Ouch – our model passive portfolio has hit a speed bump. We’ve gone backwards for the first time in three and a half years.
Every single asset class has taken a hit, even our bonds.
We’ve lost a grand in the three months since our last Slow & Steady report [1], and 4.72% has been scalped off our virtual wealth.
But hey, look at all the green numbers! On an annualised basis every asset class except for global property is up1 [2] and the portfolio overall has still made 8.19% per year.
[3]N.B. Glb Prop, Dev World, Small Cap and Inflation Linked bonds show year-to-date returns as holdings are less than one year old [4]. (Click to enlarge).
In short, there’s nothing to worry about. This is perfectly normal. If anything, it’s the last three and a half years of smooth growth that has been weird.
The Slow & Steady portfolio is Monevator’s model passive investing [5] portfolio. It was set up at the start of 2011 with £3,000 and an extra £870 is invested every quarter into a diversified set of index funds, heavily tilted towards equities. You can read the origin story [6] and catch up on all the previous passive portfolio posts here [7].
The standard deviation of equities is around 20% and the expected return is around 5%, which means that in two out of any three years, we might expect them to land anywhere in the +25% to -15% zone.
A portfolio like this with a fair slug of UK government bonds, can expect a deviation of around 15%. But that’s just statistics. Anything can happen in reality, and what has happened recently is no more than a wee stumble. It’s useful to get a small jolt like this rather than to be lulled into thinking our investments can only ever go up.
So don’t worry too much about the Greek crisis. Crises comes as standard in the markets. Things can get far worse and at some point they will. Whether it’ll be anything to do with the Greeks or some other as yet unknown and unexploded bomb – who knows?
In the meantime, let’s practice a few safety drills: Stay away from the news, crack open a book [8] on stock market history, and check out those huge jagged ravines on the charts.
At some point, you, me and our portfolios will fall down one. Brace, brace, brace!
New transactions
Every quarter we throw another £870 into the market’s wind machine. Our cash is divided between our seven funds according to our asset allocation. With all asset classes off the boil, at least we’re buying everything more cheaply this time.
We use Larry Swedroe’s 5/25 rule [9] to trigger rebalancing moves, but all’s quiet on that score this quarter. So we’re just topping up with new money as follows:
UK equity
Vanguard FTSE UK All-Share Index Trust – OCF [10] 0.08%
Fund identifier: GB00B3X7QG63
New purchase: £87
Buy 0.546 units @ £159.44
Target allocation: 10%
Developed world ex-UK equities
Vanguard FTSE Developed World ex-UK Equity Index Fund – OCF 0.15%
Fund identifier: GB00B59G4Q73
New purchase: £330.60
Buy 1.5 units @ £221.02
Target allocation: 38%
Global small cap equities
Vanguard Global Small-Cap Index Fund – OCF 0.38%
Fund identifier: IE00B3X1NT05
New purchase: £60.90
Buy 0.322 units @ £189.07
Target allocation: 7%
Dividends last quarter: £4.48 (If I were a rich man, yubby-dibby-dibby-dum…)
Emerging market equities
BlackRock Emerging Markets Equity Tracker Fund D – OCF 0.24%
Fund identifier: GB00B84DY642
New purchase: £87
Buy 75.652 units @ £1.15
Target allocation: 10%
OCF down from 0.27% to 0.24%
Dividends last quarter: £10.47
Global property
BlackRock Global Property Securities Equity Tracker Fund D – OCF 0.23%
Fund identifier: GB00B5BFJG71
New purchase: £60.90
Buy 41.885 units @ £1.45
Target allocation: 7%
Dividends last quarter: £13.21
UK gilts
Vanguard UK Government Bond Index – OCF 0.15%
Fund identifier: IE00B1S75374
New purchase: £121.80
Buy 0.865 units @ £140.78
Target allocation: 14%
UK index-linked gilts
Vanguard UK Inflation-Linked Gilt Index Fund – OCF 0.15%
Fund identifier: GB00B45Q9038
New purchase: £121.80
Buy 0.812 units @ £150.01
Target allocation: 14%
New investment = £870
Trading cost = £0
Platform fee = 0.25% per annum.
This model portfolio is notionally held with Charles Stanley Direct [11]. 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 [12] 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 such as Vanguard’s LifeStrategy series [13].
Take it steady,
The Accumulator
- Though please see the note in the caption. [↩ [18]]