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The Slow and Steady passive portfolio update: Q2 2016

The portfolio is up 14.5% year to date.

I have been in a state of shock since the Brexit vote. Urgently consuming the latest news and opinion like a soap opera compulsive.

  • Who’s in charge?
  • What’s the plan?
  • What does this mean for our society?

Answers: It changes by the day. There isn’t one. Who knows?

When uncertainty abounds, instinct takes over. What’s the threat? Who’s the enemy? How bad can it get? Should I get outta here?

Can someone please tell me what’s going on?

Explanations abound. It’s rich versus poor. Old versus young. Metropolitans versus provincials. The informed versus the ignorant.

One thing’s for sure, our political elite aren’t ones to let a good crisis go to waste. They’re setting about each other like competitors in a new and deadly Olympic biathlon. It’s the 400m hurdles followed by a Wild West shoot-out.

My best hope is that we don’t just leave it to the remains of the top tier to repaint the playing field to suit their game. When society’s dividing lines are thrown into stark relief, the best thing we can do is cross them.

We need to understand why those on the other side think the way they do. We need to stand against hate. We need to be more engaged and involved than we have been. We need to spend more time with people who don’t think like us. Few of us are as informed as we thought we were.

Recrimination or retreat from what’s happened or trying to roll it back with second referendums can only deepen the divide that weakens us.

And now for some investing

Our doughty passive portfolio has been an island of calm amid the uncertainty. In fact, if you own a globally diversified portfolio you were probably as relieved as I was.

Everything went up:

Slow & Steady portfolio tracker, Q2 2016

The Slow & Steady portfolio is Monevator’s model passive investing portfolio. It was set up at the start of 2011 with £3,000 and an extra £880 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.

Our bond funds swung first to the rescue, and our standard issue UK government bonds put on 2.8% in the week since the vote.

UK inflation-linked government bonds did even better, up 3.8%.

But they were the laggards. Our overseas equities took us even higher:

  • Developed world ex UK up 6.1%
  • Emerging markets up 7.8%
  • Global property up 8.5%

But what’s this – even the UK’s FTSE All-Share ticked up 6.2%?

Maybe the world isn’t ending, after all.

Sure, UK equities have hardly covered themselves in glory through 2016 so far. They’re up 5.4% while the portfolio as a whole is up 14.5%. The gift of diversification just keeps on giving.

Our bonds compensate for the uncertainty in our domestic market, and the falling pound is partially offset by global assets valued in rising foreign currencies.

I’ve already noticed a couple of items being more expensive in the shops, but my portfolio acts as a natural hedge against my declining purchasing power.

Is this an argument for doing nothing?

Definitely not. It’s just we’ve already made the right moves. Our passive portfolio is a solid, all-terrain vehicle – well capable of dealing with uneven ground like this.

I’m not saying it’s indestructible or can’t get bogged down in quicksand. But because it’s built from parts sourced from around the globe, it does a good job of absorbing domestic shocks.

Brexit is a timely reminder that any one country can be tipped into turmoil. Our global outlook spreads that risk. If your job is tied to the prospects of UK-focused companies, a globally diversified position furthermore acts as a partial hedge against any misfortune you might face when recession stalks the land. And should the shock waves ripple out across the globe, our strong position in the US (about a quarter of the portfolio) takes advantage of the US dollar’s tendency to appreciate when global markets recede.

Meanwhile, our anti-inflation, index-linked bonds will respond well if UK inflation rises and hurts our UK equities and nominal bonds.

You could tinker with your asset allocation in the light of Brexit, but why?

Nobody knows how this is going to play out, and the impact will take years to unfold. This is probably one of the reasons why markets bungeed back up after June 24.

‘Positioning’ yourself in the face of such uncertainty is like letting a monkey pilot a spaceship.

The best you can do is adjust to defend against specific, personal risks. For example, if you’re particularly vulnerable to rising inflation then up-weighting your cache of inflation-linked bonds is justifiable.

Personally, I am going to make one change with my own finances.

