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The Slow and Steady passive portfolio update: Q1 2021

The Slow and Steady passive portfolio update: Q1 2021 post image

A year ago, give or take, Covid-19 began to spread across the world like an ink stain. Twelve months of lockdown and one frightening stock market crash later and the Slow & Steady passive portfolio is up 21% in the last year.

Surely there’s been a mistake?

Although… if the end-of-the-world is not nigh then why is our model portfolio not up 2000% like those crazy non-fungible tokens and digitised fart certificates?

It’s because reality is simultaneously more dull yet at the same time unbelievable than any clickbait writer can get away with.

The extent to which our perceptions are built on shifting sands becomes clear when you compare the Slow and Steady’s annualised return numbers for 2021 with 2020.

Here’s this quarter’s numbers in spangly EmperorsNewClothes-o-vision:

The Slow & Steady portfolio is Monevator’s model passive investing portfolio. It was set up at the start of 2011 with £3,000. An extra £985 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 tucked away in the Monevator vaults.

Let’s compare this quarter’s mostly healthy annualised returns against the same figures twelve months ago, after the markets checked into A&E:

Asset class Annualised return Q1 2020 (%) Annualised return Q1 2021 (%)
Emerging Markets 3.72 11.48
Global Property 1.8 5.21
Dev World ex-UK 7.52 14.81
UK Equities 3.46 5.97
Global Small Cap 2.89 19.73
UK Government Bonds 6.38 -4.62
Global Index Linked Bonds 7.79 10.52

After enduring only one bad crash in a decade, most of the model portfolio’s assets in Q1 2020 were barely beating inflation. Time to get out the service revolver!

A year on though and I look like a genius. Quick, launch my newsletter!

Global Small Caps are returning near 20% annualised – even though people keep pronouncing small caps ‘dead’.

Developed World ex-UK is near 15% annualised. Don’t mind if I do.

(Let’s gloss over ‘in-UK’ for now. I’m sure this ‘Global Britain’ business will come good eventually.)

And yes, conventional UK government bonds have been beasted over the past four quarters.

But remember – the same bonds were our only solace a year ago.

Hopes and fears

It’s astounding how quickly the narrative changes after a lurch in the numbers.

An asset class turns briefly red and everybody’s retelling 1970s-inflation horror stories like Freddy Krueger is rising from the grave.

In the media, there’s a simple maxim that governs content strategy: Hopes and fears.

Just lace every piece published with human catnip along these lines:

1. Our dreams of making it big

For example:

  • Get rich with Abyssinian Crypto-SPAC trading cards.
  • Grate cheese with your abs in six months by only drinking beer.
  • Five techniques to get your favourite bag of bones into bed.

2. Our darkest fears and insecurities

For example:

  • They’re coming to get you.
  • They’ll take away everything you’ve ever achieved.
  • You’re missing out on this amazing new trend and everyone pities you for it.

The former tactic appeals to our love of lotteries. Much as we know it probably won’t work, we find it hard to resist gambling on a big payoff – especially when we’re young and haven’t got much to lose.

The latter line of attack taps into the insecurities of those who are satisfied with the status quo: “Now I’ve got it made, I just need to keep my eyes open for anything that’ll rob me of my hard-won status.”

The less likely the story, the more compelling it is:

“If this is BS then surely they couldn’t publish it?”

Or,

“Can someone please debunk this for me and then I can forget about it.”

Thus every mild perturbation in the market gets spun into the foreshocks of the next crisis by a media hungry for clicks.

Be prepared

It’s hard not to be knocked off course in this environment. But Kipling must have had passive investors in mind when he counselled:

“If you can keep your head when all about you are losing theirs…”

Remember that verse next time your grip on sanity is being loosened by internet hype.

We have more to fear from rampant speculation than we do rampant inflation.

