Well, well, our Slow & Steady portfolio has taken a little knock back – our first in nearly a year, and our second in nearly three.
It’s worth going back to those earlier posts in the series. They help put things in perspective. This is normal sailing weather.
The market decline of the last three months has knocked just north of 3% from our portfolio. Hardly the stuff of broken dreams, especially if you haven’t been living it every day. To be honest I haven’t looked at the portfolio’s returns since last quarter’s check-in, so I’m pleasantly surprised. The snatches I’ve overheard on the news prompted visions of worse.
Some friends who know that I invest talk to me like knowing how many points the FTSE fell in the last 24-hours is useful information. I think it’s as relevant as yesterday’s weather in Helsinki.
The market has a 50-50 chance of being down on any single day, so I’d rather skip that dose of disappointment and stick to more convivial time frames. Hell, there’s a one-in-three chance the market will kick sand in your face in any given year!
Given these odds, I’d be happy to check back in five years if I didn’t have to show you what a looming trade war looks like in Metric-Centric Compello-vision™:
The Slow and Steady portfolio is Monevator’s model passive investing portfolio. It was set up at the start of 2011 with £3,000 and an extra £935 is invested every quarter into a diversified set of index funds, tilted towards equities. You can read the origin story and catch up on all the previous passive portfolio posts.
Our annualised return is still a very healthy 9.48% over seven years now. Sure it was 10.92% last time I reported and I liked that better. But if you’d offered me 9.48% seven years ago, I’d have bitten your hand off – and then reported for psychiatric treatment.
As it is, the prices we’re paying now look remarkably like the prices we paid at the end of September. We’ve only taken a few steps back.
A few other things catch the eye, apart from the Brexit Britain slow-bleed of UK equities. Conventional UK bonds (not the inflation-linked ones) were a bright spot – okay, not a bald spot – and so we caught a few crumbs from diversification’s free lunch. That is until global property forced us to choke them up again.
Property was a top performer in the portfolio a couple of years ago but it’s been our only losing asset over the last 12-months – down 8.03%. Over five years property is still up 5.84% annualised. I read a few years ago that property was a heavily overvalued asset class that wouldn’t fair well in a rising interest rate environment. So be it, I’m happy to take the pain in 7% of the portfolio, knowing that fortune will swing back, eventually.
Hey, and we know diversification is working when something is causing us pain, right?
The secret diary of T. Accumulator, aged 7 and 1/4
One thing that stands out as I look back through seven years of Slow & Steady portfolio reports is that it’s become the investment diary I would never have written on my own account.
Tracking the perihelion journeys of the asset classes is instructive. They wax, they wane. Emerging markets glow hot, then fizzle out, then catch light again. The US bubbles and boils. How long before we’re burned?
Everything we’re seeing is predicted by the physics of portfolios, although the Slow & Steady has yet to fully fall to Earth.
New transactions
Every quarter we shove another £935 into the cavernous cake hole of the capital markets. Our cash is divided between our seven funds according to our pre-determined asset allocation.
We use Larry Swedroe’s 5/25 rule to trigger rebalancing moves, but all’s quiet this quarter. We’re just topping up with new money as follows:
UK equity
Vanguard FTSE UK All-Share Index Trust – OCF 0.08%
Fund identifier: GB00B3X7QG63
New purchase: £56.10
Buy 0.294 units @ £190.61
Target allocation: 6%
Developed world ex-UK equities
Vanguard FTSE Developed World ex-UK Equity Index Fund – OCF 0.15%
Fund identifier: GB00B59G4Q73
New purchase: £336.60
Buy 1.071 units @ £314.33
Target allocation: 36%
Global small cap equities
Vanguard Global Small-Cap Index Fund – OCF 0.38%
Fund identifier: IE00B3X1NT05
New purchase: £65.45
Buy 0.243 units @ £269.92
Target allocation: 7%
Emerging market equities
iShares Emerging Markets Equity Index Fund D – OCF 0.25%
Fund identifier: GB00B84DY642
New purchase: £93.50
Buy 59.215 units @ £1.58
Target allocation: 10%
Global property
iShares Global Property Securities Equity Index Fund D – OCF 0.22%
Fund identifier: GB00B5BFJG71
New purchase: £65.45
Buy 36.16 units @ £1.81
Target allocation: 7%
UK gilts
Vanguard UK Government Bond Index – OCF 0.15%
Fund identifier: IE00B1S75374
New purchase: £261.80
Buy 1.602 units @ £163.47
Target allocation: 28%
UK index-linked gilts
Vanguard UK Inflation-Linked Gilt Index Fund – OCF 0.15%
Fund identifier: GB00B45Q9038
New purchase: £56.10
Buy 0.299 units @ £187.60
Target allocation: 6%
New investment = £935
Trading cost = £0
Platform fee = 0.25% per annum.