I’ve been slowly building my emergency fund over the last few years. It now equals six months worth of expenses should both Mrs Accumulator and I be axed simultaneously. I was about to redirect those funds into equities as part of my drive for financial independence, but I think I’ll leave things as they are.

There’s no harm in plumping up the cash cushion given the odds have just shortened on a recession.

New transactions

Every quarter we push another £880 into the market’s slot. Our cash is divided between our seven funds according to our asset allocation.

We use Larry Swedroe’s 5/25 rule to trigger rebalancing moves, but all’s quiet this quarter. So we’re just topping up with new money as follows:

UK equity

Vanguard FTSE UK All-Share Index Trust – OCF 0.08%
Fund identifier: GB00B3X7QG63

New purchase: £70.40
Buy 0.432 units @ £163.12

Target allocation: 8%

Developed world ex-UK equities

Vanguard FTSE Developed World ex-UK Equity Index Fund – OCF 0.15%
Fund identifier: GB00B59G4Q73

New purchase: £334.40
Buy 1.311 units @ £255.13

Target allocation: 38%

Global small cap equities

Vanguard Global Small-Cap Index Fund – OCF 0.38%
Fund identifier: IE00B3X1NT05

New purchase: £61.60
Buy 0.287 units @ £214.75

Target allocation: 7%

Emerging market equities

BlackRock Emerging Markets Equity Tracker Fund D – OCF 0.25%
Fund identifier: GB00B84DY642

New purchase: £88
Buy 73.272 units @ £1.20

Target allocation: 10%

Global property

BlackRock Global Property Securities Equity Tracker Fund D – OCF 0.23%
Fund identifier: GB00B5BFJG71

New purchase: £61.60
Buy 32.489 units @ £1.90

Target allocation: 7%

UK gilts

Vanguard UK Government Bond Index – OCF 0.15%
Fund identifier: IE00B1S75374

New purchase: £132
Buy 0.811 units @ £162.83

Target allocation: 15%

UK index-linked gilts

Vanguard UK Inflation-Linked Gilt Index Fund – OCF 0.15%
Fund identifier: GB00B45Q9038

New purchase: £132
Buy 0.765 units @ £172.57

Target allocation: 15%

New investment = £880

Trading cost = £0

Platform fee = 0.25% per annum.

This model portfolio is notionally held with Charles Stanley Direct. You can use that company’s 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. Favour 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 buy a diversified portfolio using an all-in-one fund such as Vanguard’s LifeStrategy series.

Take it steady,
The Accumulator

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{ 82 comments… add one }
  • 51 The Investor July 7, 2016, 12:17 pm

    @Topman — Fixed now! 🙂 (That wasn’t even the typo I meant. Even I can’t be too finickity with comments (versus articles) or I’d never get any work done, but appreciate the heads up).

    Will delete this and your typo spotting comments later today to tidy everything up. Cheers.

  • 52 Neverland July 8, 2016, 10:31 am

    I think many are taking false comfort from flickering numbers on a web page on an Excel spreadsheet

    There is little doubt in my mind that the wealthier sections of the UK population (i.e. including everyone who reads this site) are materially poorer today than they were on 23 June

    The weakness is in the pound shows up instantly in portfolios (rising FTSE share prices (overseas focused businesses) and rising valuations in overseas shares), but very slowly in inflation numbers

    – petrol and flight prices go up within a few weeks, but only show up inflation statistics towards the end of the following month

    – most manufacturers forward cover their FX exposure for c. 6 months and therefore the first reactions we might see in rising prices from these imports won’t be seen this side of Christmas

    – energy costs are equally hedged for a period but price rises will commence in a few months I would imagine

    Depending on who you believe around 50-75% of currency depreciation will feed into inflation over the short term. Therefore you could expect another 2-3% on inflation over the next couple of years. I suggest you draw conclusions based on the 2010-2016 period on your personal prospects for compensating wage rises

    However, given a huge chunk of the UK economy is consumer driven, it is consumer confidence that will be the most important determinant of the UK’s economic direction. I don’t hold out much hope there personally. I think we will begin to see the gravity of our situation in the autumn here

    When you jump off a tall building its not the fall that kills you… it is hitting the ground…

  • 53 magneto July 8, 2016, 11:16 am

    Further to this previous comment :-

    “Unlike The (placid) Accumulator, we are not in the Accumulating stage, and therefore cannot find anything to push cash in to, under present market conditions. ” magneto

    Have now found a diagnosis for this sorry condition, which can afflict investors from time to time.
    It is called ‘Rhinophobia’.

