Sunday 18 December 2011

A Random Walk though 'Income' Portfolios

You may have heard of Burton Malkiel as the author of the best-selling book 'A Random Walk Down Wall Street', popularising the Random Walk theory of the stock market - the basic message being that the markets are (pretty) random and trying to forecast them is pointless. The answer to this randomness lies in diversifying your portfolio between different asset classes.

In a new article in the Wall Street Journal he sets out his thoughts on portfolio mix for the future.

Tuesday 13 December 2011

Portfolio Buy: Inmarsat (LSE:ISAT)

As always, I continue to be on the lookout for good new dividend-paying shares for my High Yield Portfolio. These high-yield shares form Level 6 on the DIY Income Investor Income Pyramid).

Inmarsat plc is a provider of global mobile satellite communications services, providing data and voice connectivity to end users worldwide.

Thursday 8 December 2011

10% Yield!

A 10% yield is a big yield for any small investor. It is also too much and indicates that the market perceives significant risk. But locking in a 10% yield for 10 years is an attractive option.

So, how risky is 'risky'?

Wednesday 7 December 2011

Prepare for Retirement!

Preparing for retirement should be the main long-term goal for the DIY Income Investor - preferably retiring early!

To me, 'retirement' means having the income to do what you want - but also will probably require you to live 'sensibly' (aka modestly).

However - in the UK at least - the trend is going the other way, with retirement becoming more and more fraught with financial difficulties.

Tuesday 6 December 2011

Portfolio Buy: Morgan Sindall (LSE:MGNS)

In my continuing search for good new dividend-paying shares for my High Yield Portfolio (Level 6 on the DIY Income Investor Income Pyramid), I have recently purchased Morgan Sindall Group. MGNS is in the UK construction sector, specialising in infrastructure, affordable housing, 'fit out' (for offices and shops), urban regeneration and property investments.

Sunday 27 November 2011

Plan for a Longer Retirement

The ultimate goal for a DIY Income Investor is a comfortable retirement, with your income from savings and investments supplementing any pensions you may have built up.

Well here is an incredible statistic: over the last 4 years in the UK life expectancy has increased by one year. Something similar must be happening in all developed countries.

And this looks like a continuing trend, with the implication that your retirement could be longer than you think.

Thursday 24 November 2011

Portfolio Target: Just REIT!

In a recent post we saw that - in the US - REITs (Real Estate Investment Trusts) had been a more volatile asset class, but have had a higher return (since the late 90s) than dividend shares, shares in general or government bonds.

So, looking at the UK market, are there any likely REIT targets for the DIY Income Investor portfolio?

Tuesday 22 November 2011

Yields and Volatility of Different US Asset Classes

The DIY Income Investor approach involves combining different asset classes, including cash, dividend shares, government bonds, commercial bonds and other similar securities (such as preference shares).

It is instructive to look at how these different asset classes have performed in the past - over the peaks and troughs of the economic cycles. How far can the historical record help us navigate the investment 'snakes and ladders' environment?

Monday 21 November 2011

DIY Financial Planning

This blog strongly encourages a DIY approach to personal finance and we are always looking for useful resources.

Here is an example of a financial advisor setting out the basics of a DIY approach to financial planning in a free eBook - something that is unusual, to say the least.

Friday 18 November 2011

S&P 500: Historical Downward Trend in Dividend Payout Ratio

Income in the form of dividends is an important feature of the DIY Income Investor approach. The Dividend Payout Ratio is the share of net earnings that is paid out as dividends. This metric is used more in the US than in the UK, where we tend to talk about the 'dividend cover' (the ratio of net earnings to dividend payments). Both are an indication of the company's willingness to pay dividends.

However, there is some bad news for US investors on the trend in Dividend Payout Ratio (although there may be a silver lining to this particular cloud).

Thursday 17 November 2011

Over Half of UK Families Have Unsecured Debt

To even start being DIY Income Investor (i.e. Level 1 on the Income Pyramid) you must first pay off debt, particularly unsecured debt, such as credit and store card debt, bank loans and overdrafts. The reason is simple - it costs more than you are likely to make by savings and investing.

