How often do you look at your portfolio? Once a year? Once a month? Once an hour?

If you check your portfolio like you check your email then you’re probably going to drive yourself up the wall and do something you regret – like a teenage conscript nervously fingering his Kalashnikov, you’re primed for action and desperate to relieve the tension.

All this waiting! **Let’s do something!** Buy something. Sell something. I gotta make a difference!

Well, I haven’t looked at our demo portfolio in the three months since our last Slow and Steady portfolio update. I’m only looking now because I have to write this post. Ideally I’d only take a peek once every six months on preordained dates.

In between times:

- No fretting.
- No impulsive acts.
- No buying yesterday’s winners that turn into tomorrow’s chumps.
- No reacting to the market trader cries of pundits and salesmen.

Ignorance is bliss.

### Up, up, and away (a bit)

So did we miss anything while I was asleep?

Not a lot.

The portfolio made £107 last quarter, which finally pushes our gains through the £2,000 barrier after three years. We’re up over 16% on purchase.

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 £850 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.

Here’s the portfolio lowdown in spreadsheet-o-vision:

Japan dropped 5% over the last three months while the US and UK were at a virtual stand still. Europe ticked up 3%. We’ve made precisely £1.08 on our Pacific Rim fund and we’re still up over 2% on UK gilts despite the warnings of *Bondageddon*.

The only asset where we’re still down on the money that we’ve invested to-date is emerging markets (Russian equities look very cheap!).

This all contrasts very notably with the popular mood when we started our portfolio. Back then – just 36 months ago – emerging markets were all the rage, while Europe was about as popular as sensible haircuts in Shoreditch.

Trends will come and go but our portfolio is designed to suit all seasons. Our hardest task is to stick with it.

### Dividends

Our Vanguard UK Equity index fund paid out £65.68 in dividends. Ker-ching! All our dividends are automatically reinvested into more shares – compounding our wealth at an increasing rate. This is accomplished by investing in the accumulation versions of our funds.

### New transactions

Every quarter we place an £850 down payment on our future happiness. Our cash is divided between our seven funds according to our soberly planned asset allocation.

We use Larry Swedroe’s 5/25 rule to trigger rebalancing moves. All’s quiet for now though, so on with this quarter’s purchases.

**UK equity**

Vanguard FTSE U.K. Equity Index Fund – OCF 0.15%

Fund identifier: GB00B59G4893

New purchase: £127.50

Buy 0.66 units @ 19318.5p

Target allocation: 15%

**Developed World ex UK equities**

Split between four funds covering North America, Europe, the developed Pacific and Japan^{1}.

Target allocation (across the following four funds): 49%

**North American equities**

BlackRock US Equity Tracker Fund D – OCF 0.18%

Fund identifier: GB00B5VRGY09

New purchase: £212.50

Buy 160.5 units @ 132.4p

Target allocation: 25%

**European equities excluding UK**

BlackRock Continental European Equity Tracker Fund D – OCF 0.17%

Fund identifier: GB00B83MH186

New purchase: £102

Buy 60.391 units @ 168.9p

Target allocation: 12%

**Japanese equities**

BlackRock Japan Equity Tracker Fund D – OCF 0.17%

Fund identifier: GB00B6QQ9X96

New purchase: £51

Buy 41.096 units @ 124p

Target allocation: 6%

**Pacific equities excluding Japan**

BlackRock Pacific ex Japan Equity Tracker Fund D – OCF 0.2%

Fund identifier: GB00B849FB47

New purchase: £51

Buy 24.673 units @ 206.7p

Target allocation: 6%

**Emerging market equities**

BlackRock Emerging Markets Equity Tracker Fund D – OCF 0.28%

Fund identifier: GB00B84DY642

New purchase: £85

Buy 82.285 units @ 103.3p

Target allocation: 10%

**UK Gilts**

Vanguard UK Government Bond Index – OCF 0.15%

Fund identifier: IE00B1S75374

New purchase: £221

Buy 1.718 units @ 12864.9p

Target allocation: 26%

**New investment** = £850

**Trading cost **= £0

**Platform fee **= 0.25% per annum

This model portfolio is notionally held with Charles Stanley Direct. You can use its 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 portfolio is worth substantially more than £20,000.

