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The Slow and Steady passive portfolio update: Q3 2013

The portfolio is up 11.18% on the year

After all the excitement of the first half of the year when the market was ‘hot, hot, hot’, the returns from our model portfolio have fizzled like an exhausted firework and fallen flat for the last three months.

We’re still up over 16% on initial purchase – and have made £1,681 since we began this investing adventure – but the previous quarter brought in all of £14.

The lack of drama tallies with the jittery recovery of economies that are still coming out of rehab. Progress comes in fits and starts, and is all too prone to relapse at the first sign of trouble. Like the cuffing of a shoplifter around the back of Primark, there’s nothing for passive investors to see here, and once we’ve added our new money as described below we can safely put our portfolio tracker away for another three months.

These days I only look at my own portfolio when I add new cash. And I’m all the better off for it.

The alternative is to sit there like a football club owner in the stands: emotionally rapt but powerless to influence the events playing out before you. An impulsive intervention is likely to have all the positive impact of Roman Abramovich substituting himself onto the pitch in search of a last-minute winner.

I digress. Here’s our model portfolio lowdown in spreadsheet-o-vision:

We're up £14 on last quarter!

This snapshot is a correction of the original piece. (Click to make bigger).

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 £750 is invested every quarter into a diversified set of index funds, heavily tilted towards equities. You can read the origin story and catch up on all the previous passive portfolio posts here.

One other piece of business to note is we’ve earned £12.90 in interest income from our Vanguard UK Government bond fund. We don’t even sniff it though as it’s automatically rolled back into our accumulation fund. Here it will build up like a fine layer of silt, adding a few extra grains to our strata of compound interest.

New transactions

Every quarter we push another £750 into the market slot machine. Our cash is divided between our seven funds according to our asset allocation.

We use Larry Swedroe’s 5/25 rule to trigger rebalancing moves, but all’s quiet on that front this quarter. So we’re just topping up with new money as follows:

UK equity

Vanguard FTSE U.K. Equity Index Fund – OCF 0.15% (Stamp duty 0.5%)
Fund identifier: GB00B59G4893

New purchase: £112.50
Buy 0.6115 units @ 18395.3p

Target allocation: 15%

Developed World ex UK equities

Split between four funds covering North America, Europe, the developed Pacific, and Japan1.

Target allocation (across the following four funds): 51%

North American equities

BlackRock US Equity Tracker Fund D – OCF 0.18%
Fund identifier: GB00B5VRGY09

New purchase: £187.5
Buy 151.58 units @ 123.7p

Target allocation: 25%

European equities excluding UK

BlackRock Continental European Equity Tracker Fund D – OCF 0.18%
Fund identifier: GB00B83MH186

New purchase: £90
Buy 56.533 units @ 159.2p

Target allocation: 12%

Japanese equities

BlackRock Japan Equity Tracker Fund D – OCF 0.18%
Fund identifier: GB00B6QQ9X96

New purchase: £52.50
Buy 39.803 units @ 131.9p

Target allocation: 7%

Pacific equities excluding Japan

BlackRock Pacific ex Japan Equity Tracker Fund D – OCF 0.22%
Fund identifier: GB00B849FB47

New purchase: £52.50
Buy 24.741 units @ 212.2p

Target allocation: 7%

Note: OCF has gone down from 0.24% to 0.22%

Emerging market equities

BlackRock Emerging Markets Equity Tracker Fund D – OCF 0.28%
Fund identifier: GB00B84DY642

New purchase: £75
Buy 68.997 units @ 108.7p

Target allocation: 10%

UK Gilts

Vanguard UK Government Bond Index – OCF 0.15%
Fund identifier: IE00B1S75374

New purchase: £180
Buy 1.411 units @ 12755.24p

Target allocation: 24%

New investment = £750

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 for other good platform options. Look at flat fee brokers if your ISA portfolio is worth substantially more than £20,000.

Average portfolio OCF = 0.18%

If all this seems too much like hard work then you can always buy a diversified portfolio using an all-in-one fund like Vanguard’s LifeStrategy series.

Take it steady,

The Accumulator

  1. You can simplify the portfolio by choosing the do-it-all Vanguard FTSE Developed World Ex-UK Equity index fund instead of the four separates. []

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{ 22 comments… add one }
  • 1 Tudou October 8, 2013, 10:49 am

    Looking good despite the overall stagnancy of certain markets since the last update.

    I was wondering do you see any benefit to choosing a global bond fund (e.g. http://www.trustnet.com/Factsheets/Factsheet.aspx?fundCode=D2FH5&univ=O) over the UK Gilt fund?

  • 2 DIY Income October 8, 2013, 12:55 pm

    Hmmm. It’s not a fair comparison but my own (real) income-oriented portfolio is up 11% in the same quarter – and it’s pretty international, too, including 25% ETFs. Obviously a quarter is not basis for judging an investment approach – but it seems to me that you do need some baseline to monitor progress, in case it’s not working.