Yet over half of UK families have unsecured debt, owing an average of £10,604, with the average debt increasing with the number of children in the household.

Why DIY? UK Banks Give Bad Advice

The DIY Income Investor approach is to usually spurn financial advisers, to do your own homework and make your own decisions.  The main reason for this is that most sources of financial advice are usually self-interested and will help you to in a way that benefits them, rather than you.

Which? - the UK consumer watchdog - has discoved that High Street banks are providing 'shockingly' poor investing advice to inexperienced older savers - with nine in ten High Street bank advisers failing an undercover investigation.

Wednesday 9 November 2011

Portfolio Buy: Resolution (LSE:RSL)

 As a DIY Income Investor, I am looking for a good yield. One source of this is a high-yield share (Level 6 on the Income Pyramid), which ideally should have a sustainable market model, based on sound corporate management.

A quick look at the performance of the FTSE 100 constituent companies threw up this opportunity with (as of today) a dividend yield of over 7% and a p/e of under 3!

Tuesday 8 November 2011

Portfolio Update: Profit Taking - GSK & VOD

The DIY Income Investor approach is generally 'buy and hold'. However, there are times when it is OK to sell (and there are times when you need to sell).

My mental image of the stock market is similar to one of those fairground carousels with ornately carved horses riding up-and-down as well as round-and-round; each horse follows a cycle of being high then falling, being low then rising. My strategy is to ride the horse to the top and then shift to one that is beginning to rise. What goes around comes around. Pretty simplistic eh!

So what encouraged me to sell this time?

Monday 7 November 2011

New E-Book Edition: Updated and Expanded

The DIY Income Investor e-Book 'Building Wealth as a DIY Income Investor'  is now available on the e-book page above. It brings together additional material from the last two months of posts and has been restructured to organise the information (hopefully!) into a useful guide.

And it's free (although contributions would be gratefully received)! Do let me know if you have any comments or suggestions about how to improve it.

Sunday 6 November 2011

Carry on Balancing (Government Bonds and Equities)!

The DIY Income Investor approach involves diversification and balancing of asset classes, including cash, bonds (both Government and Corporate) and equities.

The good news (at least in the US) is that two of these asset classes are increasingly uncorrelated. In other words, they don't move in the same direction. This means that together they provide for a more robust portfolio.

Wednesday 2 November 2011

Portfolio Review: Legal & General (LSE:LGEN)

High-yield dividend shares form part of Level 6 of the DIY Income Investor Income Pyramid. As the fortunes of these companies change, so does their eligibility for my portfolio.  So it is worth reviewing the portfolio selection, at least annually.

So, given the upheavals in the financial world, how is Legal & General (L&G) doing?

Tuesday 1 November 2011

Basic Decision Flowchart for a DIY Income Investor

As a quick introduction to the DIY Income Investor approach I have put together a basic flowchart that (I hope) summarises the key decision points and options. The chart also shows the links to the Income Pyramid 'Levels' - which are in effect different asset classes, in (approximate) increasing order of risk.

Saturday 29 October 2011

10 Rules of Financial Safety

Harry Browne was a US personal finance commentator and advisor. He is particularly well-known for his 'permanent portfolio' concept (although this is not a model I agree with totally!). One of his famous observations is: “The best kept secret in the investing world: Almost nothing turns out as expected.”

He came up with  his 16 Rules of Financial Safety, which incorporate a lot of common sense. A couple of these are not directly relevant to a DIY Income Investor, so I'll try to boil these down to just 10 rules [my few additions are in square brackets].

Tuesday 25 October 2011

Portfolio Review: Smiths News (LSE:NWS)

High-yield dividend shares form part of Level 6 of the DIY Income Investor Income Pyramid. As the fortunes of these companies change, so does their eligibility for my portfolio.  So it is worth reviewing the portfolio selection, at least annually.

So how is Smiths News doing?