    Any suggestions as to a cure would be most welcome!

    “I think many are taking false comfort from flickering numbers on a web page on an Excel spreadsheet” Neverland

    Quite so; but what can we do?

    All Best

  • 54 Neverland July 8, 2016, 11:24 am


    Have a good look at how exposed you want your investments to be exposed directly to the UK’s future economic performance

    Personally, increasingly less and less

  • 55 magneto July 8, 2016, 11:37 am

    Yes that is good long-term advice.

    Further, if as we and others suspect, inflation does rise, would that not leave Gilt Holders in a bit of a pickle?
    But only yesterday UK Debt Management Office sold £2.6bn of 10 year Gilts at 0.912%!
    Yet that tranche was 2.3 times oversubscribed!
    Something is not adding up?

    As regards IL Gilts, the calcs are way too complex for this investor.

  • 56 Neverland July 8, 2016, 11:57 am


    The fly in the ointment in the Brexit inflation effect debate is that a recession due to lack of demand (entirely possible IMHO) entirely flattens currency driven effects maintaining current lack of inflation

    However for that to happen the recession would have to be quite unpleasant

    This would be the argument for non-indexed gilts

  • 57 The Rhino July 8, 2016, 12:07 pm

    hmm, rhinophobia, i like the sound of that..

    also a condition suffered by top-bloggers whereby they dread having to delete yet another banal and puerile post by some ill-informed oik

  • 58 Topman July 8, 2016, 2:12 pm

    @ The Rhino

    I always thought rhinos were like solicitors, they’re short-sighted and they charge a lot!

  • 59 The Rhino July 8, 2016, 2:54 pm

    @TM – very good.. they’re also very primitive and often horny – this is why i try and avoid solicitors

  • 60 Planting Acorns July 8, 2016, 2:58 pm

    @Neverland… between late August 2015 and March 2016 the pound dropped from c. 1.57 to c. 1.38 USD to the pound…

    …I don’t remember all the doom and gloom and squealing ?

    Honestly from where I’m sitting a lot of this shouting about the pound depreciating is just a political comment re voting to leave The EU.

    I’m incredibly optimistic and positive about the future of this country now over my investing timeframe, and for any kids I’ll have… I guess I’d take your comments re the pound falling on board if you’d made them in March…

  • 61 Neverland July 8, 2016, 9:06 pm

    @ acorn

    Take a look at the oil price chart during the period you refer to and that should answer your question for you

  • 62 Henrik July 9, 2016, 9:56 pm

    Hi Accumulator,

    Sorry for the late reply for this nice blog post. Hope comments are still accepted. 😉 I like the idea of your slow and steady portfolio a lot. It encourages all the right things, diversification, rebalancing, passive investing and continuous contribution. Using individual funds you are showing nicely how diversification between different asset classes is important and the investor reaches a point where he/she is happy about most but not all parts of the portfolio.

    However after reading this far you can probably tell that there is a “but” coming. I would like to discuss the choice to pick a separate REIT/Property fund. I know I know property funds are not en vogue at all at the moment so please call me procyclical. 😉

    Why do I think its a bad idea? Mainly two reasons:
    1) The FTSE Developed World Index which you are holding via the two Vanguard funds (Developed World ex UK, UK all share) already contain REITS between 3-4%. Some might argue that’s their fair share in market cap weighted world.
    2) REITS have a higher volatility and lower returns than the rest of the (stock) market. According to Meb Fabers book “Global Asset Allocation” REITS have real returns of 5% p.a. and vola of 18% with a max draw down of 70%. Only Gold has worse parameters than that.

    Kind regards,

  • 63 magneto July 10, 2016, 12:00 pm

    Interesting comments!