This model portfolio is notionally held with Charles Stanley Direct. You can use that company’s monthly investment option to invest from £50 per fund. Just cancel the option after you’ve traded if you don’t want to make the same investment next month.
Take a look at our online broker table or tool for other good platform options. Look at flat fee brokers if your ISA portfolio is worth substantially more than £25,000. The Slow & Steady portfolio is now worth over £38,000 but the fee saving isn’t juicy enough for us to push the button on the move yet.
Average portfolio OCF = 0.17%
If all this seems too much like hard work then you can buy a diversified portfolio using an all-in-one fund such as Vanguard’s LifeStrategy series.
Take it steady,
The Accumulator
Interesting. I think I’m down more like 6-7% since mid Jan, but I have more UK weighting.
In the scheme of things though, I’m aware it’s small beer. Just been looking at a graph showing peak to trough between 2007 and 2009 for various asset classes – many down more than 40%….that would be very painful. The bonds increased though, so overall my portfolio might not have taken such a huge hit.
@Vanguardfan — If you’re comparing to mid-January, then I’d imagine you’re comparing your portfolio’s peak to its current lower level. That is, you’re looking at the drawdown from its highs. Whereas @TA is simply comparing end of December to end of March, so isn’t troubled by memories of what might have been after the strong start to 2018. 🙂
Greater happiness and less regret is yet another reason to look at one’s portfolio far less often, if you’re a passive investor (and even if you’re active, depending on your strategy.)
It’s comforting to know my approach and lack of serious concern over the dip is shared, it’s nice to have found your tribe. If you read some media it sounds like the world is ending, whereas it’s just the normal life of the market.
I’m at 18% in the UK at the moment, and I’m thinking I need to reduce my exposure, and brave the currency swings and currency risk.
Well, I’m down nearly 10% since the peak. The joys of 90% international equities!
My new rule I instituted in early Jan means every time I’m over 20% ahead of my predicted CAGR (using PortfolioCharts but a little more conservative) I trim back to 10%. So I rebalanced 10% (actually 9%, it was more convenient) out of my 100% global equities into 5% Lyxor 0-5yr Gilts and 5% Gold (I thought why not, it adds diversification and what harm can 5% do me? But still not completely sure it was a good move.) I’m slowly accruing a Civil Service pension which will be about £7000 when I retire (or maybe partially retire) so with the state pension, my floor is covered and I figure I can ride the equity tiger so I don’t really need bonds. .
I’m not sure when to buy back in though. When I’m 10/20/30% below CAGR? I feel I should have a rule, rather than a whim. What do people think?
@TI. I agree in principle about not checking portfolios often, I only looked recently because of discussion on this site (!)..generally I only look in detail at year end, when I have to review to defuse CGT losses and decide on rebalancing with new ISA and SIPP transfers.
I know I’m positive compared with last March. And I also know there will come a time when I won’t be!
@brod. I am definitely a convert to having written rules. It doesn’t really matter what the rules are, but the discipline of not just thinking you have a plan, but actually writing it down and checking it every year, is very helpful. Mine are also not terribly precise (as I am also a fan of being approximately right rather than precisely wrong) but they are still helpful.
I have a pretty straight/vanilla passive portfolio not dissimilar to this one, with about 25% bonds, and I’ve never regretted the bond portion. I find it slightly bemusing why so many private investors seem so reluctant to hold bonds.
@VF – is your portfolio ETF based?
Hi all,
We are surely closer to the next recession than we are to the last recession. And there is also the small matter of a looming trade war (which may be hasten the next recession on, or may be an isolated speed bump of it’s own on the way to the next recession).
Are we in dangerous waters?
