The Slow and Steady passive portfolio update: Q1 2020

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• 1 Al Cam April 7, 2020, 9:58 am

  FYI, John P Greaney has just completed his 25th annual (2019) update – see
  https://retireearlyhomepage.com/reallife20.html
• 2 Jonathan April 7, 2020, 9:59 am

  Well I have just done exactly the same as in previous years and added £10K of VLS60 to my ISA. The remaining 3 chunks of my and my wife’s new ISA allowance will be added at intervals.

  But I also have the unusual (first world!) problem of acquiring what is for me a huge lot of cash last week – we were lucky and the sale of my late mother’s house successfully went through the week before last. Previously I have never had enough cash to make stock market investments outside an ISA, and feel nervous about doing so now. I have opened a new online savings account so the money is spread around but probably need to think hard about how much to hold as cash in the current climate and how much to invest elsewhere. Any thoughts?
• 3 Fremantle April 7, 2020, 11:20 am

  @Jonathan

  Think about your tax position and consider a mix of VLS 20/40/60/80 inside and outside your ISA. Income from VLS40 is still considered a dividend despite being 60% fixed income. By putting 50% VLS40 in your taxable account and 50% VLS80 in your ISA, you would still hit 60/40 but have less chance of hitting dividend or capital gains limits.
• 4 Big Boss Man April 7, 2020, 11:36 am

  Thanks for sharing this the accumulator!

  It is really cool to see how this portfolio has performed this quarter, and I think most people would take -11% for Q1 2020.

  ‘Time to reverse that trade. Buy low, sell high. It’s a cliche. It still works.’

  Finally seeing you do a decent sized rebalance on this portfolio is great as well. We’ll hopefully see the results of this with a nice boost in the next 1-3 years (depending on how this recession/market pans out).

  Looking forward to watching this develop!

  Cheers,

  BBM
• 5 Haphazard April 7, 2020, 11:48 am

  I have just rebalanced, in line with my plan, which did mean buying equities. As I’m rather new to all this, it is my first time having to “fix” so much.
  There were a couple of issues I ran into as a novice:
  1. OCFs quoted for funds seem to vary wildly. I found that I could be buying a fund on a platform and the factsheet/KIID would say one thing, while the platform itself, at the moment of buying, would quote a different (sometimes higher) OCF. Which is correct?!
  2. Some trades seem to be “pending” for ever. I know that funds are priced once a day. But is it normal for a trade, ordered from a broker, to be pending for more than one day – without even an execution date? What happens if the market moves dramatically in before execution? The process is not very clear to me.
• 6 xxd09 April 7, 2020, 12:25 pm

  Works in retirement too
  All passive Portfolio currently down 5.7 %
  Cash withdrawal for this year done in Feb at height of market -2 months early-sitting in SIPP -prescient?-good luck more likely!
  Perhaps reassuring to those youngsters in Accumulation phase that the the system works forever-probably!
  Taking money out works just the same as putting money in-same rules
  A simple inexpensive system especially as you get older!
  xxd09(17 years retd)
• 7 Jack April 7, 2020, 1:32 pm

  Same situation. The ‘bed and isa’ is taking a long time. Sold on Friday and been told that even once cash in ‘available’ I can’t move it to ISA until the 8th. The ETF traded the following working day, the mutual fund is still pending. Hope the market doesn’t make any big jumps in the meantime, as I had to sell at a loss obviously.
• 8 Matthew April 7, 2020, 2:33 pm

  @ta – How does the history of this allocation compare to, say vls60? Like say performance/fees? Just curious as to why you DIY your rebalancing?

  And the asset allocation you have, is it due to risk tolerance, or a plan to draw relitively soon? As rebalancing in/out of bonds as a market timing method is usually more about risk control than rebalancing bonus, which overall generally is negative
• 9 The Investor April 7, 2020, 2:50 pm

  @ta – How does the history of this allocation compare to, say vls60? Like say performance/fees? Just curious as to why you DIY your rebalancing?