    Would also add another reason sometimes put forward :-

    3) Most investors are already well exposed to Property through their own homes, or sometimes Rental Real Estate.

    However many investors do advocate Property as a diversifier, and they may well be correct?
    From your data how well does that diversification reason stack up?

    Would also add there are only so many tweaks The Accumulator can make, before the whole portfolio becomes inconsistent!

    All Best

  • 64 torus July 10, 2016, 9:37 pm

    Found myself in a post-Brexit quandary too.

    After going through some of the “recommended reading” from this site (Lars Kroijer, Tim Hale, etc) I finally forced myself to the conclusion that a 0% gilt allocation was probably insufficient for a 40-year old with no mortgage.

    Accordingly I bought some long-dated gilts in late May, (after some faintly off-putting discussion on the Motley Fool; they’re pretty pro-equity over there, aren’t they!).

    I am now sitting on a tidy “profit”, but regrettably I am only about a third of the way to my target allocation of 15% in the SIPP, with little to no appetite to buy more at current prices.

    In the face of this, does one keep plugging away with the gilt purchases? Cave in and revert to buying more VWRL? Something else?

  • 65 The Accumulator July 10, 2016, 9:45 pm

    Hi Henrik,

    The 3 – 4% in REITS represents the market share of quoted property investment firms but don’t represent the value of property assets in the global economy. Even so, my objective is to diversify meaningfully between imperfectly correlated assets not try to replicate the world economy.

    That’s why the risk-reward profile of any asset should be considered not in isolation but in view of its overall role in the portfolio and how it correlates to your other holdings.

    In this instance, it’s the job of the global commercial property fund to provide some diversification from developed world equities. It’s far from perfect in this regard, but the best I can do using index trackers.

    Re: your quoted figures, global equity has produced annualised real returns of 5% with volatility of around 20%, so I’d be pretty happy with the risk adjusted returns you mention.

  • 66 The Accumulator July 10, 2016, 9:48 pm

    @ Magneto – I think of global commercial property as a quite different proposition from domestic UK property so not too worried about excessive exposure to property overall.

  • 67 magneto July 11, 2016, 10:33 am


    “All that quantitative easing does is to remove higher-quality interest-bearing securities from public hands, replace them with zero-interest cash, and leave a remaining stock of lower-quality speculative assets that then have to compete with that cash. To increase the discomfort of investors, the Bank of Japan and the European Central Bank have also begun charging banks on their reserve balances, which has driven interest rates to negative levels across Japan and Europe. ”
    John Hussman, (alleged Perma-Bear) from his regular article this week, which may be relevant to Gilts/Bonds dilemma to read in full?

    “I am now sitting on a tidy “profit”, but regrettably I am only about a third of the way to my target allocation of 15% in the SIPP, with little to no appetite to buy more at current prices.”
    torus (re Gilts)

    It is tempting to seek yield and -ve correlation (not guaranteed); on longer duration Bonds in the present climate.

    But this raises a fundamental question :-

    What is the purpose of Fixed Income?

    1. Is it to provide a meaningful income and said -ve correlation (not guaranteed) ?
    2. Or is it to provide a stable reservoir from which the investor can rebalance in and out of the volatile Asset Class of Stocks?

    The latter would mean short duration Bonds, whether Gilts or IG Corps, and /or Cash.
    The “Take your risk on the Stock not the Fixed Income side.”

    In the case of this investor, there is some sympathy with the perhaps over-dramatic musings of John Hussman, if not complete alignment.

    As Value Influenced (downside risk aware) Investors in retirement , we like yourself are struggling to find reasons to invest in Gilts at present valuations.

    And thus as mentioned previously, we are left struggling to cope with the investor’s ailment of ‘Rhinophobia’ (the dread of ever having any cash).

    The Accumulator fortunately has no such qualms, being focused on the longer term.

    Sorry no answers, only a few more questions!

    Good Luck

  • 68 torus July 11, 2016, 11:18 am


    Cash is another problem entirely; I’m a freelance consultant so I hold an unusually large amount of it. I’m resigned to the necessity of a modest standing order to the cash ISA in an attempt to preserve the purchasing power therein!