New transactions

Every quarter we slingshot £985 at the global market Goliath. Our chips are split between 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 these are our trades:

UK equity

Vanguard FTSE UK All-Share Index Trust – OCF 0.06%

Fund identifier: GB00B3X7QG63

New purchase: £49.25

Buy 0.235 units @ £209.31

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: £364.45

Buy 0.781 units @ £466.58

Target allocation: 37%

Global small cap equities

Vanguard Global Small-Cap Index Fund – OCF 0.29%

Fund identifier: IE00B3X1NT05

New purchase: £49.25

Buy 0.129 units @ £380.42

Target allocation: 5%

Emerging market equities

iShares Emerging Markets Equity Index Fund D – OCF 0.19%

Fund identifier: GB00B84DY642

New purchase: £78.80

Buy 40.766 units @ £1.93

Target allocation: 8%

Global property

iShares Global Property Securities Equity Index Fund D – OCF 0.17%

Fund identifier: GB00B5BFJG71

New purchase: £49.25

Buy 28.832 units @ £2.16

Target allocation: 5%

UK gilts

Vanguard UK Government Bond Index – OCF 0.12%

Fund identifier: IE00B1S75374

New purchase: £305.35

Buy 1.702 units @ £179.44

Target allocation: 31%

Global inflation-linked bonds

Royal London Short Duration Global Index-Linked Fund – OCF 0.27%

Fund identifier: GB00BD050F05

New purchase: £88.65

Buy 80.445 units @ £1.1

Target allocation: 9%

New investment = £985

Trading cost = £0

Platform fee = 0.35% per annum.

This model portfolio is notionally held with Fidelity. Take a look at our online broker table for cheaper platform options if you use a different mix of funds. Consider a flat-fee broker if your ISA portfolio is worth substantially more than £25,000.

Average portfolio OCF = 0.15%

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

Interested in tracking your own portfolio or using the Slow & Steady investment tracking spreadsheet? This piece on portfolio tracking shows you how.

Take it steady,

The Accumulator

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{ 22 comments… add one }
  • 1 Theslowlearner March 30, 2021, 2:56 pm

    Great stuff indeed times have never been so good…for now!

    “Consider a flat-fee broker if your ISA portfolio is worth substantially more than £25,000”
    … I have a 60k isa pot with a very similar 7 fund set up to yours using Charles Stanley with a 0.35% platform fee. I also prefer to pay in quarterly rather than monthly but flat-fee brokers still seem to work out more expensive when you consider that you need to do at least 28 trades per year (purchases and sales of each fund type 4 times a year). Am I missing something with the £25000 plus figure you mention?

  • 2 Al Cam March 30, 2021, 4:22 pm

    Still interesting – and hat tip for alerting folks that it is usually a good idea to not just “kick the tyres” but it is also sensible to “take a look under the bonnet” too!

    Do you still intend to publish your de-accumulation portfolio?

    FYI, John Greaney has just updated his 26th annual look at these things with data for 2020 – see https://retireearlyhomepage.com/reallife21.html.
    Things that caught my eye this year were:
    a) his gains versus his spending during 2020 – and how that may lead to a new take on the, so-called, 4% rule; and
    b) the sensitivity of the results to the date of jumping ship – the results starting from Jan 2000 (vs five years earlier) provide many salutary lessons.

  • 3 MrOptimistic March 30, 2021, 5:20 pm

    @TA. Seem to recall you have been mulling over whether property was worth holding as a supposed diversifier. Still happy with it? Also, since I don’t hold long duration bonds I’m wondering if shoving all the bond allocation into a short duration IL fund wouldn’t do a good enough job but I’ve never seen a historical comparison of conventional government bonds versus IL so best not I suppose.

  • 4 Mark C March 30, 2021, 7:05 pm

    In terms of long-term investments like the Slow & Steady portfolio (SIPP?), is the preference on using funds instead of ETFs just based on the OCF?

    I have a [somewhat aggressive] SIPP of VWRP and WLDS with Fidelity (to avail myself of the £45 cap on ETFs) but note the OCF of the funds in the S&S portfolio are so much cheaper and, as I’m unlikely to need to sell my funds in the SIPP for a while, I’m wondering whether I should sell the ETFs and buy funds instead (depending on the constituents of the funds etc.).

    Is there anything I’m missing in the funds v ETF debate? Apologies if this has been covered elsewhere on Monevator.

  • 5 HariSeldon March 30, 2021, 7:18 pm

    @slow_learner

    £60k at .35% is £210

    If you hold shares/investment trusts/ETFs then you have a choice of many less expensive brokers but you will be paying dealing charges, an encouragement not to deal too much.

