This article can be read by selected Monevator members. Please see our membership plans and consider joining! Already a member? Sign in here.
What caught my eye this week.
Just 26 sleeps to go until the new government’s first Budget on Wednesday 30 October. And I cannot recall there ever being so much pre-match jitters.
I could have filled the links below with forecasts, evasive action tips, and threats to emigrate. Hardly what anyone would call a honeymoon period, let alone the good vibes of Tony Blair’s 1997 win.
Even those who didn’t vote for Blair admitted the national mood music went up a level overnight. This time the change has been more like somebody coming in, turning the music off and the lights on, and telling everyone to sod off home.
And I say that as someone who has more sympathy than most with the view that the State’s finances are atypically feeble.
There have been worse economic periods, for sure. Seldom did they unfold though while so many in power gaslighted us with tall tales about how great things were – and millions believed them.
(In short: where did you spend your ‘Brexit dividend’, eh?)
Black rod
With that said, Labour made a rod for its own back by waiting so long to hold the Budget.
It’s like sitting outside the headmasters’ office all day before you’re seen. Almost as bad as the punishment!
For my part I haven’t much to add beyond what I wrote in my articles on the potential capital gains tax (CGT) hike and whether CGT fears could be presenting us with opportunities.
Monevator readers added tons of value in the comments to both articles, incidentally. Go read them if you haven’t.
I would also note that in less than four week’s time the picture will be clear.
ISAs
If you plan to fill your ISA, I say get on with it ASAP. It’s hard to see a downside, given the risk of a cut to the annual allowance.
In practice I suspect any new ISA rules would begin from April next year. Still, why risk it?
However I certainly wouldn’t take out ISA money fearing withdrawals could be taxed in the future. I wouldn’t risk shrinking my ISA tax shield on the very unlikely odds of retrospective taxation.
(Exception: if you have a flexible ISA and if you can definitely put the money back in post-Budget Day if required, different story…)
Pensions
Pensions are trickier. There are reports of people cashing in their tax-free lump sums now or maximising their contributions, in case the rules change.
Yet the former might not be tax optimal for you if nothing changes (depending on wildly varying personal circumstances) while if you’re stretching yourself to load up your pension, you could face other day-to-day spending difficulties. Remember, pension money is locked away for the long-term.
This is not to go into the myriad edge cases that dance around on the threshold of pension drawdown and the like. Take care whatever you do.
Calm before the storm-let
Finally beware of excessive panic due to someone else’s political agenda.
The right-wing papers are having a field day – and worries around pensions and the like are a pre-Budget staple anyway.
But usually not too much happens in practice.
Personally I do expect some things to change but not everything. And I’m not going to do anything hugely radical on the back of that.
Have a great weekend.
The Slow & Steady portfolio has hit an new all-time high! Yes, our model passive portfolio has finally surpassed its previous peak, reached on New Year’s Eve 2021. Almost two years later we’ve put 2022’s bond crash behind us – in nominal terms anyway – as the portfolio grew for the fourth quarter in succession.
And for once that growth wasn’t driven by our US-dominated Developed world fund. Here are the numbers, in Allswell-o-vision™:
The Slow & Steady is Monevator’s model passive investing portfolio. It was set up at the start of 2011 with £3,000. An extra £1,264 is invested every quarter into a diversified set of index funds, tilted towards equities. You can read the origin story and find all the previous passive portfolio posts in the Monevator vaults. Last quarter’s instalment can be found here.
The big winner this quarter was global property. It soared over 10% in the three months – having spent much of the year sinking into the mud like a cheap tower block.
In fact even after its recent spurt, global property has managed less than 5% growth year-to-date. That lags the double-digit returns from Emerging Markets, UK equities, and the Developed World.
I need to do a deeper dive into the diversification potential of a REITs index tracker (which is what any passive property fund is) because I am far from convinced that owning this type of real estate makes much difference at the portfolio level.
Bond of bothers
What news of the irradiated bond asset classes?
The recovery looks healthy on the longer one-year view – in terms of what you can hope for from bonds, anyway – but 2024 itself has been a poor year so far.
Here’s how this year’s bond weakness pings out in red in the fund view in Morningstar’s Portfolio Manager:
I’ve circled the two bond funds’ one-year performances in green, and their year-to-date returns in red.
Note the table shows nominal returns. Both funds are actually down in real terms this year, once you factor in August’s 3.1% CPIH inflation figure.
I’ve also circled the 10-year annualised returns in cyan – because we’re all about the long-term here at Monevator!
You can see the long-term growth engine of our portfolio has been its Developed World fund. Indeed if we unpack the Matryoshka dolls of causation, then really it’s the US S&P 500 – and inside that a handful of tech firms.
See our last update for a chart showing how well we could have done if we’d gone all-in on tech when we launched our model portfolio in 2011.
Which we might have done if we could predict the future. Which we can’t.
(And incidentally neither can you).
Choose wisely
A portfolio choice can only be meaningfully compared with an alternative you might have reasonably made ex-ante.1
The Slow & Steady was conceived as a DIY passive portfolio. Our choices were aligned with best practice on managing your own investments.