  @Matthew — You have 424 approved comments on this site! 🙂 So you’ll surely know / have read before (because we’re asked every time) that we do this as a model portfolio, in order to show the asset allocation at work

  A quarterly update that said “LifeStrategy went up 3.6% this quarter. The End.” would not be very educational, right? 🙂

  The article concludes every time by flagging up all-in-one funds as a solution.
• 10 Jonathan April 7, 2020, 2:54 pm

  Thanks @Fremantle. I take it the argument is that the bond sides of the funds generate less interest and are likely to take longer to have capital gains exceeding the limit. Useful to know the bond interest in a mixed fund is taxed as dividends. It is a question I have previously found easy to ignore by having these funds in ISAs, I must check the thresholds and calculate sensible sums to have in a taxable fund (possibly to bed and ISA in the future).
• 11 The Investor April 7, 2020, 2:57 pm

  @Jonathan — There’s a few useful articles on our site. E.g:

  https://monevator.com/excess-reportable-income/
• 12 Matthew April 7, 2020, 3:08 pm

  @ta – ahhh I assumed it was a model portfolio using real spare cash that you didnt mind cordening off for the purposes of demonstration

  I suppose we could say what vls did, or if this model allocation is much different to vls/others, and what your weighted average fees are. I personally am wary of overweighting emerging markets because they are already covered somewhat by large cap
• 13 BBlimp April 7, 2020, 4:08 pm

  I wonder if LS60 would have been EVEN better this quarter because the fund automatically does the rebalancing for you !

  That said – it’s times like these going back and re reading the passive portfolio updates from the beginning might have a hugely relaxing effect 😉
• 14 Jonathan April 7, 2020, 4:21 pm

  Thanks @TI. That wasn’t one of your articles I had previously read, it pre-dates my starting to be systematic about investments and discovering and reading Monevator (those two events are related). Although until now my take-home would have been: avoid off-shore funds like the plague and keep all UK funds in ISAs.

  The fact that a 60% bond mixed fund is taxed as equity is potentially very helpful. If I read you right it means that income doesn’t matter as long as it fits in my basic rate income tax threshold and all I need to worry about is capital gains in due course. Obviously my wife and I should still only invest what we can leave tied up for several years, so we need to do some thinking about our cash needs in the next 5 years (e.g. daughter about to head to university).
• 15 MrOptimistic April 7, 2020, 5:12 pm

  @Haphazard. Are you buying funds ( old unit trusts)? If so yes, the fund information should explaining the dealing and pricing points. Usually next working day providing your broker gets the order to them before a cut off time. Can take 3 days before your portfolio registers the change. Very frustrating. Your broker site should have a tab marked ‘ pending orders’ or such like so you can see when it’s executed.
• 16 Merlotman April 7, 2020, 5:27 pm

  For my (prior) sins I have around 30% invested in 16 ftse 100 shares. I created this portfolio to provide me with a dividend stream that would allow me to accumulate until I retired and then provide an income stream after I retired (not quite going to plan at the current moment in time ). However more recently I have been planning to gradually go more passive over time and the current situation has me thinking. Although according to studies 16 shares is deemed to be adequate diversification, I wonder whether selling the lot and buying a couple of ftse 100 etfs would provide me with a lower risk profile and some comfort against individual company failure. The individual shares are at the indexes slightly more cyclical end but no oil or tourism fortunately. Is this tantamount to timing or selling out at the wrong time and risk distain from fellow monevator readers? Or a sensible tweak to risk management? Overall I am not too concerned about diversification because the other 70% is invested outside of the index. I reckon it will cost about 0.3% – mainly the bid offer spread on the etfs.
• 17 Haphazard April 7, 2020, 6:11 pm

  @MrOptimistic – yes, funds. They do give a current price at the time when you press the button to buy or sell, but it’s not clear to me that’s the price you get. My impression was that the relevant price is whatever the price of the units are at the time of execution. And at the moment, execution seems to take days. Or maybe it has happened and they don’t update – but if the thing still says “pending” and there’s no execution date, I assume not?

  In normal times, I wouldn’t give a stuff – hardly significant in the scheme of things. But with the current chaos, it’s a bit unnerving.
• 18 Neverlaid April 7, 2020, 8:18 pm

  Thank you. Excellent to see everything working as it should during the recent chaos.

  “I wouldn’t blame you if you don’t want to do it. If I was living off my portfolio right now, then I wouldn’t rebalance into equities”.