**Average portfolio OCF **= 0.17%

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 offering.

Take it steady,

*The Accumulator*

- 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. [↩]

@TheAccumulator – Love these updates. Are you actually doing this fund for real with some of your investments or is it just a virtual portfolio for the blog?

One thing I do not understand: How do you make all those small value trades without paying even a penny in trading costs? I use monthly dealing Selftrade & Alliance to drip-feed into various shares (sefltrade) & Vanguard Funds (Alliance) but there are always small costs (£1.50).

@living cheap – isn’t this an all-fund portfolio, so there shouldn’t be any per trade charges, unlike if TA used ETFs?

Once the magic of compound interest has taken him up to his first 1/4 mill then perhaps he might consolidate to ETFs. That’s in 25 years from now, using Monevator’s handy compound interest calculator, taking the defaults and plugging in TA’s £3400 p.a. contribution rate and his 12k capital value so far

@Ermine Hopefully TA will be retired by then, although I’m sure that he’ll still favour us with updates on strategies that were shown to stand the test of time 😉

Monevator – the pyramid of the UK PF world 😀

@Luke I think TA is a sensible chap and hopefully contributes more to his own pension – this portfolio is for demonstration purposes. I’d imagine TA feels that the real return on his investments is more than the 2% implied in in the calculator defaults. Even the FCA think that’s on the low end of expectations!

Actually I was wondering the same because since RDR many of the platforms are now charging transaction fees on index funds, albeit with reduced recurring fees. Many are just kicking in now.

I am wondering whether this impacts on the viability of these small portfolios which buy lots of small chunks of tracker funds…

As a loyal follower of Tim Harford, as well as Monevator, I was interested to read Tim’s take on “How investors get it wrong”. His conclusion will be no surprise to readers of these pages: “Armed with a diagnosis, a cure is also readily available: make regular, automated investments in boring, low-cost funds and try to sell in a similarly bloodless fashion.” http://timharford.com/2014/04/how-investors-get-it-wrong/

@stef

I’ve moved to Charles Stanley which is offering fee free fund purchases, there is a platform fee of 0.25%, so these smaller monthly purchase portfolios are still viable

Thanks for the update TA. Just struck me how big the pot has grown in 3 years or so with such small contributions. It really goes to show that there isn’t such a think as too small.

How does the OCF differ from the AMC? The blackrock emerging D shows on interactive with an AMC of .75%?

which broker do you use? some brokers charge a fixed £ amount per passive fund, which kind of beats the point of keeping expenses to a minimum in passive investing. Also would any of these index trackers have early redemption fees?

Thanks for inspiring and providing me with the incentive for starting one of these a few years ago. I owe you 🙂

Question though – I’m with Interactive Investor and I don’t get “any” notifications of dividend payments for my index trackers (I do with IT’s and equities though).

How on earth do I keep track of what I’m receiving?

@NearlyThere Damn you beat me to that recommendation!

It’s great to see two of my favorite writers not only intersecting on a subject but to be in full agreement!

@Andrew Knox are you using accumulation versions of the funds perhaps? I used to be with iii, and did get notification of divi on income funds in the same way as everything else.

Forgive me (as a *big* fan of this blog) and in the interest of active/passive balance, but I don’t think annual total return (excluding contributions) is given – surely that is a key metric? Ermine estimates 2%. Yes, I know, ‘judge me by the long term’ – but still, this portfolio is *really* slow and steady.

Compare with: cash return at Ratesetter (5-year loan rate): 5.7%

Quote attributed to Einstein: Insanity: doing the same thing over and over again and expecting different results.

Caveat emptor.

Hi all — As we state in the article, this is a *model* portfolio. As T.A. has written elsewhere he has sufficient assets to clear his mortgage. Unless he’s living in a Wendy house in Orkney, I don’t see £14,000 as cutting it. 😉

I agree an annualized return figure would be useful, though I’ve no idea if T.A.’s tracking package delivers it for him or if it’d be a faff/approximation. I think Ermine was talking about hypothetical expected returns, this portfolio has clearly done more than 2% annualized.