The model portfolio’s ‘competitor’ then is not a wise-after-the-fact YOLO punt on a tech ETF, but rather something like a Vanguard’s LifeStrategy multi-asset fund. An off-the-peg investing ready meal that enables you to invest in a nutritious portfolio with minimal work. (Sounds awful, I know.)
So has all my DIY dosey-doe added one scintilla of value compared to picking this magi-mix investing alternative?
I think you can see where this is going…
Chart attack
Firstly, because I’ve taken the trouble to painstakingly unitise the portfolio for this comparison, I’ll treat you to the exclusive unveiling of the Slow & Steady’s performance chart. (A happy byproduct of the exercise):
Our model portfolio was launched to world acclaim global indifference on 31 December 2010.
From there, the little portfolio that sorta could has grown 161%. You can see that its value has just reached a new high as it hits the wall on the right.
This 161% gain amounts to a time-weighted return of 7.24% annualised since purchase. (A time-weighted return strips out the impact of cashflows upon a portfolio, and is how comparisons between investments are usually made.)
Meanwhile, the portfolio’s money-weighted annualised return is 6.97%. (The money-weighted return is more realistic in my view. That’s because the periods when you have more invested make a greater contribution than if, say, your portfolio doubled when you put in your first fifty quid.)
Oh really? Note you can subtract approximately 3% to reflect average inflation to get the real return. A 4% annualised real return is what you might expect a 60/40 portfolio to deliver, based on long-term historical datasets.
More ups and downs
As average as all that sounds, the numbers show the Slow & Steady hasn’t so much as taken a bear market beating during its adventures to-date.
That’s encouraging!
Our worst slide was -15% during 2022’s bond crash. Covid amounted to a -11% plunge before we were rescued by the authorities’ big bazookas.
In comparison to the worst investing can throw at us, the portfolio’s performance looks more like riding a vintage merry-go-round horse than a rollercoaster.
I’ve even made the journey look choppier by using a linear chart above. A linear investing chart exaggerates the scale of later events relative to earlier ones.
Here’s a more realistic logarithmic view:
Essentially, the portfolio has gently wafted higher over the course of its 14-years, with just the occasional stomach-tickling lurch due to turbulence.
I think my first chart feels like the voice of anxiety in our heads yelling: “AAAARGH! Everything is incredibly important and sometimes quite scary because it’s happening to me right NOW!”
While the second chart is closer to objective investing reality, as experienced by a 60/40 passive investor in recent times.
Multi-asset face-off
Now, about that Slow & Steady vs LifeStrategy Thrilla in Vanilla I’ve been dawdling towards.
Here’s Morningstar’s chart for the LifeStrategy 80 and LifeStrategy 60 funds. It’s set to the longest comparison period I can make with my Slow & Steady returns:
LifeStrategy funds only launched in the UK on 23 June 2011.
My nearest Slow & Steady datapoint dates from 1 July 2011, so that’s the starting line for this foot race.
But why is this a three-cornered contest, with two Vanguard funds in the chart?
Because the Slow & Steady portfolio was originally an 80/20 portfolio.
To reflect its fictitious owner aging, we rebalanced into a 60/40 over the course of its first ten years. This saw 2% of the equity allocation transmuted into bonds every year for a decade.
Hence we’d expect the Slow & Steady to perform somewhere between the LifeStrategy 80 and 60, which stick rigidly to their asset allocation lanes.
Out-take – I know, if I had any gumption, I’d gather 14-years’ worth of price data for the Vanguard twosome, combine them into a portfolio, and plot an equivalent declining glidepath. Perhaps one wet weekend I will. If I really want to drive Mrs Accumulator into serving those divorce papers.
Show me the money
This is the best comparison I can do for now. And I think it’s very telling:
| Portfolio | Cumulative (%) | Annualised (%) |
| Vanguard LifeStrategy 80 | 191.47 | 8.41 |
| Slow & Steady | 158.97 | 7.45 |
| Vanguard LifeStrategy 60 | 143.07 | 6.93 |
Nominal returns, 1 July 2011 to 27 Sep 2024.
Over this timeframe, the LifeStrategy 80/20 portfolio has grown 20% larger than the Slow & Steady, which in turn is 11% larger than the LifeStrategy 60/40 portfolio.
Our plucky DIY champ has split the two Vanguard funds down the middle! Which is as it should be because its asset allocation lay somewhere between the two.
And while I don’t know how this match-up looks on a risk-adjusted basis, I’m doubtful of snaffling too many crumbs of comfort given the Slow & Steady was (by design) maxed out on UK government bonds just as that asset class suffered its worst year in history.
Ultimately – as much as I had fun ensuring the Slow & Steady portfolio was better diversified than its fund-of-funds equivalent – if I’d really had that crystal ball in 2011, I’d have recommended picking the LifeStrategy option unless you really enjoyed being hands on.
In fact that’s exactly what I suggested to friends and family.
For some peculiar reason they don’t give two-hoots about investing. But they needed to save for retirement all the same.
So much for taking the scenic route
The main lesson I draw from this investing smackdown is simplicity is under-rated and optimisation over-rated.