  I’d lean in and rebalance into cheap equities. It’s just a shame that irl I went into the corona downturn with equities above my target asset allocation %. Guess the market did my rebalancing for me!
• 19 Gary April 7, 2020, 9:28 pm

  Just about to dip my toes into the investing world. Don’t want something too complicated like the ‘Slow and Steady’ but didn’t want anything too simple like the VLS range. I was thinking about the Vanguard Global All Cap paired with the Vanguard UK Government Bond Index so I can change the balance as father time catches up with me. Can anyone see why this would be a terrible idea? Thanks in advance for any thoughts.
• 20 Neverlaid April 7, 2020, 10:25 pm

  @Gary – that is not a terrible idea at all
• 21 Maximus April 7, 2020, 10:42 pm

  @ TA
  Thanks for your wisdom as always.
  I look forward to when you run a similar ‘realtime’ portfolio for retirees on these hallowed pages. This would be very useful I think.
  Will you change your name to The De-Accumulator then, I wonder..?!
• 22 Maximus April 7, 2020, 10:49 pm

  @Gary
  Vanguard Global Bond Index would be the other bond fund I’d think about.
  Happy investing.
• 23 Maximus April 7, 2020, 11:01 pm

  @xxd09
  I’d agree with your principles!
  Do you have an equity/bond fund duo or is it more complex?
  Thanks.
• 24 xxd09 April 7, 2020, 11:36 pm

  Now 17 years retired-aged 73
  Run 3 fund portfolio myself cos that was the way it was in those days when I set things up- might change to two Funds if I can be bothered but it’s getting late to trouble with the hassle for me
  2 funds are all you need- a Global Equities Index Fund and a Global Bond Index Fund hedged to the Pound (I use Vanguard)
  % of Bonds in your Portfolio is your age as a rough guide
  2 years expenses in cash
  Have a written down Investment Plan
  Set your Asset Allocation
  That’s it- cheap,easy to follow ad lets you sleep at night even through a downturn like this.
  Concentrate on your day job where you have more control- live frugally and invest as much as you can
  xxd09
• 25 John April 8, 2020, 9:09 am

  I am also struggling with the dealing delays with VLS80 – put the instruction in to purchase on Friday and not had a confirmation – the price is up around 5% in that time. Not to worry.
• 26 Fremantle April 8, 2020, 10:02 am

  @Jonathan

  I asked Vanguard directly about the tax status of VLS40 when I was in a similar position with a lump sum from an investment house sale. I don’t know about VLS20, but I would hazard that a guess that income from it falls under interest.

  Don’t forget that outside of ISAs and SIPPs you should use income class units to make tax reporting easier.
• 27 Gary April 8, 2020, 10:14 am

  Thanks guys. I’ll have a look into the Global Bond Index as well.
• 28 MrOptimistic April 8, 2020, 12:57 pm

  @Haphazard, see this as an example
  https://help.fidelity.co.uk/site/dealing-and-managing-cash/what_is_forward_pricing
  Years ago funds ( unit trusts then) used to levy a 5% bid offer spread and annual management charges ( as declared) of 1.5% upwards. The move to unitary pricing ( as I think it was called) was a step forward.
• 29 e17jack April 8, 2020, 6:35 pm

  Gary – have a look at the Vanguard Target Retirement Date funds. Like LS but with an automatically shifting allocation from equities to bonds as the chosen date approaches.

  I understand the desire to tinker – this seems almost too simple – but i love being able to shut off the portion of my brain that would otherwise be worrying about asset allocation.
• 30 Jonathan April 8, 2020, 8:15 pm

  Thanks again @Fremantle, this is where the community wisdom on Monevator is so useful.
• 31 Gary April 8, 2020, 9:41 pm

  Thanks for the tip, I’ll have a look into them. I do like the idea of controlling my own allocation. I’m only going to follow the 100 – my age rule so simple stuff but like the idea of getting my hands slightly dirty.
• 32 The Rhino April 8, 2020, 10:23 pm

  @Fremantle – yes its 40 to 20 where the switch occurs from dividend to interest treatment with lifestrategy
• 33 The Accumulator April 9, 2020, 8:12 am

  @ Jonathan: https://monevator.com/bonds-and-bond-funds-taxed/

  Also The Investor has written quite a few pieces about dealing with capital gains. For example: https://monevator.com/how-to-offset-capital-gains-with-losses-to-reduce-your-tax-bill/

  @ Gary – agree with the chorus of voices here saying that’s a perfectly rational way of dealing with your asset allocation. If you go global bonds then think about a fund that hedges to the £. Lots more here: https://monevator.com/category/investing/passive-investing-investing/

  @ Haphazard – I’ve seen small OCF discrepancies, usually because the platform might quote an OCF that’s slightly out of date in comparison to the fund provider. I usually check the dates on the factsheets and go with the fund provider over the platform. If you’re seeing wild discrepancies then it suggests something else is amiss, like you’re looking at a different version of the fund (perhaps A class in comparison to D or C class) or you’re being quote the annual management charge instead of the OCF.
  This might help:
  https://monevator.com/fund-names-explained/
  https://monevator.com/how-to-read-a-fund-fact-sheet/

  @ Al Cam – thanks for the link. Fascinating to see.

