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Direct investment and risk
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EdInvestor
Posts: 15,749 Forumite
It is often said by those selling funds, unit trusts and other pooled investments that they are much less risky than buying individual shares.
So I just thought I'd draw Moneysavers' attention to a method of investing directly in shares where risks are reduced, performance is high and charges are almost nil.
High Yield Portfolio approach
Your basic dividend yield on an HYP portfolio bought now would be about 5%.The strategy has so far beaten low cost trackers, cash and inflation over 5 years.It's an easy strategy for a beginner because all the work is in choosing the shares at the start - once you've bought them you don't have to do anything, except reinvest (or spend) the accumulated dividends once a year.
So I just thought I'd draw Moneysavers' attention to a method of investing directly in shares where risks are reduced, performance is high and charges are almost nil.
High Yield Portfolio approach
Your basic dividend yield on an HYP portfolio bought now would be about 5%.The strategy has so far beaten low cost trackers, cash and inflation over 5 years.It's an easy strategy for a beginner because all the work is in choosing the shares at the start - once you've bought them you don't have to do anything, except reinvest (or spend) the accumulated dividends once a year.

Trying to keep it simple...

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Comments
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[It is often said by those selling funds, unit trusts and other pooled investments that they are much less risky than buying individual shares.]
This reduction in risk is due the high level of diversification provided by collective investments. The High Yield portfolios described on the Motley Fool website are not diversified - they are all UK Equities.
[So I just thought I'd draw Moneysavers' attention to a method of investing directly in shares where risks are reduced, performance is high and charges are almost nil.]
The risks are higher than any portfolio I would recommend due to the lack of diversification. Performance is high, but neither fund has yet achieved a 5-year history; if Neil Woodford's opinion is important (he manages the very successful and popular High Income fund for Invesco Perpetual), then global economic factors such as unmanageable consumer debt, unemployment, and weakening household consumption, will have a disproportionately large impact upon the sorts of "high yield" UK equities selected in the portfolios. Your reference to the charges being "almost nil" is applicable only if the purchase of £75,000.00 worth of equities is made in one go; how many people have the wherewithal to do that? In reality, most investors would accumulate these sorts of portfolios over a much longer period, and this need for multiple puchases would actually increase the acquisition costs.
Finally, the Motley Fool analysis of the taxation of the dividends is misleading: they are paid net of 10% tax for all taxpayers, and this dividend comes with a 10% tax credit which reflects the corporation tax already suffered by the company itself. Higher rate taxpayers have a further 22.5% tax liability.oceanblue is a Chartered Financial Planner.
Anything posted is for discussion only. It should not be taken to represent financial advice. Different people have different needs, and what is right for one person may not be right for another. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser; he or she will be able to advise you after having found out more about your own circumstances.0 -
oceanblue wrote:Your reference to the charges being "almost nil" is applicable only if the purchase of £75,000.00 worth of equities is made in one go; how many people have the wherewithal to do that? In reality, most investors would accumulate these sorts of portfolios over a much longer period, and this need for multiple puchases would actually increase the acquisition costs.
Hi, oceanblue
At as little as £1.50 per deal ( Halifax Sharebuilder ) the dealing charges can easily be so small as to be " almost nil ", even for smaller purchases, unless you are buying in ridiculously tiny numbers.
I don't agree that the HYP lacks geographical diversification; many of the companies which pass the filter for inclusion in an HYP have considerable overseas exposure.
The philosophy behind HYP investing is that macro doesn't matter; all that matters is that the companies chosen are large cap, that they have a ( preferably very long ) history of increasing dividends, and that they have little or no debt. The most important element of all is sector diversification.
My own opinion FWIW is that the ideal portfolio consists of a combination of an HYP and a selection of specialist funds, chosen to reflect the investor's appetite for risk.0 -
This reduction in risk is due the high level of diversification provided by collective investments. The High Yield portfolios described on the Motley Fool website are not diversified - they are all UK Equities.
Some of the shares would be considered higher risk as well. Although with that risk comes higher potential (both ways). That has been reflected in the performance shown though. I would like to have seen the 1997-2002 performance figures (i know you cant in the example shown).
The problem with a lot of example like this is that the best examples get shown on sites as what happens when you get it right. How many other people would have selected those shares? How many would have plumped for Marconi in the past or other similar (erm, not sure there are many that similar to Marconi).
Winning examples always tend to get highlighted. Poor examples do not.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
Surely, the important thing is to decide which area/type of investing suits you and then to devote your energies into "specialising".
Of course, investing in individual company shares can be highly rewarding - if you are prepared to put a lot of time and effort into research.
A long time ago I decided to concentrate on collectives as, quite frankly, I found these much less work when it came to research. Also, one must always bear in mind that the UK market will be outperformed by another major market in at least 4 out of 5 years.
Although I have, and still do, invest in individual equities, funds have made me a lot more money (and I've slept more soundly) - purely because I spend most of my investment time studying and researching these and have developed my own "system" for identifying what I consider to be the most promising going forward at any given time.
However, nothing can compensate for poor sector and/or geographic calls so trying to get these as right as you can, or at least not getting them completely wrong (which is about as much as anyone can reasonable hope for) is the most important aspect of investing, IMHO.
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dunstonh wrote:The problem with a lot of example like this is that the best examples get shown on sites as what happens when you get it right.
HYP1 was started around five years ago and HYP2 about two and a half years ago, and progress has been monitored both by Pyad and by the HYP board. There has been much discussion about the possible long-term performance. Some posters have been investing in a HYP fashion for many years and have posted their results, so it is certainly possible to get a feel for how the method has performed in the past. One of the strengths of the HYP is of course the reinvestment of dividends, which boosts returns.How many other people would have selected those shares? How many would have plumped for Marconi in the past or other similar (erm, not sure there are many that similar to Marconi).
I'm not sure that Marconi would have passed muster as an HYP share :-) but even if it had, the unfortunate HYPer who bought MONI would have had at least another 14 ( better-chosen, one hopes ) shares to cushion the blow.Winning examples always tend to get highlighted. Poor examples do not.
This used not to be the case with TMF - at least one of the strategies was a stinker and no-one denied it.0
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