This is no easy time to be a passive investor. Sluggishness and sloth are on the run, hounded by the January urge to FIX EVERYTHING NOW! Gym membership is soaring, joggers are pounding the streets, and the magazines are touting 10 easy steps to a faster, fitter, slimmer you.
Well, you won’t find any of that nonsense here. Instead, let’s kick back down a gear with the world debut of the Slow & Steady passive investment portfolio.
The Slow & Steady portfolio is a model portfolio for Monevator that aims to illustrate how new private investors can overcome some of the difficulties associated with passive investing in the UK. In particular, we’ll use the portfolio to offer clear strategies for investing relatively modest sums without incurring injurious costs.
I’ll report back periodically on the portfolio’s performance, and hopefully it will develop into a useful long-term project.
Note: This is just an exercise. It’s no more than my own response to the practicalities of passive investing in the UK, according to the assumptions laid out below. The Slow & Steady portfolio is not intended as a real-world solution to any individual’s investing needs (including mine). You can see an archive of all the posts in this model portfolio series, including the latest updates.
No model portfolio would be complete without a set of assumptions to make it dance. Here are mine:
- Time horizon: 20 years.
- Initial contribution: £3,000 lump sum.
- Regular contribution: £750 per quarter.
- Investment vehicle: Index funds only. No trading fees incurred. ETF/Vanguard trading fees are prohibitive at this level of contribution.
- Fund selection: Index funds are chosen on the basis of availability to UK retail investors on an execution-only basis. The cost of the portfolio will be kept as low as possible by choosing funds with the lowest Total Expense Ratio (TER) available without paying trading fees.
Each fund will track a benchmark index that is appropriate to its role in the portfolio’s overall asset allocation.
- Asset allocation: The portfolio will not cover every asset class due to its relatively small size and the lack of suitable tracker products available. The core of the portfolio is invested in UK equities and developed world equities.
The Developed World ex-UK allocation is split into four separate funds because a single, suitable fund is not available. Further explanation here.
Emerging markets are included for additional geographic diversification and as an expected returns booster. UK Gilts should help to diversify the equity risk inherent in the portfolio.
The 80% allocation to equity should be considered aggressive and is a reflection of the long time horizon and my personal risk tolerance. The allocation to equity will be adjusted as the time horizon shrinks.
- Purchases: All funds can be purchased from TD Direct Investing or iWeb.
- Rebalancing: the portfolio will be roughly rebalanced to the target asset allocations whenever new money is added.
- Tax: The portfolio is assumed to be held in a tax-sheltered stocks and shares ISA. Fund ISAs from Interactive Investor are fee-free.
- Dividends: All funds chosen are accumulation funds. Accumulation funds automatically reinvest dividends back into the fund (in contrast to income funds which distribute dividends back to the investor).
- Performance: I shall report back on the portfolio’s performance once per quarter.
The Slow & Steady passive portfolio
Here’s the portfolio mix that these goals and assumptions have delivered:
UK equity: 20%
HSBC FTSE All Share Index – TER 0.27%
Fund identifier: GB0000438233
Initial purchase: £600
Buy 173.31 units @ 346.20p
Developed World ex UK equity: 50%
Split between four funds covering North America, Europe, the developed Pacific and Japan.
North American equity: 27.5%
HSBC American Index – TER 0.28%
Fund identifier: GB0000470418
Initial purchase: £825
Buy 439.77 units @ 187.6p
European equity ex UK: 12.5%
HSBC European Index – TER 0.37%
Fund identifier: GB0000469071
Initial purchase: £375
Buy 77.4154 units @ 484.4p
Japanese equity: 5%
HSBC Japan Index – TER 0.28%
Fund identifier: GB0000150374
Initial purchase: £150
Buy 222.7171 units @ 67.35p
Pacific equity ex Japan: 5%
HSBC Pacific Index – TER 0.37%
Fund identifier: GB0000150713
Initial purchase: £150
Buy 60.88 units @ 246.4p
Emerging market equity: 10%
Legal & General Global Emerging Markets Index Fund – TER 0.99%
Fund identifier: GB00B4MBFN60
Initial purchase: £300
Buy 557.7245 units @ 53.79p
UK gilts: 20%
L&G All Stocks Gilt Index Trust – TER 0.25%
Fund identifier: GB0002051406
Initial purchase: £600
Buy 379.03 units @ 158.3p
Total fund purchases: 7
Total cost: £3,000
Trading cost: £0
Right, that’s all there is to the Slow & Steady portfolio for now. We’ll check back in a few months time to see how things are going.
Take it steady,