  @ Maximus – I am planning a deaccumulation model portfolio. Just gotta find the time. Ha – had that very conversation with TI about whether I’ll need to ‘rebrand’ to the Deaccumulator once I’m no longer accumulating. The gist was that I’m not allowed to retire because The Accumulator IP is too valuable 😉

  It’s comforting that for all the noise out there, especially now, a good passive investing plan essentially forces you to do the right thing over time. If you can stick with it.
• 34 Haphazard April 9, 2020, 9:59 am

  @MrOptimistic. That’s a helpful explanation, thanks.
  So does that mean that if we buy a fund, we are essentially saying, “And you decide the price!”? Are we all mad?
  I see platforms tend to have things called “best execution” policies, or the like. But if the market moves dramatically, it’s not really the platform’s fault – we’ve essentially instructed them to buy at any price.
  If I were out shopping for a self-isolating neighbour who asked me to buy tinned tomatoes for her, I’d be tempted to give her a call back if I discovered that the best available price was now £100/tin.
• 35 Haphazard April 9, 2020, 11:23 am

  Oh – and thanks The Accumulator – I’d actually used “how to read a fund factsheet” a few times, really helpful. The OCF differences were in the region of 0.17 vs 0.25. I also went with the factsheet’s version!
• 36 Jonathan April 9, 2020, 11:38 am

  Thanks @TA, more useful reading.

  I’ve always ignored capital gains tax simply by using ISAs, but now I need to make sense of it. Although in this context it is simply in planning investment outside an ISA, at the same time I am having to work out how to pay it on my late mother’s estate. She happened to die just when stock prices fell in early 2019 so there was a gain on her investments by the time they were sold; also her house sale was the lucky recipient of a bidding war which pushed the receipts higher than probate. A headache for me now, but of course the family are benefitting from the gain in their inheritances.
• 37 The Accumulator April 9, 2020, 3:34 pm

  @ Haphazard – yes, the forward pricing model of funds is pretty disconcerting. Most of the time it doesn’t matter. Ideally, you don’t trade at times of high volatility. Of course it can work for you. Put in a sell order tomorrow and your sell price might have gone up by the time your order is executed. Buy tomorrow and the price might have fallen. A slightly sickening game of swings and roundabouts.

  @ Jonathan – good luck sorting it all out. If the sums are large enough then there is a sound argument for getting a tax pro involved. Hopefully The Investor’s series on capital gains will give you some useful pointers.
• 38 Al Cam April 9, 2020, 4:16 pm

  @ Maximus:
  re de-cumulation model portfolio(s), the link at #1 above (to JPG’s work) may be of some interest to you; albeit written from a US perspective.
• 39 Jonathan April 9, 2020, 4:35 pm

  Thanks for the advice @TA, I had wondered about using a professional. I did the Inheritance Tax myself, but the business of registering an estate for tax and following those different rules is not made easy by HMRC. Unfortunately it is too much for their “informal” return procedure which sounds hugely simpler.
• 40 Windinthefens April 9, 2020, 8:57 pm

  Having followed the S+S portfolio for a few years I have used it for my model for the last three. I have to say the difference psychologically going through this crash compared to the 2008 one has been phenomenal. While not pleasant to witness the fall, the cushioning effect of the gilts has been a game changer. Having fixed rebalancing rules has stopped me tinkering this time.
  I was in active funds last time and that added another worry when I thought a different fund might have fallen less and I wasn’t in it.
  In 2008 I didn’t do the worst thing- I didn’t sell- but I did do the second worst- I didn’t buy even though I had money to do so. I simply couldn’t face looking at the portfolio.
  This time I’ve felt the rules forcing me to act correctly and I sleep at night.
  Thanks TI and TA!!
  Windy
• 41 SLG April 9, 2020, 10:01 pm

  Thankyou The Accumulator. This is the second most educational passive portfolio post since you started this portfolio! The first ones being when you created this portfolio as a concrete real life example of a passive portfolio and costs, rebalancing and regular investment strategy.