    Point taken about duration, what I decided (for the SIPP only) is that given that there is a somewhat fixed end-date to the portfolio I should go for a single gilt issue maturing somewhere after that end date, and “rebalance” into that issue with new money and/or equity gains as required. This is in keeping with the often-repeated advice that older investors should hold bonds of shorter maturity than younger; my way of implementing this is to buy bonds (in this case a single issue) that are currently long-dated, but will become progressively more short-dated with the passage of time!

    So yes, in the interests of -ve correlation I will probably buy some more, but may procrastinate for a couple of months more first.

    “Fortunately” or otherwise, my non-SIPP portfolio already has the right amount of fixed income, so no difficult decisions required there.

  • 69 Maric July 11, 2016, 6:48 pm


    Thanks for your wise words.

  • 70 FIREplanter July 12, 2016, 2:09 am

    How do you calculate the Asset Class Annualised Return?? Can figure out with my calculator. Building my data sheet modeled after the S&S portfolio.

  • 71 magneto July 12, 2016, 9:44 am

    @ torus

    Here is another view on Bonds, see MarketWatch today “Red Flags”.

    “Demand for stocks that offer high dividends and for bonds saddled with record-low — and even negative — yields has shaken up the traditional use of bonds and stocks in portfolios.

    “Investors are buying bonds for capital appreciation and stocks for income. The world has turned upside down,” said James Abate, chief investment officer at Centre Asset Management LLC.

    The shift, according to Abate, has been fueled by central-bank stimulus inflating government-bond prices across the world, pushing yields on nearly $12 trillion of government debt into negative territory.

    And as bond yields tumble, more and more equities are yielding more than government bonds, spurring demand for companies offering sustainable income in the form of dividend payments.

    “It is a poison brew that central banks keep serving us,” Abate said.”


    Well that is food for thought !!!

  • 72 The Investor July 12, 2016, 10:11 am

    @magento — That was first food for thought 7 years ago, when it started and pundits first commentated on it. (My first stab was in early 2009 from memory). Please stop cutting and pasting huge chunks of market speculation on passive investing posts, it’s counter productive and off topic. Thanks.

  • 73 magneto July 12, 2016, 2:39 pm

    Thanks TI

    Duly noted; will try to refrain from cutting and pasting “huge chunks”.

    But bemused as to why off topic?

    The S&S has a very typical weighting to Fixed Income, including Bonds.
    ‘torus’ has raised valid concerns about his own exposure.
    Think by the way, his thoughtful solution merits some contemplation, (might be covered in previous articles?).

    7 years ago Bonds were significantly cheaper than today.
    The last of our Gilts were prised from our hands only this year.
    Seemingly we were unduly faithful.

    Now watch Gilt prices rocket !!!

  • 74 The Investor July 12, 2016, 2:55 pm

    @magento — Because this is a passive investing post and question, and you’re quoting lurid market speculation about the causes and sustainability of low yields in bonds.

    In topic responses would include a discussion of risk tolerance, size of allocation, or sober contemplation of the substitution of cash for bonds.

    A one off wouldn’t bother me but you’ve repeatedly posted in this vein in bonds, and we’ve even discussed it before!

    I don’t want passive investors being scared or confused by whatever market punditry someone chooses to post in the comments, basically. 🙂 I wouldn’t mind so much on one of my own active-ish posts, although as I say I think we’ve got the message from you.

    You risk becoming the new [name redacted because I don’t want to be mean] who for years posted bonds were in an unsustainable bubble every couple of weeks until either my exasperation or his embarrassment caught up with him.

    In short, I don’t doubt these are unusual times for bonds, we’ve discussed why dozens of times, and colorful market commentary is best ignored by passive investors.

    Cheers! 🙂

  • 75 The Accumulator July 12, 2016, 6:32 pm

    @ Torus – I can’t blame you for baulking at the idea of buying more long term bonds. If interest rates rise then they will suffer. Magneto’s advice of shortening the duration is the best way to continue building your allocation while reducing the potential for capital losses if interest rates rise. You could also open lots of high interest bank accounts and stuff with cash. Not a bad idea as the expected return of a high-grade bond is approximately it’s yield to maturity. So holding cash is a reasonable move if your needs are served by the many current accounts offering 3% or more. It’s a pain in the bum though. The other downside is that cash doesn’t cushion against volatility like bonds as it won’t appreciate during market turmoil.