Sunday 23 October 2011

Funny Money: Earnings vs Net Worth

Money's a funny thing - the more you look at it, the more elusive the concept of 'money' becomes. Sure, you can pull out banknotes and change, and that is 'money'. But most 'money' is not this 'cash in circulation'; it's numbers on computers. And the way money is created is even stranger - when a bank writes a debt (by lending) it creates money out of thin air. (Which is how we all got into this mess...)

However, to get back to our theme, effective money management means thinking about money in the 'right' way. Effectively, if you have any money (in your pocket, or in the bank) it is basically because you haven't spent it yet. So one way of thinking about money is deferred expenditure.

Monday 17 October 2011

Chopped! -13% of UK Dividend Payers Cut Their Dividends

Although at the DIY Income Investor we are keen on investing in high-yield dividend shares - as Level 6 of the Income Pyramid - this type of asset is not without its risks. The key danger is, of course that the company reduces or even stops paying a dividend, as this usually results in both a loss of income and a fall in the price of the share (meaning a capital loss, if you sell).

Well, in the second quarter of 2011 nearly 13% of dividend-payers on the London Stock Exchange did just that!

Friday 14 October 2011

UK Millionaires: How They Earned It and How They Invest It

How did the UK's millionaires earn their millions - and how do they invest? Perhaps the example of these successful people can give us some ideas on getting richer?

Tuesday 11 October 2011

Portfolio Buy: BM Savings 5-year 4.5% Fixed-Rate Bond (Postal)

One of my fixed-rate savings bonds has recently matured.  Investing cash for a fixed period in return for a high return is Level 3 of the DIY Income Investor Income Pyramid. As part of the management of the portfolio, it is necessary to occasionally 'roll over' these savings accounts as they come to the end of their term, as inevitably the bank tries to put the money in a low-interest account and hopes you won't do anything about it!

However, in the UK it's getting harder to find a good (temporary) home for your money...

Saturday 8 October 2011

5 Reasons to Pay Off Your Mortgage

As part of the Level 1 of the DIY Income Investor 'Income Pyramid' I encourage people to pay off their mortgages before embarking on 'serious' investing.

Not everyone agrees, so I thought I should set out the five most convincing reasons I can come up with to justify this position.

Thursday 6 October 2011

Yield Convergence: US Dividend Shares & Treasury Bonds

The yield on dividend-paying US stocks is now at its highest level relative to US government bond interest rates in nearly 50 years. Yields from the two asset classes have now converged.

Is this a sign that the bear market is biting hard? Should this affect our DIY Income Investor strategy?

Friday 30 September 2011

The 'Dividend Puzzle': Dividends, Earnings and Income

We like dividend shares at the DIY Income Investor - as described here and here. But how much evidence is there for a relationship between dividend yield and total shareholder return?

Until 2003, the economics 'establishment' believed that there was little relationship between a company's dividend level and its future earnings (and therefore the value of the share). Since then a lot of evidence has emerged to support the existence of such a relationship - but it does not completely answer this 'dividend puzzle'.

Monday 26 September 2011

Review Hundreds of Personal Finance Books!

There are hundreds of books about personal finance and many of them are likely to have some insight or new technique that can improve our approach to money management and investing. But how can you work your way through them without spending a lot of time and money - and how can you separate the grains of truth from the chaff of puffery?

Well, (for once on the DIY Income Investor) you don't have to do it all yourself - someone's already done the hard work and summarised the key ideas. Now you can find the books that look like they will really interest you.

Saturday 24 September 2011

10 More Tips for Income Investing

In the past I have suggested 10 'rules' for income investing and 10 steps to financial nirvana plus 10 resolutions for the new financial year.

So, continuing my theme of decaphilism (if that word even exists) here are 10 distilled tips that might be useful if you are looking for new ideas to improve your income investing.

Wednesday 21 September 2011

Are Dividend Shares Better Than Bonds/Gilts?

Some investors in high-yield share portfolios ('HYPers') won't look at bonds or other fixed-return investments. Is that rational? Here at the DIY Income Investor we like a mix - Level 5 (Gilts), Level 6 (HYP) and Level 7 (Commercial Bond) on the Income Pyramid.