Monevator’s model portfolio is souped-up with small cap equities, global real estate, and inflation-linked bonds that LifeStrategy lacks.
And the Slow & Steady’s OCF of 0.16% compares well with the LifeStrategy’s 0.22% charge.
But despite all that, the two load-outs are very similar at a broad equity/bond asset allocation level.
And that’s proved decisive in this score draw.
New transactions
Every quarter we throw £1,264 like autumn leaves into the market winds. Our stake is split between our portfolio’s seven funds, according to our predetermined asset allocation.
We rebalance using Larry Swedroe’s 5/25 rule. That hasn’t been activated this quarter, so the trades play out as follows:
UK equity
Vanguard FTSE UK All-Share Index Trust – OCF 0.06%
Fund identifier: GB00B3X7QG63
New purchase: £63.20
Buy 0.225 units @ £281.34
Target allocation: 5%
Developed world ex-UK equities
Vanguard FTSE Developed World ex-UK Equity Index Fund – OCF 0.14%
Fund identifier: GB00B59G4Q73
New purchase: £467.68
Buy 0.703 units @ £665.56
Target allocation: 37%
Global small cap equities
Vanguard Global Small-Cap Index Fund – OCF 0.29%
Fund identifier: IE00B3X1NT05
New purchase: £63.20
Buy 0.147 units @ £431.23
Target allocation: 5%
Emerging market equities
iShares Emerging Markets Equity Index Fund D – OCF 0.19%
Fund identifier: GB00B84DY642
New purchase: £101.12
Buy 49.095 units @ £2.06
Target allocation: 8%
Global property
iShares Environment & Low Carbon Tilt Real Estate Index Fund – OCF 0.18%
Fund identifier: GB00B5BFJG71
New purchase: £63.20
Buy 26.057 units @ £2.43
Target allocation: 5%
UK gilts
Vanguard UK Government Bond Index – OCF 0.12%
Fund identifier: IE00B1S75374
New purchase: £316
Buy 2.326 units @ £135.86
Target allocation: 25%
Royal London Short Duration Global Index-Linked Fund – OCF 0.27%
Fund identifier: GB00BD050F05
New purchase: £189.60
Buy 174.908 units @ £1.08
Target allocation: 15%
New investment contribution = £1,264
Trading cost = £0
Average portfolio OCF = 0.16%
User manual
Take a look at our broker comparison table for your best investment account options.
InvestEngine is currently cheapest if you’re happy to invest only in ETFs. Or learn more about choosing the cheapest stocks and shares ISA for your circumstances.
If this seems too complicated, check out our best multi-asset fund picks. These include all-in-one diversified portfolios, such as the Vanguard LifeStrategy funds.
Interested in tracking your own portfolio or using the Slow & Steady investment tracking spreadsheet? Our piece on portfolio tracking shows you how.
You might also enjoy a refresher on why we think most people are best choosing passive vs active investing.
Take it steady,
The Accumulator
- i.e. Back at the time you made the decision. [↩]
What caught my eye this week.
How filthy rich would you be if you could see tomorrow’s newspapers today – and then trade on the back of your unfair insight?
Actually, many people could end up poorer.
At least that’s the takeaway of new research by Victor Haghani and James White of Elm Partners Management.
They decided to investigate conjecture by Black Swan author Nassim Nicholas Taleb that knowing the news in advance wouldn’t help most people make money.
The Financial Times explains:
Haghani and White devised a clever experiment to test out Taleb’s hunch: 118 ‘young adults trained in finance’ were given $50 and a copy of the front page of something called the Wall Street Journal, minus stock and bond prices, one day in advance.
The lab monkeys’ task was simple — to use their knowledge of the future to make as much money as possible by trading in the S&P 500 and a 30-year Treasury bond futures contract.
Participants were free to use as much leverage as they liked and asked to place bets on 15 different high-volatility days over the past 15 years, five of which coincided with big employment reports, five of which coincided with Fed announcements, and the other five of which were picked purely at random.
Now, if you’re a naughty active investor like me you’re probably licking your lips in anticipation.
Seeing the future? Talk about edge!
And yet the FT tells us:
- The average payout was just $51.62 per player, representing a weighted average return of 3.2%
- Just under half of players lost money
- 16% of players went bust
- Players guessed the direction of stocks and bonds correctly on 51.5% of the roughly 2,000 trades they made
Bloomberg adds (via Yahoo Finance):
“It’s very humbling,” said Victor Haghani, who was a founding partner of Long-Term Capital Management.
“Even if you have the news in advance, it’s still really hard to do asset allocation or whatever with a high chance of being right, let alone not knowing what’s going to happen.”
Haghani was a Monevator reader back in the day. I’d love to think my co-blogger’s passive investing articles added our two pence to the intellectual capital behind this research. 😉
Anyway if you’re the sort who doesn’t believe something until you’ve tried it for yourself then you can (a) join our Moguls membership gang (and be sure to track your returns!) and (b) play the same game over on the Elm Funds website.
Lie about let us know how you do in the comments below!
Have a great weekend.