  • 76 torus July 12, 2016, 8:53 pm

    Well, so far I’ve procrastinated for a day and the situation has improved by a whole 6bps, long may it continue…

    Agree that cash is a pain; our main current account is the Santander one but I’m pretty lax about keeping it topped up.

  • 77 gadgetmind July 13, 2016, 11:34 am

    I’m going to rebalance everything at the end of July when I finish our ISAs for the year. I could try to get clever with bonds, but every prediction made over the last few years (by myself and everyone else!) has been wrong, so I probably won’t.

  • 78 hyperhypo October 1, 2016, 9:21 am

    i’m wishing to join the s&s in reality after looking for a while now …my company scheme is in transit from stakeholder and can access 4000 funds including all cited in the S&S.
    I’m 57 and and have a target retirement date of 66 as far as SP goes, 63 when a db scheme kicks in. So keep invested for 9 years , needing partial drawdown from say 62.
    So i reckon on a 40 % equity start for now. Question is for me how to adjust current layout of s&s (at 70% equity) to suit….i suppose i could start by including 30 % UK gilts and 30% index linked guilts, keep 8% property, and adjust the remainder , but i believe there may be a better model for reshaping the profile according to my age, equity share . I realise i could simply buy a eg. a combination of vls 40/20 and some property and vary proportions of 40/20 as i get older but would prefer to learn myself and have my variant of S&S ….i just need a few pointers to get going. john

  • 79 The Accumulator October 1, 2016, 4:43 pm

    Hi John,

    Think of property as part of equity then:

    You could take a look at an all-world ETF e.g. VWRL and divide your equity along the same lines – the theory being that an all-world index is a ‘good enough’ proxy for where global capital is placing it’s money. And the theory behind that being, you and I probably don’t have any reason to think we know better than global capital.

    Another option would just be to equal weight the components of your equity portfolio. This would tilt you more towards small cap and emerging markets than would otherwise be the case – potentially creating a more volatile portfolio with a stronger expected return.

    On the bond site, index-linked gilt funds contain very long dated funds. These are likely to be very volatile if interest rates rise. This may not be what you want so close to drawdown, so one solution would be to keep your linker allocation to about 10% and consider a short-term gilt ETF that’s less susceptible to volatility, has less expected return but is also fairly good versus inflation as in that scenario rapidly maturing bonds are replaced with new issues at higher interest rates.

  • 80 hyperhypo October 4, 2016, 9:56 am

    A. Many thanks for coming back …i’m enjoying the process of crafting this “old and in the way ” variant of the S&S !
    32% VWRL ETF
    8% Global Property Tracker
    45% UK Gov Bonds
    15% UK Index Linked Bonds

    Something about having 45 % in one item is suggesting adding in a Global Bond fund

    So :

    32% VWRL ETF
    8% Global Property Tracker
    40% UK Gov Bonds Tracker
    10% UK Index Linked Bonds Tracker
    10% Global bond Tracker

    This looks like a starter to me …at least a mark 1 version

    I’ll try and play around with this in the ETF Strategy Tool …trying to work out how i add in property and different bond mixes …it seems to direct me to use a single bond model , for example. Need to do more homework here.


  • 81 The Accumulator October 4, 2016, 6:14 pm

    Looks good. Make sure your global bond fund is hedged to Sterling. Sorry if you knew that already!

    What is this ETF strategy tool of which ye speak?

  • 82 hyperhypo October 4, 2016, 9:09 pm

    Justetf.com…i’m sure it featured in a past post on here somewhere…i’ve figured how to put in my transfer value of my existing stuff and allocate according to the ETFs that feature on their pic list that match my 0.1 version above. Noted bit about the GBP hedge on the global bonds…i had wondered about this, choice might be more limited.
    And good to hear of the Q3 update….reviewing its history really has inspired me to have a go…..

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