    Are there any comparative meta-benchmarks you could use, like inflation, gilt rates, cash return etc? (I realise that most of your investments more or less benchmarks of their own.) Perhaps the overall portfolio mix needs a review, in the light of global developments?

    Otherwise how do you know if it is working – until it is too late?

  • 3 Grand October 8, 2013, 1:57 pm

    Thank you very much for the update @TA.

    @ DIY Income

    “Perhaps the overall portfolio mix needs a review, in the light of global developments?”

    Could you explain a litle further?

    Kind regards,


  • 4 DIY Income October 8, 2013, 3:28 pm

    Hi Grand

    Here’s a couple of thoughts:
    – What will be the impact of unwinding of QE for gilts/fixed-income?
    – Are Japanese shares overpriced at present?
    – Has the sell-off in Emerging Markets possibly been overdone?

    Personally I use global regional income-oriented ETFs and use the current yields as an indicator for what is ‘out of favour’. I have also exited a lot of my fixed-income securities in favour of dividend shares.

    But my main point is: how do you know whether your strategy is working or not – before you are too far down the road to do anything about it?

  • 5 Snowman October 8, 2013, 3:49 pm

    Well done to you and the Investor for such informed clarity in all your blog posts. In particular love the slow and steady portfolio and the updates. Can’t believe it is 3 months since the last update, time flies.

    Theory is useful but seeing a well diversified passive portfolio in action is very instructive and adds that extra practical edge to understanding.

    I’ve been running a purely equity tracker portfolio since 1996. In the early days it was very UK based, but otherwise it has been similar in nature to the slow and steady portfolio. My real return (over RPI inflation) has over that whole investing period been 3.8% per annum, which I’ve been very happy with. Those 3.8%’s really compound up over time.

    That says to me that this sort of slow and steady passive portfolio works over time, when the noise of 3 month fluctuations is seen to be totally irrelevant.

  • 6 SemiPassive October 8, 2013, 6:12 pm

    I fear DIY Income has missed The Investor’s rant (I can almost sense his blood pressure raising 😉

    Keep your passive trackers to a fixed asset allocation, that is the whole point, and then buy some Royal Mail shares on top for excitement if you wish.
    At least that is what I’m doing. When I’ve had my excitement with them I’m probably sell and put the proceeds back in a tracker fund.

  • 7 The Investor October 9, 2013, 10:23 am

    @DIY — As SemiPassive says, your first set of questions have no place in a passive strategy like this. The whole point is one selects a diversified portfolio of assets, rebalances as appropriate, and absolves oneself from stressing about things like this — which the vast majority of active investors will get wrong anyway. (An interesting new book on this subject from ex-hedge fund manager Lars Kroijer: Investing Demystified).

    Obviously you may disagree with that approach, but that is the passive investing approach — pick an appropriate portfolio and then adjust only to rebalance or as your risk tolerance changes (usually because you get older). To change mid-stream would be like a married person wondering how to deal with monogamy in a brothel for a weekend. 😉

    Your second point — how to know if it’s working — is interesting. There are no good answers IMHO. All investing relies on a mix of evidence from the past and best guesses about the future, plus a healthy dollop of faith. This is not just true of passive investing. For instance, your own income strategy would likely have been sorely tested in the Dotcom boom, when you would have hugely underperformed as old economy dividend payers were sold off. Eventually you’d have been vindicated, but for a few years you might have had doubts. And today that situation is reversed. In general, passive investors are best ignoring all this.

    The benchmark issue is also interesting up to a point, but less relevant here than it would be for you since a passive portfolio is pretty much the benchmarks (the indices) minus costs.

  • 8 Len October 9, 2013, 12:39 pm

    IMHO no portfolio which is heavily tilted towards any asset, in this case equities, can be properly diversified. For some years now, 90% of my money has been invested in the Harry Browne Permanent Portfolio, via a SIPP and ISA. At approx 9% annual compound growth and with very low volatility, over roughly forty years, I think it beats any other asset allocation. With 25% in each of only four assets, cash, equities, bonds and gold, it’s also a doddle to administer. Whereas other portfolios require decisions as to which passive funds to hold and whether to change them as the world changes, the HBPP never changes, and so requires no such decisions. All it requires is occasional re-balancing. I think this is how passive investing was meant to be.

  • 9 The Investor October 9, 2013, 1:05 pm

    @Len — The Permanent Portfolio is a perfectly respectable choice, and we include it in our example of 9 ETF portfolios. I don’t think it’s any more special than any other passive portfolio, over the long-term, however. Barring catastrophe, I think they will all work to a greater or lesser (unknowable) degree. (The Permanent Portfolio actually has among the lowest CAGR returns of many model passive portfolios since 1971 for US investors, according to Mebane Faber’s data crunching, but who knows what the next 40 years will bring). I agree the light admin is a boon.