Who is right? Should you put your money on the fixed-return hare or the dividend tortiose  to win?

Understanding Yield

I came across an interesting article on yield by John Hussman (written in 1998) that set me thinking that most of us (me included) haven't thought deeply enough about yield and what it means for our investment strategy.

Monday 19 September 2011

PIBs For High Returns - But With Risk (UK)

I have examined PIBS as a potential investment in a previous post and subsquently bought Nationwide PIBS (Permanent Interest-Bearing Shares), which at the time were yielding 7.7%. PIBS are special shares issued by building societies (similar to US Savings & Loan banks) that pay a fixed rate of interest. They cannot (usually) be sold back to the society but can be bought and sold on the stock exchange, which means the price varies.

A PIBS is similar in character to a Corporate Bond and therefore forms part of my Level 7 holdings on the DIY Income Investor Income Pyramid - the most risky tranche of investments.

The yields on PIBS are attractive - but there are the risks and you will need to tread carefully and do your research. A bit like rock climbing - exhilarating but potentially dangerous!

Sunday 18 September 2011

Two in Three Americans Don't Have an Emergency Fund of $1000

I can't remember NOT having any savings, although at times it wasn't much - with even the odd temporary overdraft. But then, I'm getting on - and the culture of saving seems to be dying out.

One statistic that caught my eye recently was that 64% of Americans don't have $1,000 in a savings account to cover emergency expenses. That's nearly two-thirds of the population surviving between paychecks - and in a county with notoriously expensive healthcare.

Friday 9 September 2011

75% of US Shares Lose Value

According to research on the US share market (as represented by the University of Chicago's CRSP total equity market database), between 1980 and 2008, three-quarters of shares lost value; all the market gain (of 10.4%) was due to just 25% of the shares. The study goes a long way toward explaining why most investors and fund managers fail to beat the market average.

So, if you had been in a market tracker you would have made the average market gain. However, if you could have identified those 25% of 'superstocks' (and avoided the 'losers') you would have done a lot better!

Tuesday 6 September 2011

Are You an Investor or a Speculator?

Business legend John Bogle (who popularised low-cost index funds) argues that this is the very first question you should ask yourself. According to Mr. Bogle, that single distinction makes all the difference in investment returns over a lifetime. True investors - those who do not try to time the market - take home most of the rewards of the market.

Monday 5 September 2011

How To Sit On Your Hands

Not literally, of course - although that would help to keep you out of trouble - but a lot of the time for a DIY Income Investor there is not a lot to do. And, what is more, it is usually a good thing to do less trading rather than more, as studies have shown that over-trading leads to poor results.

So, figuratively sitting on your (trading) hands is an activity that you will need to learn to do, although it might seem a little boring..

Friday 2 September 2011

HYP Watch List: Thomas Cook (TCG)

As always, I continue to be on the lookout for good new dividend-paying shares for my High Yield Portfolio. These high-yield shares form Level 6 on the DIY Income Investor Income Pyramid).

As I have just returned from holiday, it seemed appropriate to revisit Thomas Cook, the famous FTSE 250 travel company. Does it fit the bill - or is it potentially a 'holiday from hell'?

Wednesday 17 August 2011

Keeping Track of Your Portfolio

If you don't know where you are, financially speaking, it is difficult to make sensible choices. You need to keep an up-to-date idea of your expenditure, your income and the performance of your savings and investments.

Sooner or later you will want to develop tools to keep track of your portfolio of savings and investments, including purchase price and date, yield and - the most important bit of information - how much income they are producing.

Monday 15 August 2011

Watch Your Cash Flow!

In the financial press, everyone seems to be is shouting "Buy, buy, buy"; so (as usual) you need to be a bit contrary and cautious. One factor you must always consider is: do I have enough ready cash for unexpected expenditure?
Just as businesses need to watch cash flow (or the balance between current expenditure and income), so does the DIY Income Investor.

