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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 }
  • 1 gadgetmind July 5, 2016, 10:16 am

    And if sterling drops another 10% or more, think how rich you’ll be (in pounds) then!

    I’m sure some prices will take time to react, but react they will. Why should (say) BMW sell a car for the same number of pounds given how their buying power has dropped? I’m sure they do some hedging to cover short term movements, but they will have to adjust list fairly soon.

  • 2 Gary July 5, 2016, 10:27 am

    A perfectly timed update and reminder, illustrating a calm and thought out strategy is the one to get through such turmoil. I’ve a similar spread portfolio of risk and asset groups, and by doing nothing it is all good so far! It is easy to react to 23rd June, but what to do, what to sell and what to buy? That’s why I like this sort of approach, as it removes the temptation to dabble too much and try to predict the market.

    Onwards and upwards!

    And thanks again for these insightful thoughts.

  • 3 The Rhino July 5, 2016, 10:48 am

    TA – thats a lemsip of an article – very soothing

    I was having a wobble on the emergency fund too, thinking how nice it would have been to get the extra juice from those brexit returns. I’ve got approx 3 years worth at the mo. But I think I’ll just sit on it too. Maybe use some up on big infrastructure projects before prices creep up.

    If you’re looking for beta-testers for the old book, then I am game..

  • 4 Topman July 5, 2016, 10:49 am

    In the eye of a storm it can sometimes be flat calm but not for long. We are still in the immediate swirl of post-Brexit opinion and supposition, and nobody can say with certainty what is going to happen as we explore the way forward.

    I intend to sit and watch for a while, rather than rush into any changes to my portfolio. Yes, the early bird catches the worm but the second mouse gets the cheese!

  • 5 Jobs July 5, 2016, 10:51 am

    Problem with everything gone up is it now all looks expensive! My plan for this year was to leave my current equity allocation as-is, and move cash into UK govt. bond funds, but they’re now up – not sure whether to continue drip-feeding, or pause until they next drop back.

  • 6 Topman July 5, 2016, 11:35 am

    It was announced (ShareCast News) yesterday that “Standard Life has suspended trading in its UK property fund after uncertainty surrounding markets in Britain after the country voted to leave the European Union”, with this decision to be reviewed at least every 28 days.

    It is my understanding that this is the OEIC, not the similar Investment Trust (which I hold and the share price of which has taken an associated knock), and follows a sharp post-Brexit increase in withdrawal applications. Clearly, the kind of investments which the fund holds are not available for instant realisation.

  • 7 goldghost July 5, 2016, 11:43 am

    Ha! Your equity portfolio is identical to mine. That makes me feel better.

  • 8 Duncurin July 5, 2016, 11:46 am

    When I started on this investing lark a couple of years ago I did a lot of reading and tried to understand what was going on. It seemed to me that it was a bit like medicine: if you ask four doctors you’ll get five opinions. But what I read in Monevator seemed extremely sensible, and I was particularly impressed by Lars Kroijer’s contributions. After some expensive fiddling to begin with I now have everything in a LifeStrategy fund.

    That’s it, really. I just get on with life now. I still enjoy reading Monevator each weekend, but I never worry that I ought to be doing something.

    I am most grateful to you.

  • 9 john July 5, 2016, 11:55 am

    1) Good point about how holding US denominated assets is a partial crash hedge and a local inflation hedge. I’ve always felt that fx risk was risk you’re not getting paid for but this has made me think.

    2) I also know what you mean about being in a state of shock. I feel like I’m living in a parallel universe. The “what if leave had won” variation.

    3) I suspect the urge to delay new investments may be universal. Maybe this will cause a slow down. Maybe it means we’re missing value.

    4) @topman, property OEICs have got to be a terrible idea. I’m less worried about the potential liquidity, more worried about the 25% cash positions they hold to cover redemptions and the fact their prices are just NAVs. REITs>>OEICs. Cheap leverage, marked-to-market prices, tax advantaged (in an ISA) and well regulated.

  • 10 oldie July 5, 2016, 12:01 pm

    For me one of the attractions of the passive strategy is that you make decisions before “things happen” not afterwards when it is probably too late and maybe some overreaction/underreaction has taken place.