  I’ve watched you selling equities to rebalance and thought with hindsight “what a wasted opportunity”.

  For me, this is a fantastic “real-life” lesson in risk management and diversification, passive systems and strategy. Thankyou for the education!
• 42 Maximus April 9, 2020, 11:32 pm

  @ Al Cam
  Thanks for the link.
  I’ll take a look – it certainly seems to have enough detail! :-0
  I’m amazed no one seems to be blogging a basic passive de-accumulation portfolio from the UK…
  Come on ‘DeAccumulator’ – Britain Needs You!!
• 43 Fremantle April 9, 2020, 11:56 pm

  @TA

  How about The Dwindler?
• 44 xxd09 April 10, 2020, 12:08 am

  Maximus-Been de accumulating for 17 years with a passive portfolio
  Been posting here for years too-not for quite so long a time though.
  Hoping not to be a “Dwindler”- portfolio seems to increase year by year !
  xxd09
• 45 Al Cam April 10, 2020, 7:11 am

  @Maximus:
  Re UK de-accumulation, you could also try RIT’s work at:
  http://www.retirementinvestingtoday.com/2019/07/sobering-retirement-income-drawdown.html
• 46 Troy Abraham April 10, 2020, 8:00 am

  Hey Monevator and fellow members

  I noticed your allocation is 37% World and target allocation is 5% for the FTSE UK. Does this result in a currency fluctuation risk? Or because the fund is held in GBP, it doesn’t matter too much?

  I appreciate any advice.

  All the best,
  Troy
• 47 S. Pike April 10, 2020, 8:19 am

  Well, after reading this blog for the last year, my plan was to open my first ever investment account in the new financial year. A bit of an odd time to start investing. If only I could stop logging in and forget about it till next year. Anyone have any advice on the psychology of passive investing during bear markets?
• 48 The Accumulator April 10, 2020, 9:31 am

  @ S Pike – congratulations! You could scarcely have picked a better time to start investing. And I mean that sincerely. Equities are on a big discount in comparison to two months ago. Strange but true: a recession and bargain prices are a wonderful opportunity for a virgin investor. You will earn outsize returns when prices rebound.

  Assuming you’ll be investing for a decade or more, then your commitment now will only represent a fraction of your future wealth. It’s your human capital that matters at the moment, not your financial capital. As you commit more cash over the years, you’ll convert your human capital into greater financial capital but for now, your stock market losses and gains will be just a distraction. You have to have much more skin in the game before your investments define your future.

  Come up with a strict plan that governs how you will invest, stick to it, and don’t worry about the daily fluctuations – they’re no more relevant to real life than a soap opera.

  If you have an app on your phone delete it. Make it harder for yourself to log in. Commit to logging in once a month at most. Ideally less.

  If you’ve got a lump sum to invest and are finding it psychologically difficult to commit then drip-feed it in over the next 6 months.

  You will be nervous first time out. It took me two years to get over my analysis paralysis. I remember my finger shaking first time I hit the Buy button. Within a few months that’ll be water off a duck’s back to you. Years from now your portfolio will fluctuate more in a day than your monthly salary. And you’ll consider that normal.

  The only real worry you have is whether your future self will stick to the plan when truly tested and when real money is on the table. That’s the psychology to work on in the years ahead.

  Good luck with it!
• 49 The Accumulator April 10, 2020, 9:46 am

  @ Troy – yes, every fund in the portfolio bar the FTSE All-Share tracker and the two bond funds are subject to currency risk. Over the long term currency fluctuations are assumed to net out, so on the equity side, on balance, it’s generally more important to have diversification across global markets than hedge to the £.

  On the bond side, we look to our bonds to provide stability for the portfolio. We don’t want currency exposure adding volatility there, so we use a gilt fund which is obvs valued in £ and our global index-linked bond fund is hedged to the £. I would have picked an index-linked gilt fund if a suitable one was available on the market.

  Exposure to foreign currency has generally proved to be nothing but a plus for the portfolio over its lifetime. Many Monevator readers who invest in globally diversified equities were boosted by a large tailwind after the Brexit vote when the £ slumped.

  I don’t keep my eye on the currency markets but from what I’ve picked up the £ hasn’t covered itself in glory this time around either.

  Things might have been different if it’d turned out that Lancashire was awash with frackable oil.

  All that said, I’d have more of my allocation in £ valued assets if I was living off my portfolio but it’s more art than science.
• 50 W April 10, 2020, 10:10 am

  @TA, good reply to S Pike.