However as has been anticipated, I am going to say it’s very early days here. In particular, the heavy weighting (nearly 30% now) of gilts (government bonds) will be a big drag until stocks go through one of their periodic declines.

Even after that, rebalancing might not make up for the drag on performance in the years ahead of that. In general, you’d be best off being in the best performing asset class all your life.

However few people can take the risks and volatility associated with that.

This is a demonstration of how to construct a portfolio and a 20 to 30-year plan to deliver decent long-term results, not to beat a market that has been on a rip over 2-3 years.

Sure, some portfolios will have done much better recently. Anyone investing in quality dividends has done very well since the crash for example, at least until last summer. Modesty and many other things prevents me as usual from going on about my return last year.

But that’s all irrelevant to this portfolio. What matters is if over the long-term it under-delivers, or proves to be just as risky and volatile as if we’d just stuck it all in shares.

Far too early to judge that. What we do know is that it’s ticking along nicely, asset classes and different areas of the market are coming and going in fashion, we’re topping up on the cheaper ones now and then, and the whole thing can be safely ignored for months at a time — not something I can say about my portfolio of shares! 😉

Hey @ermine – thanks for the comment

They are accumulation units yes, I used to get contract notes on the old Interactive Investor platform but not since they switched over. I have spoken to them and they say that’s just the way it is, but it’s pretty hard to have any idea of how well I’m growing my investments!

@Andrews Knox

My understanding is that’s how accumulation funds work because you don’t see the dividend of the constituent companies, and the fund doesn’t pay a dividend it rolls it into the unit price.

Income funds however pay dividend so I’d expect to know what the payment details of the fund were, but not down to company level, just the fund overall.

Thanks @Steve.

Funnily enough, after reading your post, I googled this and ended up right back on this site!

http://monevator.com/accumulation-funds-dividends/

Good work Mr Accumulator 🙂

@Andrew Know… I did a similar search yesterday for the exact same thing but I had no luck. Thank you for the link!

I had been using trustnet previously as I track my portfolio there using there free tool. Google finance works well if it has information on your particular investment.

Grand

If anyone has the time/inclination… I’d really appreciate a quick primer on what is the difference between the portfolio return mentioned above and the annualised return mentioned in the discussion. What is each one used to measure and which is it that people are referring to when they discuss returns in general? I think I have been using the return as shown for the S&S portfolio minus inflation to give me my real rate of return. Is this a mistake?

portfolio return is, ehm, the total return on the portfolio since its creation. So here it is 16.8%

but this 16.8% return is realised over a period of 3 years, so the annualised return (yearly average) is the cube root of 16.8%, i.e. 1.168^(1/3).

Had it been over n years then it would be the 1.168^(1/n)

^ denotes raise to the power of

@Andreas — That is indeed how you’d work out the return on a lump sum over three years, but here we have a portfolio which has had regular new money added at different times / prices levels, over multiple years and funds. Alas it’s more complicated.

It’s a sum of a series. Regular pay ins make it easier to calculate. In case of monthly or quarterly contributions you just double the total percentage return over the year to get the average return that year. I think…

@Paul W — I think that will give you a closer approximation, but it’s still not correct because the market doesn’t smoothly escalate over time. As I understand it from previous adventures in calculating returns, by far the best way to do it is to do what the professionals do and unitize the portfolio.

Basically new money in “buys” units of the existing portfolio at the prevailing unitised value of your fund. You can then compare the unit level at any time with any another to see the return, work out the CAGR, and so on.

This is what I do with my own

~~menagerie~~portfolio of shares, ETFs, tracker funds, bonds and more, via a sprawling spreadsheet. I mean to do an article on it at some point, but it’s a bit dull and the debate always causes arguments so I keep leaving to one side. 😉A nice example using regular savings on moneysavingexpert:

Mr Matt Mattics and his £3,000 savings

Matt has saved a total of £3,000 in a regular savings account paying 10% interest over a year, and is a non-taxpayer.