I have a Vanguard Life Strategy (60% equities) investment. I understand bonds did OK in the last crash, so the 40% bond allocation I have may work out for the best?
Thanks,
Jacob.
@Accumulator, I bought the etf version IWDP of Ishare Global Property in 2009, over the next 4 years it doubled in value. I sold it some years ago. When it was going up in value it was on fire and the best performer in my portfolio, I often wondered whenever it decided to take a dive would it have the same momentum on the way down.
@rhino, mostly funds, but ETFs in Youinvest due to platform fees.
Slightly heavily weighted towards one particular fund manager 😉
I’m after suggestions on what the fixed income component of an all ETF portfolio could look like.
Anyone happy to share?
Does anyone have any views on using ETFs for bonds? I know Jack Bogle cautions against it …..
@Tyro – as opposed to funds? or are you talking about buying gilts direct or something?
I need something easy – say a couple of products to cover it. ETFs is just a function of trying to minimise platform charges.
I hold a large slug of VGOV. Has performed well as a portfolio stabiliser. But as you know, I like to keep things simple…
@VF do you use that as a one stop shop to cover the fixed income side of the portfolio? Or are there a few others involved?
Does anyone know of a VGOV equivalent that isn’t vanguard?
Pretty much, the SIPP pf is 2/3 VGOV and 1/3 VWRL – my aim is to keep this pf stable as I will have LTA issues if it grows too much.
I also have in other accounts the global bond fund within lifestrategy funds, and a slug of IL gilts (VG fund).
I shouldnt answer your second question, but have you checked iShares?
I was searching for recent ‘concrete’ implementations of Lars Kroijer style minimalist ETF portfolios (i.e. ones that specify actual products as opposed to just saying ‘global equities, assorted gilts, etc.) but my googling drew a blank.
I’ll do a bit more digging on the fixed income ETFs…
@Rhino — This might help: http://monevator.com/how-to-chooose-total-world-equity-trackers/
@Rhino, I use etfs for the bond component of my portfolio 50% SLXX 50% XGSG. Its very loosely based on vanguards american medium term bond fund. It works for me.
@Tyro – Some people get a little nervous with bond ETFs (and for that matter funds) as for some of the bonds, the liquidity of the underlying is much lower than for the equivalent equity funds. They worry that if the there is a big surge in redemptions then the ETF wouldn’t be able to sell the underlying assets quickly enough to meet the market. The reason this is more for an issue for ETFs than funds is that ETFs are marked to market all day – funds are only marked at close.
I think it’s a little overblown because, for the big fund houses (Vanguard, ishares, DB etc.) the basket of underlying assets is well traded and deep. If those guys can’t sell or buy the assets they nobody will. The question outstanding is whether in periods of shock these ETFs can track the market well. There’s been a few tests in the market (Spanish and Italian banking bonds), and for the most part the funds have kept close to their indexes. When it comes to developed market gilts and government bonds, the liquidity point is less of an issue. If you are going into some exotic markets (erm, like Indonesian Corporate bonds) then liquidity risks might be something to think about.
The Rhino, if you’re talking about a Lars ‘Investing mystified ‘ style portfolio then it would be short dated gilts for a UK investor, in which case iShares IGLS ETF is worth a look, holds 0-5 year dated gilts. The yield is very low though.
I am pondering building an individual gilt holding to target the year I hit 55 so I can use it (approx) to fund my 25% tax free lump sum. Then I can guarantee I won’t be selling at a loss, as well as sidestepping charges.
Love these updates. The ‘monthly investment’ mention has reminded me of a question I’m hoping someone can help me out with:
I send £1,000 pcm to each of 2 SIPPs as employer contributions held as cash. One is held with HL and one is held with Iweb. What I’d like to do is to take advantage of the “auto-pilot” advantages and reduced costs associated with automated monthly investment into ETFs. Whilst ETF choice is limited, Hargreaves will not allow you to ‘auto invest’ from cash held on account – I’ve not checked with Iweb but suspect they will have the same policy.
I’m struggling to understand why a provider would have such a restriction. They seem to only allow you to auto invest directly via direct debit i.e. without importing the cash first and investing from the cash balance of the SIPP. Buying in this manner is more expensive, requires one to remember to do so and I’m finding it difficult to resist the urge to try and time the market.
Does anyone know of any SIPP providers which allow auto-investment from cash on account?
Thanks!
@bob – Youinvest allow this kind of flexibility with their £1.50 regular investment facility. IWeb don’t have a regular investment facility, I don’t think.
I think interactive investor may also allow flexibility, but I would hesitate to recommend II based on my experience (I’m not with them anymore).
@Vanguardfan – re: Bonds, personally I don’t really need them. Also, interest rates are rising so I suppose people really don’t want the capital losses if they have to sell. For me, I reckon that interest rates have fallen more or less continuously for 40 years and this has resulted in a 40 years bonds/property bull market. Now I think the tide is turning.
Oh, and lastly, my wife is fifteen years younger than me so I have to build a portfolio for 50 or 60 years, not for a 30 year traditional retirement. I believe bonds will be too much of a drag on the portfolio and that my small civil service and state pensions will see us through the draw downs leaving her with a bigger portfolio (assuming I make my projected 85 years) that should sustain her comfortably (and indefinitely!) with a 3% safe withdrawal rate.
Thanks VF – I’ll take a look at Youinvest.
On a tenuously related point:
Has anyone else noticed that several US-listed funds and ETFs have been pulled from their broker following MIFID II. Jack Vogel from Alpha Architects was kind enough to explain the reason why they cannot list their funds with UK brokers:
“Separately, we understand that there is a clash between the PRIIPs Regulation and the US rules the US regulator (SEC) enforce. In the US, in brief, firms are encouraged not to give projections of future performance (something that is required in the PRIIPs KID). So, to avoid the risk of breaching SEC requirements we understand that US firms are choosing not to produce a PRIIPs KID.”
The lack of “PRIIPs KID” has resulted in many brokers not providing US listed funds and ETFs. It seems European investors are getting an even rawer deal than their US counterparts as their investable universe is shrunk further…..what is the point in MIFID II again?
@bob — Do you have a link for the Alpha Architects quote, or was it in an email? If the former then might be a good candidate for the Weekend Reading links.
@TI
It was in an e-mail. I purchased some of the Alpha Architect International Value ETF around the middle of last year via HL. I received an e-mail from HL at the end of the year stating that due to pending MIFID changes, this ETF would no longer be available for any additional purchases. I e-mailed Alpha Architects and got a mail from Jack Vogel himself, he said his compliance guys would look into it and the quote above was the result. Happy to forward on the e-mail chain.
@bob — Ah, thanks for explaining. I’ll just point people to your comment if anyone has any questions then (and possibly drop a link to your comment in my Weekend links) but to be honest it’s probably held by a tiny number of readers. Pretty frustrating for you though — commiserations!
This is my only source of portfolio for the past 3 years. I have since read quite a number of posts that some investors invest in ETFs as well. Wondering if I’m missing something else besides index funds I.e. better costs and better advisor diversification. Would you suggest ETF funds in addition to this list and what would they be?
@ Tyro & Rhino – https://www.whitecoatinvestor.com/why-you-should-avoid-bond-etfs/
Good piece here on avoiding bond ETFs. Basically what YoungFIGuy said. Not an issue for high quality gov bonds. John Bogle has been a critic of ETFs as a category. I think he doesn’t like that they’re so easy to trade and naturally he’s no fan of the more exotic end of the spectrum.
On choices: http://monevator.com/low-cost-index-trackers/
@ Bob – I checked some of the big platforms and they’d all pulled US-listed ETFs. Would be good to hear from anyone who’s found a lost valley of the US-listed ETFs somewhere. You can supposedly get around PRIIP rules if you can convince your platform your a ‘sophisticated investor’ that doesn’t need paternal guidance i.e. you’re some kind of semi-pro with a £500,000 + account.
@ Jacob – there is always a reason to be nervous. Events never take a day off. As equity investors we have to be prepared for multiple market crises to occur in our lifetime. Bonds may cushion the blow when it happens, but it’s not guaranteed. Here’s a couple of great posts that show the bigger picture:
http://uk.businessinsider.com/charts-that-explain-stock-market-2016-2/#stocks-will-go-down-a-lot-but-then-theyll-go-up-a-lot-more-14
http://www.scottishwidows.co.uk/Extranet/Literature/Doc/SW55063
And here’s a piece on getting a handle on your risk tolerance: http://monevator.com/how-to-estimate-your-risk-tolerance/
Hargreaves Lansdown told me before Christmas that I would no longer be able to invest in US listed ETFs from 1 January 2018.
As it happens I probably would not have invested in more anyway, but it is a real shame as dividend payments from US listed ETFs that are held in SIPPs are made without the withholding tax. I hold a large position in Vanguard’s US total stock market ETF (VTI) for this reason. With a similar ETF listed on the London Stock Exchange I would lose 15% of the dividends. The TER on VTI is also very low at 0.04%. I also hold some VTI in my normal stock broking account and although I have 15% dividend withholding tax deducted on these, I do get a 15% tax credit which offsets the 7.5% dividend income tax. Again, you cannot get a tax credit for the 15% tax deducted from dividends of LSE listed ETFs.
Maybe some good will come from Brexit if we can be free of silly restrictions like this.
By the way, I did ask Hargreaves Lansdown if I could be classed as a “sophisticated investor”, but they don’t offer this option. All their customers have the same retail status.
Hi All
Not sure if this thread is still actively visited, but looking for some people’s thoughts.
I originally started an ISA with the intention of going fully passive with Vanguard life strategy (mixed) to reach 70% equity. I then added some Scottish Mortgage Investment Trust for spice… then added a global and two UK equity income funds…using Vanguard LS to keep equity still around 75% So kind of lost my original planned direction. I didn’t realize the Vanguard LS already had UK home weighting, and have also established that my workplace pension (Default option) is 30% UK weighted (L&G 30:70 75% GBP hedged)
I wanted to reconsider and get back to something simple. I am wondering if Vanguard LS + ~20-25% SMT for some potential volatile high-conviction upside + 5% property tracker to have something different, could work to still give simplicity and via the SMT reduce the UK weighting (though it becomes more heavily US weighted)?
Any thoughts? I am willing to pay an IFA; however, I am not sure how much input they would give on a basic portfolio like this.
Another alternative I have been thinking about is just going back to fully passive, but adding property and a tiny percentage of gold. Reflecting on my risk profile I am generally more on the averse side and more likely to want to use the money in the ISA in a shorter time period. Not sure SMT is a good idea if we hit a tough period… and bringing down my equity component to about 60-65.
“Not sure if this thread is still actively visited”
It’s visited by people hoping for a Q2 update, now that it’s July.
“I didn’t realize the Vanguard LS already had UK home weighting”
I think the advice people should give you is to do some release into the investment you are making/about to make. This isn’t really the place to get specific advice as individuals’ circumstances vary.
Completely understand re: research. This is what I have been doing as part of a review and is implicit in the statements re: home weighting etc. I should have clarified in that I meant the extent of home weighting and that by virtue of the structure it will prioritise a limited set of larger U.K. companies, in the context of a workplace pension where I have limited control and also has significant U.K. weighting.
I wouldn’t condone or expect specific advice since people don’t know my personal situation and may or may not have familiarity with any specific funds. Rather, I was looking for some thoughts/ideas/perspective to enable me to better think through alongside reading the articles on this website re: portfolio construction and researching. So far IFAs I have contacted are less interested in advising on a one off construction of a largely-passive portfolio.
@AAJ and others — Thanks for keeping an eye on us. 🙂 @TA is totally under the work cosh unfortunately. Hopefully won’t last too long.
@LapsedPassive — Hope you’re finding the articles on the site useful, and appreciate you coming here to look for salvation! 😉 However I suspect you’re not getting much feedback because your approach is quite idiosyncratic (as well as because this post is old. 😉 )
Unfortunately our passive maven is away. But I’ll give a couple of quick thoughts.
You are concerned about moderate home bias with the LS fund (which others have expressed about LS, too); from memory I don’t think the level of bias is a huge factor here, personally, especially with the £ where it is, and I believe Vanguard has clearly done for a reason (I suspect to reduce the currency risk and related volatility of an all-in-one fund.) Also I forget if the home bias is in the equity portion of LS or a reflection of the fixed income weightings. In the latter case I would be even less concerned.
Anyway you then mention owning a huge chunk of Scottish Mortgage Trust, which is an active bet that would be an anathema to many of the passive people who follow this side of the site. You’re taking on a lot of manager risk, and if you have your reasons to think that’s a good idea there’s not much anyone can constructively say about it. You could get tech or US exposure in other passive ways, as you know.
But then you say you might not hold this, in case of tough times. And then mention instead owning property and gold.
With respect this is a lot of variation, and seemingly idiosyncratic “conviction” positions held without too much conviction. Each to their own, but it’s not something people are going to be able to give much feedback on.
I presume you’ve seen this article — one of these sorts of portfolios may scratch the itch to do more than LS in a more traditional fashion?
http://monevator.com/9-lazy-portfolios-for-uk-passive-investors-2010/
You’d have to think how to fit the workplace pension exposure in. That’s an interesting subject that we haven’t covered much.
Appreciate this isn’t much help and probably not what you’re looking for — and anyway it is not personal advice, just some food for further thought/research. All the best with your investing! 🙂
@The Investor Honestly, your post was hugely helpful to stimulate thoughts. As is the model portfolio post you linked; I have been reading over that and looking at the portfolios a lot! Crucially, with my post I was not making any decisions, rather I was iterating my thought process and trying to bring more rationality to it.
Ultimately, I am balancing a number of oft-competing (mostly psychological) elements, which is why stimulating thought itself is useful:
1) Low-moderate personal risk appetite BUT financial ability to absorb higher risk
2) Very limited time available> Passive BUT interest in research and belief conviction/managed plays can deliver benefits > Active OR Passive (especially to not drive myself mad)
3) Scientist by training, logical background > Passive BUT natural human FOMO > Active to “not miss out” OR Passive to stop myself wasting time tinkering for no benefit except additional stress
My personal and financial situation has also changed since I started the portfolio (indeed, I also need to consider moving investment platform), which is complicating the decision-making process.
The evolving thinking behind gold and/or property at a small % (~5 or below) each was in order to bring diversification, rather than conviction. The thinking being maintaining a much smaller SMT holding was to tick off the irrational FOMO box, without hugely increasing equities volatility through it’s highly-concentrated nature. The UK weighting was less about vanguard and more about the combination of that + UK-specific funds + my pension bias; this I still need to figure out and will probably need to take financial advice on the pension anyway for various reasons.
For now (and for ease) I have reduced SMT dramatically and removed all other active exposure, simplifying the portfolio and basing is mostly on the vanguard lifestrategy funds I already held. Once the sales / purchases are complete I will do my damndest not to look at the value or situation until March! Next tax year I will then potentially shift the lifestrategy funds in to a simple “build your own” model portfolio.
@LapsedPassive — Glad it was of some help. Again this is not advice, but keep in mind with FOMO most people are FOMO-ing the last (or current) mania. It’s true tech has had a spectacular run, and SMT is heavy tech, and I am overweight too for what that’s worth.
But tech/growth style stocks are unlikely to outperform forever, and you are FOMO-ing something that is looking a bit long in the tooth.
A few years ago you might have been FOMO-ing emerging markets and a bit before that oil or gold stocks. Why not now? 🙂
I don’t mean that facetiously — I mean this is the kind of thing passive investors often decide they (A) can’t win and (B) can’t be bothered to devote time and stress to and (C) won’t affect their ultimate life goals anyway, except at the margin, so why bother?
I have nothing against 5-10% percentages for diversification, but the most important thing is to find a plan and stick to it. Nothing you pick will be close to perfect, returns-wise. What is closer to perfect is something you are comfortable allocating money towards for a long working and saving life, and not bailing out on. 🙂
@The Investor Absolutely with you on everything said. I started fully passive for all of the obvious reasons and then lost my way. The level of extra effort and stress that even just deciding what I want to do now generates suggests I should have stuck to it…I think the problem is I take some kind of sick pleasure in stressing myself out thinking about things too much! time to stick to this plan for a while, and maybe convince myself to remove the SMT
On a related note, my reasoning with SMT is that – if I’ve decided I should be overweight somewhere – they have a better chance of picking (educated guessing?) where that should be than I do.
Hi, while I should be writing the next Slow & Steady update, there’s an interesting piece here on investor personality types. Good for self-reflection:
http://www.etf.com/sections/index-investor-corner/swedroe-know-your-investor-personality?nopaging=1