    If you hold funds then interactive investor are quite good and for a low annual charge Halifax Share Dealing stand out, no ad valorem fee and £3 month

    Monevator have an on site broker comparison tool

  • 6 The Rhino March 30, 2021, 8:45 pm

    @AlCam – thanks for that link, really interesting. I imagine the ratio of gains to spending will have been exceptionally high for many this past year. I’m on approximately 20 which seems insane!

  • 7 c-strong March 30, 2021, 10:34 pm

    @Mark C – For some reason, global funds/ETFs like VWRP generally have a higher TER than a bunch of regional trackers that collectively make up the global market portfolio. I don’t think funds are typically cheaper than ETFs.

  • 8 Al Cam March 31, 2021, 12:29 am

    @Rhino:
    2020 was indeed an odd year!
    Ratio of c. 20 seems pretty high to me too – I wonder how others fared?

    More info about John P Greaney (JPG) available at comment #81 at:
    https://monevator.com/how-to-choose-an-swr-for-your-isa-and-your-pension-to-hit-financial-independence-fast/

  • 9 CanIRetireYet March 31, 2021, 8:39 am

    @Theslowlearner I was in a similar position (90k portfolio across 8 funds with CS) and I’m in the process of switching to Lloyds. They charge £40/annum for an ISA and investment account pair then £1.50/fund trade. Even with the cost to transfer out the funds from CS I calculate that I’ll be saving £200/annum in fees.

  • 10 TheSlowLearner March 31, 2021, 11:27 am

    @HariSeldon. Thanks for the suggestions. I have been looking over the Monevator Platform Comparison Tool for a while it is very helpful. Its between Halifax and Lloyds I think as II still charges £7.99 per fund trade although you get the first one free.

    @CanIRetireYet. I keep looking at Lloyds myself and their low fund trading fees. I
    may try them.

    I just need to find out any hidden costs like if they charge a fee for adding or removing cash to and from the ISA

  • 11 Brod March 31, 2021, 11:38 am

    @TheSlowLearner – “at least 28 trades per year” – aren’t you possibly over optimising here? If your allocation drifts 5% or so in a quarter, does it matter over 40 years? And of course, that drift has an equal probability to being to your advantage. The risk management benefit would be negligable as well I would have thought. I use ii, and their included trade is a great discipline not to over-trade.

  • 12 TheSlowLearner March 31, 2021, 2:36 pm

    @ Brod. “I use ii, and their included trade is a great discipline not to over-trade.”

    I currently invest quarterly into each of my 7 funds which I have always done so what is the alternative to keep prices down other than just have one or two funds which makes it low cost or monthly investing? I don’t put a lump sum in at the start of April I add to my ISA monthly from my income.

    Ps. I don’t sell funds quarterly I just buy additional funds for each of my allocations so 7 purchases x 4 quarters = 28 trades or am I looking at this incorrectly?

    I don’t mind my investments drifting at all I have just always invested quarterly rather than monthly. I roughly rebalance once a year at the most just to keep things approximating what I want my allocations to be.

  • 13 Brod March 31, 2021, 3:26 pm

    @TheSlowLearner – sorry, I was unclear. Why not select one or two funds a quarter to invest into? One big trade a quarter. So maybe 4-8 trades? Your Asset Allocation will nearly always be slightly out of kilter, but will get there in the end.

    I think this way you get 95% of the benefit with 25% of the effort/cost. And of course, the more you have in each fund, the less out of kilter you’ll be.

  • 14 Marcus March 31, 2021, 4:32 pm

    @TheSlowLearner II has no charge for regular investing. So there is no reason not to do it monthly. I assume currently you do it quarterly to reduce fees and hassle, but once set up there is nothing to do except your annual rebalance which can probably be done with the free trades – they give you one a month but I think they have a 3 month expiry date.
    Sounds like I’m a plugger or something.
    I’ve had an account there about 3 years. A couple of small things have annoyed me (but can’t remember what now), but that is much the same for all the brokers I’ve used.

  • 15 beeka March 31, 2021, 5:07 pm

    Given the recent discussion on other threads about platform/provider risk, is there a point at which the S&S portfolio should be split into another broker? It is also heavily dependent on Vanguard… is there scope for using an alternate fund provider for some of the funds?

    The S&S is a useful “worked example” and as such I realise that complicating it might put some people off starting their own portfolio… just wondered what the balance was / could be between a straightforward demonstration and a belt-and-braces FIRE portfolio setup.