Monday 8 August 2011

Keep Calm and Carry On (Earning Passive Income)

It is all 'doom and gloom' in the financial markets. Mr Market is having one of his manic depressive phases, where anything can happen. The computer 'trading robots' - which make up the bulk of trading - are magnifying the swings in sentiment.

But here's the thing: a global financial meltdown is just not going to happen. We may be entering a period of great uncertainty, coupled with high-ish inflation but for DIY Income Investors, the best thing to do might be - do nothing!

As the war-time poster said: Keep Calm and Carry On.

Tuesday 2 August 2011

HYP Watch List: Drax (DRX)

Photo: J Brennan
I continue to be on the lookout for good new dividend-paying shares for my High Yield Portfolio. These high-yield shares form Level 6 on the DIY Income Investor Income Pyramid).
Drax is a FTSE 350 company and has a 6.2% yield. It produces 7% of all UK electricity at its coal-powered generation station in Selby, North Yorkshire and is the biggest such power station in western Europe.

Money and the Queen Bee

How do you think about money? Take a few seconds to sum up your thoughts on money. Thought comes before action and the way we visualise money will surely have a fundamental impact on our approach to saving and investing.

I was struggling recently to describe my approach and what popped into my head was...bees!

Saturday 23 July 2011

Investing in Commercial Property: 8% Yield and 20% Discount!

Commercial property is in the doldrums in the UK. But in time this is sure to change, as the economy recovers. OK, this won't be tomorrow but could this be a medium-term opportunity for the DIY Income Investor?
Now, I'm not suggesting buying property - that would be too much like hard work, as well as being risky. But is there another way to buy in to property - and one route currently offers an 8% yield and a 20% discount. Interested?

Wednesday 20 July 2011

HYP Watch List: Beazley (BEZ)

I'm always on the lookout for good new dividend-paying shares for my HYP portfolio (Level 6 on the DIY Income Investor Income Pyramid). 

Beazley is a non-life insurer that last year put in a strong underwriting performance and was able to pay a special dividend on top of its full year dividend. The dividend yield (historic and forecast, in late July 2010) is over 6%, according to Morning Star.

Wednesday 13 July 2011

Guaranteed 9% Yield!

Don't you hate those ads! They couldn't possibly be true, could they?

Well, I might be exaggerating ever-so-slightly here, but - yes dear reader, it is shockingly true. Here are not just one but several securities that have a yield-to-maturity of around 9% in an institution that is effectively owned by the British tax-payer. How safe can you get, and how could you find a bigger return? Is this buried treasure or Fool's Gold?

Monday 11 July 2011

Discovering Preference Shares

I don't yet hold any preference shares in the DIY Income Investor porfolio but the high yields on offer mean that this is a type of security that might be worth considering.
Preference shares (or 'prefs') are a bit obscure but are quoted on the LSE (and on other exchanges as well) and are within reach of ordinary investors. Let's find out more...

Sunday 10 July 2011

10 'Rules' of DIY Income Investing

Are there 10 'rules' to follow to become a DIY Income Investor? Are there even any 'rules' at all?

Well, maybe - this is my best shot at boiling it down to the essentials: feel free to challenge my list!

Thursday 7 July 2011

More Evidence for Income Investing

This blog obviously has a pretty big bias towards income investing. Am I playing my cards right? Or building a house of cards?

In previous posts I have provided some supporting evidence, particularly in relation to investing in high dividend shares.

Here's some more...

High Yield or Dividend Growth?

As a DIY Income Investor, should you buy a security that yields a flat 6% (such as a commercial bond or preference share) or should you buy a dividend-growth share that yields 3% but with a dividend growing at 7.5% a year?

Jam today or jam tomorrow?

Monday 4 July 2011

Financial Freedom is Measured in Years

Occasionally, you read an article that sums up an idea so effectively that you can only marvel at the craftmanship of the writer. Such a post is "Financial Wealth - It's Time Not Money" by Alan Roth, which I encourage you to look at.

His proposition successfully combines several of the underlying principles that underlay the DIY Income Investor approach: