- Monevator - http://monevator.com -

The Slow and Steady passive portfolio update: Q2 2017

Bad news: Our Slow & Steady portfolio is down for the first quarter in nearly two years.

AAAAARGH! MAYDAY! MAYDAY! Run for the exits! Shred the evidence! Hang a scapegoat!

Wait a sec. We’re only down 0.34%. Or £118, largely due to a minor dip in our bond positions. Emerging markets and global property have waned a bit, too.

Over the last year? Only gilts are flashing red at -1.27%. No asset class is down over three or five years. Year-to-date we’ve put on 3.74%.

Okay, sorry everybody. False alarm. Just a drill. Remember it’s important to stay on your toes people.

Here’s the portfolio latest in spreadsheet Dazzle-o-vision:

Slow & Steady portfolio tracker, Q2 2017 [1]

In the last Slow & Steady episode [2] (we’re in negotiations with Netflix) we talked about the futility of tactical asset allocation – why trying to position your portfolio for supposedly ‘inevitable’ outcomes like a bond massacre or a US blow-up is liable to boomerang back in your face.

It’s easy to doubt or to be blown off course, but nothing dooms an investor like portfolio management by media headline.

I sometimes think I need to invent a sticky substance to hold myself on track. This would be an actual stick. It would end in a boxing glove and I’d beat myself over the head with it every time I’m tempted to mess with the plan. Written on the knuckles of the glove – like LOVE and HATE on the fists of a gentleman with mummy issues – would be the word CALM. This would remind me not to do nuthin’ stupid.

Similar results may be achieved with an Investor Policy Statement. Such a statement is simply a quick-reference gameplan written by a cooler you for reference by hot-under-the-collar you in times of doubt: “Oh yeah, I’ve got 30% bonds to stop myself panic-selling when the market’s in free-fall.”

Another source of timely wisdom without violence would be having the words of the investing greats flash up before your eyes (perhaps via augmented reality specs) every time your brain goes AWOL – or when you log into your broker’s account.

The financial writer Jason Zweig recently republished an interview [3] with the late Peter Bernstein, one of the most revered figures in US finance. When after 50 years at the sharp end someone like Bernstein says he is still figuring things out, you know that reacting to stray headlines or negative numbers is no way to proceed.

Zweig’s interview reveals much about Bernstein’s strategic approach to dealing with uncertainty. Here are a few choice bits to succour any investor-nauts who find themselves drifting in space:

Understanding that we do not know the future is such a simple statement, but it’s so important.

Survival is the only road to riches. You should try to maximize return only if losses would not threaten your survival and if you have a compelling future need for the extra gains you might earn.

I view diversification not only as a survival strategy but as an aggressive strategy, because the next windfall might come from a surprising place. I want to make sure I’m exposed to it.

Somebody once said that if you’re comfortable with everything you own, you’re not diversified.

Wise words, more powerful than any boxing glove. (Just hope I can find them when I really need them.)

By the way, the Slow and Steady portfolio is Monevator’s model passive investing [4] portfolio. It was set up at the start of 2011 with £3,000 and an extra £900 is invested every quarter into a diversified set of index funds, heavily tilted towards equities. You can read the origin story [5] and catch up on all the previous passive portfolio posts here [6].

Fiddly stuff

In more prosaic matters, BlackRock has rebranded [7] its index funds as iShares.

That’s why our emerging markets and global property funds have a new label. It’s just a name change, nothing more. We haven’t done anything rash.

I should also mention the Slow & Steady portfolio has technically passed the threshold where it’s cheapest boarding is with a percentage fee broker [8]. We are now roaming in flat-fee territory, where a fixed cost platform and fund dealing fees could lower costs overall.

Lloyds Bank Share Dealing offers an ISA account for a flat £40 per year. Fund trades are £1.50 a pop. Buying seven funds would cost us £10.50 a quarter or £42 a year. That’s £82 plus an estimated four sales a year to cover rebalancing trades, for £88 brokerage costs all-in. It sets up a photo finish with our current Charles Stanley [9] residence. Lodgings with Mr Stanley notionally cost us £88.90 at 0.25% of the portfolio’s present value.

There’s 90p in it! What does the great god Optimal have to say about this?

Okay, I know we’re meant to snuff costs like Jeff Bezos but I’m not filling in a form for 90p. Sure, the value of our portfolio will probably rise further but then Charles Stanley charges a £10 exit fee per holding. (We wouldn’t have this problem at Cavendish Online, incidentally). What’s more, Lloyds doesn’t list our Vanguard Small Cap or Gilt funds.

So like a koala clapped out after a eucalyptus leaf and a scratch, let’s put the action on ice.

New transactions

Every quarter we pin another £900 on to the market’s wheel of fortune. Our cash is divided between our seven funds according to our asset allocation strategy.

We use Larry Swedroe’s 5/25 rule [10] 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 [11] 0.08%

Fund identifier: GB00B3X7QG63

New purchase: £54

Buy 0.284 units @ £190.27

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: £342

Buy 1.105 units @ £309.42

Target allocation: 38%

Global small cap equities

Vanguard Global Small-Cap Index Fund – OCF 0.38%

Fund identifier: IE00B3X1NT05

New purchase: £63

Buy 0.240 units @ £262.78

Target allocation: 7%

Emerging market equities

iShares Emerging Markets Equity Index Fund D – OCF 0.24%

Fund identifier: GB00B84DY642

New purchase: £90

Buy 61.350 units @ £1.47

Target allocation: 10%

Global property

iShares Global Property Securities Equity Index Fund D – OCF 0.22%

Fund identifier: GB00B5BFJG71

New purchase: £63

Buy 32.291 units @ £1.95

Target allocation: 7%

UK gilts

Vanguard UK Government Bond Index – OCF 0.15%

Fund identifier: IE00B1S75374

New purchase: £234

Buy 1.461 units @ £160.21

Target allocation: 26%

UK index-linked gilts

Vanguard UK Inflation-Linked Gilt Index Fund – OCF 0.15%

Fund identifier: GB00B45Q9038

New purchase: £54

Buy 0.294 units @ £183.78

Target allocation: 6%

New investment = £900

Trading cost = £0

Platform fee = 0.25% per year.

This model portfolio is notionally held with Charles Stanley Direct [9]. 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 [12] for other good platform options. Look at flat fee brokers if your ISA portfolio is worth substantially more than £25,000.

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 [13].

Take it steady,
The Accumulator