    I’d also say it’s got the benefit that it needn’t change much over an investing lifetime – certainly compared to an equity-heavy portfolio.

  • 10 L October 9, 2013, 2:06 pm

    @Len (& TI)

    It sounds like you have found a portfolio for you and that is only a good thing. I should stress to readers that they should identify what their investment objectives, horizons and criteria (liquidity, risk etc.) are. That should be the basis by which you choose how you build your portfolio.

    The ‘Permanent Portfolio’ is a great portfolio for those who don’t want to take too much risk, have long-term investment horizons and don’t want to be fiddling with allocations too much (these appear to be the reasons Len favours it).

    The important thing is not to ‘chase’ capital growth and income. Decide what strategy works for you, research what portfolios will help you achieve these aims and identify the funds suited to building your portfolio. The rest is all noise!

    (I hope TI’s not smashed his keyboard up yet…)

  • 11 Neverland October 9, 2013, 2:19 pm

    @DIY Income

    In terms of performance measurement the Assoc of Private Client Investment Managers do a benchmark of “Growth”, “Income” and “Balanced” private investor indexes with various different asset allocations that it is published by the FTSE but I’ve never managed to be able to find a proper set of data you can download yourself for free to do comparisons to your own portfolio

    I like to look at how much my portfolio has beaten inflation by just by using the RPI levels off the ONS website and then just calculate an IRR using excel for comparison

    Crudely it shows you how much your savings beat inflation on the average

    On that measure this model portfolio is the steve davis of index tracking; the IRR since creation is about 9% versus CPI at c. 3% pa average and RPI at c. 3.5% over the past few years

    These are very good figures if they can be maintained for a couple of decades – in real terms you get out twice what you put in adjusting for inflation

    Mind you, lets think about that, you invest regularly earning good returns for 20 years, and you only get out twice what you put in (adjusting for inflation)

    It shows the importance of:
    – saving a lot
    – saving a long time
    – screwing down the fees you pay

  • 12 DJ October 9, 2013, 3:21 pm

    @Accumulator – can I just ask how you are managing to add the ‘new investment’ amounts that you have indicated through Charles Stanley Direct (I presume you are still with Charles Stanley)?

    I have been told by Charles Stanley Direct that the minimum additional contribution per fund through them is £500, but each of your additional contributions is less than this amount.

    The fact sheets for the funds themselves also indicate a minimum additional contribution higher than the amount of the ‘new investment’ indicated in the article (e.g. the BlackRock Pacific ex Japan Equity Tracker fact sheet indicates a minimum contribution of £100 whereas your additional contribution is £52.50).

    Are your additional contributions being held in cash until the minimum amounts have been reached (as Charles Stanley indicated would happen to myself) or are your investments being made as instructed without issue?

  • 13 Charlie October 9, 2013, 5:59 pm

    @DJ – According to the comments here…


    … the minimum contribution for regular investment at Charles Stanley Direct is £50.

  • 14 Charlie October 9, 2013, 6:28 pm

    That said, I couldn’t actually see any info on regular investment on the Charles Stanley Direct website. Does anyone have a pointer?

  • 15 DJ October 10, 2013, 10:12 am

    @Charlie – Indeed, the ‘regular purchase’ minimum is £50 – but that’s when you set up a monthly payment rather than a single top up into an investment (unless the Accumulator is doing this by setting up a monthly purchase, suspending it for 2 months and changing the investment amount on the 3rd month?)

    There are no details that I could find on Charles Stanley’s site regarding these limits – that’s why I emailed then to request clarification and this was the information I was given.

  • 16 Tudou October 10, 2013, 10:31 am

    @ Charlie/DJ – There is a regular monthly purchase on CSD for £50, if you go into your account then under Portfolio you should see a small box with an “M” inside it.

    Be aware though, if the fund unit cost is more than £50 it won’t let you purchase it (at least that’s what I’ve experienced).

  • 17 DJ October 10, 2013, 11:15 am

    @Tudou – I realise this, but Accumulator only invests once per quarter not once per month.

  • 18 DJ October 10, 2013, 11:17 am

    @Tudou – I realise this, but Accumulator only invests once per quarter not once per month hence my question on how he achieved this.

  • 19 DIYIncome October 10, 2013, 1:56 pm

    Please don’t misconstrue: I do use passive tracker investments for an increasing portion of my portfolio; but these are chosen for a particular investment strategy: income-oriented ETFs.

    However, it seems to me that this discussion is a bit like religion – if you are a believer, you don’t have to prove anything.

    retail investor.org has a good discussion:

    My unease about this portfolio relates to the returns this portfolio is producing, which seem quite low to me, without any reference to any comparable benchmark that a UK investor might use (yes, beating inflation is obviously No.1). Perhaps the core issue is the allocation decision and how that *doesn’t* change, when the world clearly does change.

