As most of you know I have a series of investing goals that I look to achieve over the course of each year.
These I use to assess my performance periodically throughout the year (see, for instance, my Q1 review in April).
These goals are regularly tweaked and changed as appropriate. Sometimes this is because they have been achieved already (great). Other times it is because I want to focus on a new specific goal (keep aiming high). And on other occasions it is because the goals don't quite seem fit for purpose (oh dear).
This current adjustment is due to the last of those reasons. Not being fit for purpose.
How My Yield Goal Stands NowCurrently one of my goals reads:
Retain a portfolio dividend yield of more than 4%.Now this is all well and good. But something I forgot about when thinking up that goal (which has been in place since the origins of this blog) is that as the capital value of my portfolio grows. My yield will--necessarily--drop.
However, what I don't want is to be chasing higher yield and higher risk companies just in order to achieve this goal. I want my portfolio to be a healthy mix of high yield and low growth companies (such as my recent purchase in National Grid and Royal Dutch Shell) and low yield and high growth.
As a result, I need a more intelligent and dynamic yield goal for my portfolio.
My New Proposed Yield GoalSo what should I do with this goal? Drop it altogether? Maybe. But for now, here is my new proposal:
Retain a portfolio yield of more than 1.25 times the FTSE 100 yield.My particular comparison will be the HSBC FTSE 100 Class C Income ETF and its 12 month trailing gross yield (it can be found in the factsheet from their website). It is the FTSE 100 tracker I currently also have in my portfolio.
Now as it stands the yield is 3.18%. This means my target yield for my portfolio should be 3.975% or more (coincidentally around my current 4% target!).
Being a 12 month trailing yield this means that if suddenly the FTSE 100 price drops (and the immediate yield thus goes up) any sudden increases will be slowly reflected in the FTSE 100 yield figure I am using.
As a result, I should have a reasonable amount of time to adjust my portfolio accordingly to keep roughly in line with this target.
What Do You Think?
Do you think this new goal is a more appropriate replacement for my previous one? Can you think of a better one?
* That is the UK if you're not familiar with that particular bit of slang. Also, I will take this footnote as an opportunity to apologise to Justin Timberlake for the poor play on words in the title. I couldn't help it. Please don't sue me.
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[Creative Commons image reproduced from Flickr user Metro Centric]