What Matt expects to earn? His simple sum works out that he’s put £3,000 in at 10% therefore he should earn £300 in interest.

Why is this wrong? Matt only had £3,000 in there for the last month; it took a year to build up to that amount. You only earn interest on money in the account. So after the first month he was earning the 10% on just £250, half way through the year he was earning it on £1,500.

Mr Matt Matics How Matt should work it out? Over the year, his average balance was roughly half the £3,000, in other words £1,500… so Matt should expect to earn around 10% of £1,500 over the year, which is £150.

Of course calculating returns on investments is far more complicated. Thats why you need to calculate on a number of units/shares basis to calculate the actual return on investment.

One thing I always wondered about the Vanguard funds but could never find a conclusive answer to is does the 0.5% charge for SDRT occur every single time you buy units in the fund? I.e. initial purchase, 0.5% SDRT charge; top up after a month, 0.5% SDRT charge; reinvest dividends, 0.5% SDRT charge, etc. If that’s the case it would make them quite a bit more expensive.

Thanks to the guys above on my return question. I’m still a little bamboozled by the whole thing but will keep reading. I can see the basic difference between the returns now, but am still not 100% sure what is the overall number I should be concerned about regarding getting the real rate of return for my portfolio… Perhaps that article will help Investor…

@The Investor – It is all very interesting. Every fund in this portfolio is already unitized and it doesn’t help a lot. Because we add new money it’s an investing strategy rather than just a static portfolio. We could have two identical (say) single fund portfolios and just buy at different times to end up with different returns. Obvious. I reckon we have to treat every investment, regular or not, separately. This portfolio started with a lump sum of £3000, so it’s a bit more complicated, but the idea is to apply weights to amounts invested and lengths of time for each of them. If it was £850 regularly every time since the start than you could think of the return of 16.9% as achieved over the half as long period. All the volatility between valuation points doesn’t matter, only money-in and money-out. To calculate CAGR you would then take power of 2/3 not 1/3 (cube root). Much better, huh? A bigger lump sum at the start of this portfolio and later adjustments (like an increase from £750 to £850) make it slightly more complicated but not hard at all. Does it make sense?

@ Sisyphus – annualised return is 7.11% according to Morningstar’s portfolio tracker.

@ Various – no charge for fund purchases with certain brokers. If you like to invest monthly then this is a great option. Investors with less than £30K are generally best off with brokers who charge a percentage fee platform charge. Charles Stanley and Cavendish Online both charge 0.25% platform fee and no dealing charges on funds. Charles Stanley stocks Vanguard funds, Cavendish doesn’t charge exit fees. If you rarely trade then take a look at iWeb.

@ David M – everyone who buys UK shares must pay 0.5% every time they buy. The chancellor is just about to scrap the tax for redemptions. The difference with Vanguard is that they’re upfront about the charge. Every other fund excretes the cost through their tracking error, so you barely know it’s there.

To continue my thought. This lump sum of £3000 could have been invested over the previous year with – for the sake of simplicity and to get a reasonable lower bound – no interest at all, the same way as the following contributions (quarterly). Then to get a CAGR we could just assume it was all invested in 4 instead of 3 years in regular, even splits. It’s a good and practical approximation. A square root of 1.169 gives you a little more than 8% CAGR. Calling it 16.9% over three years is an understatement in my opinion and can be daunting instead of appealing as it should be. And in years to come the loss of the first investment’s importance will only make this approximation better.

Maybe i’ve missed the point with this discussion, but as far as i can see the answer to your question is just involves calculating your Internal Rate of Return.

This is easily calculated using the XIRR function in Excel. The only parameters you need are each date at which you funded the portfolio and the present date and valuation.

This still works if you have income funds which are physically paying you as you just include these cashflows as outgoings from the portfolio.

@flotron — Yes, XIRR works fine — it requires as you say a full schedule of dated payments in and withdrawals of course. If you’re going to track all that then I say unitize and don’t rely on Microsoft maths! (But only because I like to track my workings I suppose…)