  It would be interesting to follow the deaccumulation stage. Will you use a rising equity glidepath?
• 51 Adrian April 10, 2020, 10:22 am

  All hail UK Gilts!

  My gold ETF has also done well – up over 10% during the quarter. I find gold to be a really good diversifier – seems to have a life of it’s own.
• 52 Al Cam April 10, 2020, 2:06 pm

  @TA; and @xxd09
  Apologies in advance if this suggestion appears a tad cheeky; but maybe you could sub out a retrospective to xxd09?
  For example, I would be keen to know how he faired through the GFC which was just a handful of years after he set off on his de-accumulation journey.
• 53 GoldFinger April 10, 2020, 3:04 pm

  Hi all, I am relatively new to following this blog but I find it incredibly informative and useful.
  I have a SIPP which I pay money into each month. I have been waiting for a good time to open an S&S ISA and have done so recently. I have been able to put in the maximum before the 5th April and I am in a position to put the maximum in again now we are on the this side of the tax year.
  I have bought 5K of SMT and 5K of WTAN, Im not sure what to put the rest into and don’t want to waste too much time sitting on the sidelines. Im 30 and for now my main goal is accumulation as I have some passive income from some investment properties I own. Ideally I just want to choose right now (wouldn’t we all!) and leave it alone for the next few years open to any advice really as I’m a beginner.

  Thanks! GF
• 54 xxd09 April 10, 2020, 5:20 pm

  Al Cam
  Happy to oblige
  I was carrying the same portfolio -though equities were at 35 % not 30% as today
  ie 35/60/5. Equities/Bonds/Cash
  I was actually in the Arabian Desert for 3 weeks with no connections at all to the outside world over the crisis period
  The immediate crisis was over by the time I came back to UK-heard som scary stories
  Had at least 2 or 3 years expenses in cash
  Did nothing and all came good
  Was/am a great admirer of John Bogle of Vanguard so was well prepared
  Current Portfolio down 4.5% -on its way back?
  Needless to say portfolio is much larger tha post GFC times-we have had a good run
  We must expect these sorts of crises every few years- it’s normal market behaviour
  xxd09
• 55 V April 10, 2020, 5:27 pm

  Hi Accumulator,

  I am a complete beginner and been reading a lot of articles on your website which have been very helpful, I am finally willing to create my own portfolio based on the slow and steady model. I don’t have a stocks and Shares ISA opened yet, and I was thinking on starting with opening Vanguard first, however looking at this portfolio, there are 3 platforms for trading, if I understand correct I can only open 1 new Stock and Shares ISA per year, so my question is are there alternative funds that can serve the same purpose all on Vanguard to keep it down to 1 platform, or is there a reason for having it on 3 platforms?
• 56 Naeclue April 10, 2020, 5:42 pm

  I would disagree that the FTSE All-Share tracker was not subject to currency risk.

  There are a number of large multi-nationals listed on the UK market with foreign earnings, most of it unhedged. Studying the market in calmer times will illustrate the negative correlation between the FTSE and GBP/USD (falling pound supportive of share prices and vice versa).

  I found years ago that the volatility of the FTSE World index when priced in pounds is often lower than the volatility of the FTSE All-Share or FTSE 100. This is one of the reasons I do not overweight UK shares.
• 57 The Investor April 10, 2020, 6:41 pm

  I would disagree that the FTSE All-Share tracker was not subject to currency risk.

  Um, disagree with who? 🙂 In his reply @TA specifically said it’s subject to currency risk.

  There’s a vigorous academic debate about currency risk when it comes to equity hedging — so vigorous that I have a 3,000-word draft from two years ago that I’ve still not completed that’s all about the pros and cons, and how and why as @TA says it’s usually considered to balance out over the long-term. (Essentially currency pairs reflect different economic growth / inflation / differentials, which are eventually reflected in share prices in different countries. Simplifying hugely!)

  Avoiding home bias generally is a good idea of course. Also you can hedge a portion of overseas exposure / currency risk very cheaply these days with hedged ETFs. You may pay a little more but reduce a source of volatility from your portfolio. From memory either Vanguard or Dimson (one of the guys behind the Credit Suisse Annual Yearbook) suggested 20-50% hedged versus unhedged equity exposure.

