My Failing Debt recycling strategy using..... HVST

I do own some of these LICs, but decided this will not work well for a debt recycling strategy as the yields on these LICs are much lower

 

Are you aware of the dividend trap?

Beware of the dividend trap - how you can recognize and avoid them

 

Yes, under certain circumstances.

See
Tax Tip 71: Deduction of interest after assets sold Tax Tip 71: Deduction of interest after assets sold

 

its not similar to VHY why though in that it 'harvests' dividends? you can't expect a 11% or whatever dividend it is, where they buy pre and sell post div, without loss of capital unless its a really strong market (imo). don't they (betashares) even suggest you DRP a portion to keep the capital up (i haven't looked at it in fair while).

 

Sorry @Jess Peletier. But 2-3 years is hardly forever in share investing. It's nothing really. One needs to look at at lease 10+ years horizon (better 15-30yrs). 2-3 years of performance is a too short timeframe.

 

Do you need access to the capital in those years?

 

No I will not need the capital now, however like all home loans this equity loan will will also become P/I once the I/O period runs out. So at that point if my dividends from HVST cannot cover the repayments, I will have to sell up HVST in bits and close my debt recycling chapter,

 

No! I will be surprised if any financial institution suggested, you keep buying into our funds through DRP or with your own cash so your capital stays at the same level. I'd have thought as a money manager that'd be shooting yourself in the foot.

 

@SouthBoy In that case when time comes I'd rather consider selling property and keeping the shares (if cashflow is going to be a problem after I/O converts to P/I).

 

That's providing I still consider those shares a worthwhile investment at that point.

 

I’m not a great fan of the product myself but be sure to compare “price + dividends + franking credits” for a more accurate picture. If nothing else the following might be helpful in understanding the product better before making any decision:

Do dividend harvesting strategies stack up?

https://www.betashares.com.au/wp-content/uploads/2017/06/Revisting_HVST_Strategy_final.pdf

 

I understand that, but when something has been falling for 3 years, I'd want to see it changing that trend before buying. Same as property, there are cycles that will work for you or against you.

When you buy a product that's spiralling down you are buying something that will give you pretty much an instant loss of capital. What's the point of that, when you can buy something that's going up?

 

but this is concentrated mainly in the 5 banks so you not diversifying, you buying 5 business in the same industry that not spreading your risk, so if this industry get a hit like now all 5 of them will perform badly.

you need to know what make up the EFTs and LICs

 

The thing is you don't know whether it'll continue going up or down .

 

The odds of that changing direction the day you buy is extremely low. Just sayin'.

 

I don't think doubling down on a dud with DRP would be my direction.

 

They do have a history of growing however.

I looked at the yield chasing ETFs a while back and came to the conclusion they are basically duds and all too likely to underperform longer term. From memory hvst was the one I liked least of all.

You can either stay the course, move the capital to other equities or give up and repay the loan. All options have a pill to swallow you need to accept that. Question is was debt recycling a poor idea or poorly executed

 

Thanks for that. Reading the HVST strategy doc @S1mon was spot on. On page 13 they seem to imply, since we expect the unit price to go down, doing a 50% DRP will ensure capital preservation. How weird is that?

 

If i get some time I will take a look at this product. A harvesting product just reeks to me and long run I cant see any risk adjusted outperformance of the index, but feeling for the poster here.

One thing I'd like to add is that I think that in general debt recycling carries far more risk than those that promote it might be aware, or are prepared to admit. How many clients are going to stick with it through a decade long bear market?

 

Love your avatar, always cracks me up, my dog does this...LOL