you could buy Legal & General and get 8% or so and the chance of some capital gain on top?

Dod

Well said Dod. Hence my having bought more LGEN last week at a higher yield than of previously. The yield might be higher on Monday, who knows, but I'm not going to stress about that or over think things. KISS and all that.

Ian.

[Dod101]

If L&G is so good why hasn’t it been bought up to a lower dividend?

Need to ask Mr Market but just look at its dividend record if you do not think it is very good. No one requires you to buy it so go off and find something better.

Dod

[G3lc]

Perhaps the market noted the record deaths in January they mentioned recently - having said that I have a big chunk of L&G and will buy some more if the price drops to under 2.19 when I last topped up in October 22.

[Gerry557]

With risk and tax free 4% cash ISAs available does this change one’s view on a HYP, and if it doesn’t why on a ‘good company’ does the share price stay low enough for the HY to continue (the share price goes up the yeald comes down).

I would expect dividends to rise over time albeit not guaranteed. It depends on when you might need the cash. For a house purchase in the next 12m then yep a cash ISA depending on personal tax affairs.

Longer term like to provide an income similar to a pension then into high yield shares. As to the yield it varies on the dividend amount and the SP. The SP changes every second during trading hours and there are occasions when news or noise causes the SP to fall.

It generally these times that you can buy with bigger yields and some capital increase once the noise abates and the SP returns to more normal levels.

For mature companies the rising dividend normally leads to a rising SP.

[G3lc]

Typo, should have said 2.09

[cshfool2]

If L&G is so good why hasn’t it been bought up to a lower dividend?

Possibly because the LGEN share price is going down? I think it was Warren that said :

" The stock market is the only place that when there's a sale on, everyone rushes for the exit."

or similar.

csh

[Charlottesquare]

Yes Arb I agree, and this has been and probably is still my view, but with the high interest rates and hard times for the economy in the medium to long term I wonder if my HYP needs to be questioned with this new situation we find ourselves in, but quite how I am at a loss to know.

The catch, like comedy, is timing. A lot of shares make any gain they may be going to make over very few trading days in the year, 90% of the time they tend to grumble along with small gains small losses but in say 30 days spread over the year both the larger gains (and losses) tend to occur, the catch is knowing which 30 days this will be.

At the end of the day price really only matters when buying and selling, in between low prices are a bonus as the dividends buy more. If pension planning maybe one needs to be more careful if considering an imminent total encashment, not being caught on the downside, but if one if considering say a slow encashment over years ( I expect to mainly loot mine from age 66 to age 75) really one just needs to keep liquid say one year or two years worth and that, plus dividends received, ought to see you reasonably through.

I do sometimes think about this but as I have three years until I do start drawing and up to nine years drawing then for me staying invested in decent companies/ITs seems more sensible.