  Or you can just hold your nose and ignore the noise and invest long-term. 🙂

  Edit: Should have read “When it comes to EQUITY hedging”. Just finishing Weekend Reading in a hurry! 🙂
• 58 Naeclue April 10, 2020, 7:32 pm

  @TI, maybe he did not mean it, but @TA said “every fund in the portfolio bar the FTSE All-Share tracker and the two bond funds are subject to currency risk.”.
• 59 The Investor April 10, 2020, 7:59 pm

  @Naeclue — Oh, my apologies, I didn’t read it that way on a skim. Still, the actual holdings aren’t subject to currency risk, which is what we both appreciate he means. I agree with you that the companies themselves have an inherent currency risk element to earnings, but unpicking that for every market is well beyond a passive investing approach to markets. There’s also natural hedging in place. Strong pound, relatively weaker earnings and falling price (but strong pound purchasing power in global terms!) Weak pound, earnings rise and share prices rise (but weak pound purchasing power in global terms!)
• 60 The Accumulator April 11, 2020, 9:25 am

  @ Naeclue – That’s interesting and applies to all multi-nationals but obscures the point that currency diversification in equities is widely held to be a positive. If the FTSE World index is less volatile than the FTSE 100, it’s not because more of its earnings are in £s is it?

  Do you hedge your overseas holdings? If so, why? Are you accumulating or deaccumlating?
• 61 The Accumulator April 11, 2020, 9:47 am

  @ Goldfinger: here’s a good place to start: https://monevator.com/category/investing/passive-investing-investing/

  Also, see Investing Demystified by Lars Kroijer, you can get a taster here:
  https://monevator.com/why-a-total-world-equity-index-tracker-is-the-only-index-fund-you-need/

  William Bernstein’s books are brilliant. You can download If You Can for free. The Intelligent Asset Allocator is widely considered to be his best.

  Tim Hale is excellent too. More detailed than Lars, not as good a writer as Bernstein:
  https://monevator.com/review-smarter-investing-by-tim-hale/

  @ V – I think you may be mixing up platforms with fund providers. The S&S portfolio includes funds by Vanguard, iShares and Royal London.

  You can get those funds through most single platforms that cover the whole of the market and you’d be able to invest them in a single ISA in a single tax year. This table should help: https://monevator.com/compare-uk-cheapest-online-brokers/

  The confusion might be arising because Vanguard also own the Vanguard platform, which is restricted to Vanguard funds only.

  @ W – I’m likely to go for a dynamic asset allocation i.e. only selling equities when they’ve overperformed or I’ve run out of bonds.

  @ xxd09 – thank you for the insight! That’s reassuring to read. One week later and the S&S is down 3.8% on the quarter. It’s volatile out there.
  Thank you rebalancing!
• 62 Naeclue April 11, 2020, 5:33 pm

  @TI, @TA. I am deaccumulating, so low volatility is good, but I remain to be convinced that currency hedging my equities portfolio is worthwhile. Whenever I have looked into this, the answer appears to be that it is not. I have checked again today.

  A quick and easy test is to compare the volatility of an index or ETF in different currencies. Vanguard VWRL provides a daily price in pounds and NAV in dollars going back to 22/05/2012. The NAV history in dollars gives the returns for a perfectly hedged version of the ETF that is also absent small variations in discounts/premia. If you download the price and NAV history, then chop off the bank holidays when no prices are provided, you can work out a reasonably long term daily volatility. I have just done that and get a daily volatility of 0.92% for the price in pounds time series and 0.86% for NAV in USD time series. So yes, the volatility in dollars is lower, 8% lower. Is it worth paying extra to reduce the volatility by 8%? I am not at all convinced it is, especially as this is a theoretical case than an actual real life comparison.

  For a real case of a GBP hedged ETF, I have compared the volatility of IWDG (iShares GBP hedged MSCI World) against SWDA (iShares unhedged MSCI World, priced in GBP). IWDG only goes back to May 2017, but is interesting as the period has shown a lot of volatility. Sampling beginning of month prices, IWDG had monthly volatility of 5.2% between 1 June 2017 and 1 April 2020. SWDA had volatility of 4.5%, so the unhedged ETF actually had lower volatility than the hedged ETF. Even if I ignore the particularly volatile month of March 2020, I get 3.7% for the hedged IWDG and 3.5% for the unhedged SWDA. Again, the unhedged ETF shows lower volatility than the hedged ETF.

