How quickly things can change! Another bumper quarter for global equities has helped to chase the blues away like a glimpse of spring sun.
Our Slow & Steady model portfolio has plumped up 3.7% in the last three months [1]. That’s on top of the 7% gain the quarter before that.
Overall, annualised returns are now back to a healthy 7%. Call it 4% after inflation. If you own an equity-heavy passive portfolio you’ll be happier still.
Here are the numbers, in Zippity-Doo-Dah-o-vision™:
[2]The Slow & Steady portfolio is Monevator’s model passive investing [3] 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 [4] and find all the previous passive portfolio posts [5] in the Monevator vaults.
While much of Q4’s rise was accounted for by a surge in government bonds and property they’ve both subsided a little since.
Instead we’re back to the established routine: US large caps as the motor of our passive portfolio.
Our Developed World fund had approximately 50% in the US when we first invested back in 2011. Now that allocation has climbed to over 70% – a worryingly high exposure to a richly-valued stock market [6] and an economy stoked on government stimulus.
The Investor wrote an excellent piece [7] for Mavens [8] on how to think through this situation, including your options for taking evasive action.
He also turned up a Larry Swedroe article [9] on just how hot the US market would have to run to repeat the returns of the last decade.
In short: we’d need a Tech Bubble Part II to get anywhere close.
Needless to say I won’t be selling the Slow & Steady’s equity allocation to plough it 100% into an S&P 500 ETF [10] anytime soon.
However neither am I about to advocate for a wholesale shift into a World ex-US [11] tracker.
American idle
For one thing, the Slow & Steady portfolio is only 28% US large caps when you take the whole portfolio into account.
And even if we did dilute the Developed World fund’s US holding back down to the 50% level where we first invested, the US large cap allocation would only be reduced to 20% of the total portfolio.
Said differently – the portfolio is already adequately diversified. If Big Tech’s future returns are sub-par, a 28% to 20% shift won’t make a huge difference.
Secondly, nobody is predicting negative returns for the US. Just that the market must surely mean revert – and that some other region must surely take the lead for a while – because the S&P 500 doesn’t win every decade.
I’ve been reading predictions like this for more than a decade. Nobody can make a strong case for any other market besides, “it’s cheap.”
Mean reversion is not a physical law. It’s a pattern found in the last 100 years of data. It doesn’t mean that cheap markets can’t get cheaper.
The Russian market looked awesome value before the Ukraine War. I’m glad I didn’t bet my shirt on those stocks.
In my personal portfolio, I siphoned off cash to deploy in emerging markets and UK equities for years because they were cheap. That hasn’t worked.
It did teach me a useful lesson about trying to outwit the market though.
I can’t do it.
New transactions
Every quarter we nourish our portfolio with £1,264 of investment fertiliser. This fresh muck and brass is split between our portfolio’s seven funds, according to our predetermined asset allocation.
We rebalance using Larry Swedroe’s 5/25 rule [12]. That hasn’t been activated this quarter, so the trades play out as follows:
UK equity
Vanguard FTSE UK All-Share Index Trust – OCF [13] 0.06%
Fund identifier: GB00B3X7QG63
New purchase: £63.20
Buy 0.24 units @ £262.85
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 0.722 units @ £647.54
Target allocation: 37%
Global small cap equities
Vanguard Global Small-Cap Index Fund – OCF 0.29%
Fund identifier: IE00B3X1NT05
New purchase: £63.20
Buy 0.148 units @ £428.36
Target allocation: 5%
Emerging market equities
iShares Emerging Markets Equity Index Fund D – OCF 0.19%
Fund identifier: GB00B84DY642
New purchase: £101.12
Buy 53.63 units @ £1.89
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 27.95 units @ £2.26
Target allocation: 5%
UK gilts
Vanguard UK Government Bond Index – OCF 0.12%
Fund identifier: IE00B1S75374
New purchase: £316
Buy 2.355 units @ £134.21
Target allocation: 25%
Global inflation-linked bonds [14]
Royal London Short Duration Global Index-Linked Fund – OCF 0.27%
Fund identifier: GB00BD050F05
New purchase: £189.60
Buy 179.546 units @ £1.056
Target allocation: 15%
New investment contribution = £1,264
Trading cost = £0
Take a look at our broker comparison [15] table for your best investment account options. InvestEngine [16] is currently cheapest if you’re happy to invest only in ETFs. Or learn more about choosing the cheapest stocks and shares ISA [17] for your circumstances.
Average portfolio OCF = 0.16%
If this all seems too complicated check out our best multi-asset fund [18] picks. These include all-in-one diversified portfolios, such as the Vanguard LifeStrategy funds [19].
Interested in tracking your own portfolio or using the Slow & Steady investment tracking spreadsheet? Our piece on portfolio tracking [20] shows you how.
Finally, learn more about why we think most people are best choosing passive vs active investing [21].
Take it steady,
The Accumulator