  • 16 Fremantle April 1, 2021, 12:28 am

    @TheSlowLearner

    You don’t have to have a direct debit set up to use the III regular free trade, you can deposit funds directly quarterly and set your regular trades just before the monthly trade day. If there is no available cash, III ignore the preset regular trade. There is a minimum value, but it is not very high.

    Only works for buys obviously, but then you can use your included trades for sales.

  • 17 MrOptimistic April 1, 2021, 9:07 am

    @Slowlearner. II give you 1 free trade a month and their dealing charges seem to compare to Charles Stanley plus they offer a super investor tariff with reduced dealing charges but at £240pa. £60k across 7 funds is what an average of 9k per fund so you’ve spreading it thin, wouldn’t 4 funds/ investments suffice?

  • 18 TheSlowLearner April 1, 2021, 4:35 pm

    @MrOptimistic. I may well trim down some of my fund allocations soon so its more simplistic and follow something like Lars Kroijer’s approach and then just dabble in managed funds when the fancy takes it will certainly be more cost effective.

    @Brod, Marcus & Fremantle. Than ks for your replies, I can see II is very popular on here even with the monthly charge and the £7.99 and as I hope to max out my ISA allocations over the next 3 years I’ll have over £100,000 in there so II will work out quite well in the cost department.

    I will probably steer towards monthly investing as well it makes a lot more sense especially as my monthly contributions will be going up.

  • 19 The Accumulator April 2, 2021, 8:22 am

    @ Al Cam – thank you for the John Greaney reminder. Always interesting to see. He seems to have updated just yesterday.

    I published my deaccumulation asset allocation here:
    https://monevator.com/decumulation-a-real-life-plan/

    @ MrOptimistic – index-linked gilts were only launched in the ’80s so the data isn’t very telling. They generally don’t perform as well as conventional bonds in the recessions we’ve had since they were made available.

    There is a L&G global linker fund (hedged to GBP) with more of a mid-term duration – approx 8 if IIRC. I’d be completely happy with that.

    re: REITS – yep, happy with this as asset allocation is at 5% now. No point holding it if I go lower than that. It may offer some diversification value in the future (possibly not the kind I want if working from home en masse becomes a permanent feature). It goes into the bucket of reasonable diversifier, just don’t expect it to pull up trees nor save your bacon when everything’s going to hell.

    @ Mark C – dealing fee rates tend to make funds a much cheaper buy than ETFs for new investors making small monthly contributions. Also you can buy fractional fund units which makes very small purchases feasible with funds in a way that some ETFs won’t allow.

    Certain platforms become very cheap for ETF only portfolios e.g. Fidelity and Hargreaves but dealing fees aren’t great.

    Other than that I’m completely agnostic about funds v ETFs. Funds are just more convenient for the Slow & Steady portfolio.

    @ Beeka – once the portfolio breaches the £85,000 compensation limit then, agreed, diversification across platforms is deffo worth thinking about. Replicating the portfolio to guard against the vanishingly small possibility of a disaster at Vanguard is, I think, just making life hard for yourself.

    If the portfolio was worth mid to high six figures on, or if it’s a deaccumulation portfolio, then I’d split it across two platforms and look for a more even split across fund providers. That seems like a reasonable insurance policy when you’re relying on it to pay the bills. You probably won’t need that insurance but ultimately it’s about whatever helps you sleep at night.

  • 20 Al Cam April 2, 2021, 12:04 pm

    @TA:
    Re JPG – I noticed it around the 29th of March – and even then it had the 1st of April date. I do not think it is an April fool – as he usually does his annual update around the end of March/start of April in the following year – but you never know!
    Thanks for the link to your deaccumulation asset allocation. What I was trying to ask is do you intend to give regular updates on that Pot too and if so will the Pot be assumed to be held in just ISA’s or some combo of SIPP’s and ISAs? We bounced some ideas around in your previous S&S update post, see:
    https://monevator.com/the-slow-and-steady-passive-portfolio-update-q4-2020/

  • 21 The Accumulator April 5, 2021, 10:07 am

    Hi Al Cam – I haven’t made up my mind yet whether I’ll report on my portfolio only or whether I’ll also do a notional one that may be more universally useful. I put your thoughts in my future ideas doc though – thank you as always!

  • 22 MrOptimistic April 5, 2021, 1:55 pm

    @Thanks for the heads up on the l&g fund.

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