  Maybe the research shows currency hedging non-US equities into USD reduces volatility. It does not look as though hedging non-GBP priced equities into GBP is worthwhile.
• 63 Naeclue April 11, 2020, 5:48 pm

  This Vanguard paper is a very useful one discussing currency hedging for different countries. Very much chimes with my own investigations and other stuff I have read. For equities, hedging maybe worthwhile for US investors, probably not worthwhile for UK investors.

  https://personal.vanguard.com/pdf/ISGPCH.pdf
• 64 Neil April 12, 2020, 1:55 pm

  Really interesting update. I have a question around what people following this are doing regarding the fixed income part.
  Holding UK gilts as above, or going with
  Global Aggregate Bond UCITS ETF (VAGP) / Global Bond Index Fund – Hedged?

  UK Gilts have done well so far, and I also hold iShares £ Corp Bond 0-5yr (IS15) ETF for a little more yield.

  Wondering if I am making life hard for myself with two holdings and if I should just sell up and switch it all to the aggregate.
• 65 Mike Rodent April 13, 2020, 6:19 pm

  Dear Mr/Ms Accumulator (or anyone who knows),

  Could you please just tell me how it has come about over the years that your honourable portfolio now holds only 4% of UK equities, when it started out (2011?) with a much higher percentage.

  I appreciate that you have been gradually putting things into bonds, but you could also have chosen to convert non-UK equities into bonds. Everything non-bonds now seems to represent a giant percentage, compared to how your esteemed portfolio started out.

  I tried looking through the notes for each quarter to find the answer to this puzzle, but got bamboozled and confused after a while.

  Is it anything to do with Brexit? I myself haven’t bought a single thing (except for FTSE 100 trackers) which invests in UK companies since June 2016. But you seem to be more sanguine, as far as I can tell.

  Please explain the “mystery”!
• 66 Mike Rodent April 13, 2020, 6:20 pm

  I meant “everything non-UK and non-bonds”
• 67 xxd09 April 13, 2020, 9:16 pm

  4% is close to the size of the U.K. stockmarket in relation to the World stockmarket
  ie the amount you would hold of the UK stockmarket in a World Equities Index Tracker Fund
  xxd09
• 68 Big Boss Man April 15, 2020, 9:52 am

  @Mike Rodent

  UK equities account for around 5% of the global stock market. So in a portfolio with only 60-70% equity, a 4% allocation is reasonable.
• 69 Mike Rodent May 1, 2020, 2:50 pm

  @BigBoss Thanks… I’m sure you’re right.

  What I’m interested in is precisely *why* it has come about that there has been such a very significant change of emphasis in the model portfolio. In 2011 the proportion of UK equity was very high… but since then, as far as I can make out, every single transfer from equity to bonds has been at the “expense” of the holdings in UK equities. I just want to know why this deliberate choice has been made. It would have been just as easy to “liquidate” (or “bondify”) non-UK equities.
• 70 S. Ayles May 22, 2020, 4:44 pm

  Why does the Passive Portfolio not include a Pacific + Japan category to reflect global geographical market proportions?
  Is the portfolio available as a spreadsheet? My arithmetic is not the best!
• 71 The Accumulator May 23, 2020, 8:57 am

  Hi, Pacific + Japan are represented in these asset classes listed in the portfolio snapshot above:

  Dev World ex UK
  Global Small Cap
  Global Property
  Emerging Markets – not for Japan obvs or other developed markets you may be associating with the term Pacific?

  I haven’t made the spreadsheet publicly available beyond reporting every quarter. It’s a good idea though. I’ll put it on my ‘to do’ list.
• 72 skyincolour May 25, 2020, 1:48 pm

  Hi, I’ve only just read this post and would like to know if I were going to add this Passive Portfolio to my investment, do I just buy all the funds from the list in this post? Many thanks,
• 73 JAB May 28, 2020, 9:42 pm

  Could anyone please let me know if all the funds of The Slow and Steady passive portfolio are available in HSBC Invest Direct? I would really appreciate it. What about the Vanguard LifeStrategy funds, are these also available in that broker?
  I am really enjoying this blog. It’s brilliant!
• 

  Mogul

  74 The Accumulator June 6, 2020, 5:02 pm

  Hi JAB – HSBC Invest Direct don’t have funds to the best of my knowledge. You could create a similar portfolio using ETFs – although you’d need to compromise when it comes to the inflation-linked fund.

  Other broker options here:
  https://monevator.com/compare-uk-cheapest-online-brokers/