Simon

First of all, welcome to the board.

Hope this question is on the right board...

Looks like it to me however you'll need to refer to other boards if you want to discuss asset allocation strategies in any depth.

First context... I'm sorry but this will be longish, but in other threads I've often read that more context is needed.

I'm hoping to retire in 10 years from now when I'm 55 (although it is very possible I'll want to/have to go the full stretch and work until I'm 65).

Whenever I take "financial risk tolerance" tests, and I've tried a few, they put me in the top 5% of all risk takers which is strange as I don't feel like a risk taker!

Context is always good. I'm also 45 and hoping to retire in 10 years time so you're in similar company. Not sure what my risk profile is but my retirement funds are currently spread across a 33 share FTSE350 HYP plus a number of pension pots which I haven't yet started to actively manage.

When I retire I plan to have a significant percentage of my income come from a HYP - potentially 30 to 50% of my total net worth will be invested in the HYP.

I'm currently investing in a passive indexing style not far from that recommended by Tim Hale. I have about 30% of my equities in a UK allocation (all in a simple/cheap FTSE All-share tracker).

You don't mention pension funds. You may want to clarify this for further context.

I'm CONSIDERING splitting my UK allocation so that 25% is in a FTSE 250 tracker and 75% is in a FTSE 100 only HYP. The idea is to start building my HYP now; to get a feel for how the income will work and how much maintenance will be required in real life. I expect to hold 10 companies in my HYP at this stage - maybe expanding to 20 when I retire and have more money to invest in this strategy. (My idea is the potential lower capital gains from the HYP are offset by over-weighting the smaller companies in the 250)

Personally I'd be aiming to grow the HYP to 20+ holdings over a period of 2 - 3 years. I wouldn't stop at 10 and then add another 10 at retirement. Diversification is too low at 10. In my opinion 20 should be the minimum you should aim for.

Q1) Do you think that starting the HYP pre-retirement is good idea? Or is it more sensible to just wait until that happy day?

Absolutely. Learn your lessons early and discover your own HYP management style which fits with your level of risk tolerance.

Q2) Assuming that I do start now, should I pick a date and buy the entire 10 company HYP on that day? Or should I buy my HYP one company at a time (draw up a short list and wait for the targets to become "cheap")? If the second option then how do I measure "cheap"? (Maybe a target P/E for example?)

One company at a time over a period of 2 - 3 years. Draw up a watchlist of the usual suspects. Take a look at the regular demo HYP posts from Gengulphus for an idea of popular candidates. Also take a look at Luniversal's 'sturdy 17' and 'doughty dozen' posts. Personally I wouldn't limit myself to just the FTSE100 but I'd also include some large cap FTSE250 candidates. Each to their own however.

For HYP you measure 'cheap' using yield. Current yield or forecast yield depending on your personal preference. I use forecast yield. Also look for a strong dividend history, low debt and good dividend cover. Diversify across sectors through regular purchases across a variety of sectors. The method proposed by Gengulphus with his demo HYP is worthwhile following if you're in any doubt.

Q3) How have others approached this and what would they do differently if they had their time again?

Depending on the likely size of your 75% of 30% you could consider splitting this into a 50/50 HYP / Basket of Income Investment Trusts. If you screw up your HYP in the early years then there's a reasonable chance that the Income ITs will have fared a little better. Once you've learned how to run the HYP you can then decide if you should switch from Income ITs fully into HYP. If you find that the HYP is too much time & effort for a return which is little different compared to the Income ITs then you can switch the other way.

Best of luck.

Degsy