    Personally, I use yield as an indicator for what is out of favour (to recycle the 5-6% of portfolio yield and any sale revenue) and aim to diversify geographically. For example, I have recently bought IHYG (Euro High Yield Corporate Bonds) is currently yielding 6.75%.

    Yes, a more active approach does take a bit more effort – but then readers of Monevator aren’t lazy.

    For the record, my total return since Jan 2011 (when I believe the Passive Portfolio was created) is 40%- 60%, depending on how you account for the new money going in (the lower figure is based on monthly returns).

    The bottom line: yes, use passive investing but within an overall investment strategy that has some academic justification to it.

    (Hoping this does not send Mr M into another paroxysm…) 🙂

  • 20 davidpaff82 October 10, 2013, 8:07 pm

    @ DIYIncome. From the original sspu post:

    “The Slow & Steady portfolio is not intended as a real-world solution to any individual’s investing needs (including mine).

    Time horizon: 20 years.

    we’ll use the portfolio to offer clear strategies for investing relatively modest sums without incurring injurious costs.”

    “Perhaps the core issue is the allocation decision and how that *doesn’t* change, when the world clearly does change.”

    The world economy keeps growing, profits keep growing, dividends keep growing, so a globally-diversified stock fund looks as sensible a portfolio as any to me, with some government bonds as insurance against catastrophe. No one knows which area will do better or worse over the course of 20 years, so getting the lot makes sense. Looking at the price gains since early 2011 is irrelevant to me anyway, since it’s a 20-year horizon portfolio.

    To look at possible benchmarks, other global stock index funds are up about the same amount since early 2011, e.g. the iShares ACWI plus the Vanguard Total World Stock. The Frontier Markets could be a fun addition to the portfolio, but the management fees on those funds are very high, so they dont fit this portfilio. Mongolian stocks = LOL.

  • 21 The Accumulator October 10, 2013, 9:01 pm

    @Tudou – I subscribe to the view that my bond funds are there to provide stability over return. A global bond fund would be better diversified but exposed to currency risk and add volatility to the portfolio. For similar reasons, I steer clear of corporate bonds too. There are plenty of others who take a contrary view though.

    @ DIY – The portfolio is benchmarked against the FTSE. Changes to your personal circumstances that change your goals or risk tolerance are a better reason to review an asset allocation.

    How do you know if it’s working? If you’re on course to meet your objectives. If not then as Neverland says: save more, save longer.

    There are books full of the academic evidence that underpins the passive portfolio strategy. It’s no religion without foundation. Check out the Mebane Faber link The Investor offered earlier on. Or Fama and French, or William Sharpe, or Markowitz, or John Bogle, or Swenson or… enough?

    The problem with investing in general is the timescale to prove anything is way beyond normal human reckoning. We want evidence within the space of a few months or a couple of years tops. If that’s not working then let’s try something else. That thinking undermines the discipline that good investors need. Investing is counter-intuitive and our standard yardsticks don’t work. We have problems with climate change for similar reasons. The evidence requires us to cope with a scale that’s larger than we’re comfortable with. Let’s compare our track records in 10 years and then we’ll have some idea. In 20 years, we’ll know for sure 😉

    @ Len and The Investor – Looking at the Mebane Faber findings, it’s interesting to note that the Permanent portfolio suffered much less from volatility than most of the others. But it’s the Risk Parity portfolio that really stands out. Good return, low volatility, excellent Sharpe Ratio, mostly corporate bonds. Well, I never.

    @ DJ – If I had to invest once per quarter then I’d set up a regular contribution and then cancel it to make the £50 minimums. More likely I’d invest monthly and just switch my regular contribution from fund to fund in order to have the money to meet the minimums. However, for the avoidance of doubt, this portfolio is a model. I’m not putting real cash into it. My personal portfolio is more small-cap and value orientated.

  • 22 Emma December 28, 2013, 12:03 am


    I’m back! Happy belated Christmas to all.

    I am finally at the point where I have got my act together and got my ISA account set up etc. so that I am able to make my passive portfolio allocations…..so am now dithering as to what allocations to make!

    I know that no one on here can offer advice etc., but I would appreciate any opinions on what allocations people would make when setting up a passive portfolio in my sitation, and how in line with the slow and steady portfolio it would be?

    For clarification, my situation is that I am 23, new to this whole investment malarky and setting up this portfolio as a general, long term fund. If it goes well over the next couple of years, then I may use some of it to put down a deposit on a flat, but I have other money in cash that I am seeing as my main flat deposit nest egg, so I am not reliant on this portfolio for that, as I understand that to do so under a short time frame would be unwise.

    Thanks in advance for any comments – I know that I really need to stop dithering and start doing, but taking the leap is proving tricky!

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