  • 11 Topman July 5, 2016, 12:54 pm


    Yep, I’m ISA’d to the hilt!

  • 12 FI Warrior July 5, 2016, 1:44 pm

    With the wisdom of hindsight, I see I’ve now been caught out too heavily invested in a commercial property fund. I missed the warning signs of a slow-down pre-Brexit because liquidity had always been excellent, so I felt no need to worry. (yes, the past-performance disclaimer applied but it’s repeated so many times it loses effect in the real world)

    After the result, a wall of skittish investors all tried to sell at once and for the first time since I’ve been involved, (a few years) I’ve actually now seen activity seize with the panic, ; it was like a train hitting the buffers.

    I knew in the back of my mind that as an asset class property is like equities in that you should only look at it if you can afford to wait 10 years for the value to get back up after a crash; but seeing it happen is still a bit of a shock.

  • 13 rugby trader July 5, 2016, 1:50 pm

    FI Warrior, today’s Moneyweek email is right up your street


  • 14 Topman July 5, 2016, 2:10 pm

    @FI Warrior(12)

    I see today that Aviva has become the second UK property fund to halt redemptions. OEICs are a breed apart and so this is not in itself a contagion.

  • 15 Cathy July 5, 2016, 2:12 pm

    I think at the moment the country feels deeply split down the middle with the Leave side feeling quite united in victory, but am wondering if the sense of triumph will last? … It seems clear that not everyone voted Leave for the same reasons and so not everyone can be made happy by whatever potential “New Britain” eventually gets served up by Theresa May, or whoever. Certainly the Leave leadership fell apart pretty much straight away – not much unity there.

    There are certainly conservative thinktanks suggesting that with the EU hand off the tiller and Labour in disarray, now might be the time for some sweeping and radical reforms (getting rid of climate change regulation, changes to NHS etc) – but how influential such folk are likely to be in the fallout, I do not know.

    I’m deeply irked that the instant the result became known it was accepted as a “that’s it, we’re leaving, end of story”, with no further questions asked about why people wanted to leave and whether what people want can even be achieved by leaving the EU. The result was always going to be close and thus should never have been set up beforehand as any kind of final answer, whichever way it fell.

  • 16 Topman July 5, 2016, 2:23 pm

    @Cathy(14) “….. set up beforehand as any kind of final answer …..”

    The result of the referendum is not legally binding, it is merely advisory.

  • 17 gadgetmind July 5, 2016, 2:59 pm

    Our ISAs only got partially filled in April but I should be able to complete them in July and it will then be time for a rebalance. FTSE 250 and REITs are looking like the major areas to add, with bonds and infrastructure both looking well in need of a trim!

  • 18 magneto July 5, 2016, 6:54 pm

    ” OEICs are a breed apart and so this is not in itself a contagion.”

    Unit Trusts and Mutual Funds are mostly OEICs!

    Then ETFs! Wonder how complacent should we be about ETFs?
    Strip away the counterparty activity (creating and redeeming shares); might we then be left in effect with an OEIC?
    How much attention should we therefore pay to the underlying liquidity of the Assets in ETFs?

    Do CEICs (e.g. UK Investment Trusts) then have this one important edge?

    No answers here! We wait and watch!
    Two swallows do not make a summer?

  • 19 magneto July 5, 2016, 7:47 pm

    As an afterthought.

    Those investors fleeing such funds on lower prices, are doing the very opposite of the methods employed here!

    Rebalancers would be moving the other way!

    Herd behaviour is easier to criticise than to avoid.

  • 20 gadgetmind July 5, 2016, 7:51 pm

    Rebalancers are moving the other way and it’s the silly sods who went yield hunting and pushed prices sky high who’re running for the doors. Same old same old. I do worry about infrastructure. I bought big into this as bonds were “in a bubble” and the likes of HICL, JLIF and BBGI have done well for us, but those premiums are giving me a nose bleed.

  • 21 Elef July 5, 2016, 10:29 pm


    I never cease to find the slow and steady portfolio inspiring. In 5 and a half years the money invested has increased by nearly 40pc, from c.20k to nearly 30k. This all with a few mouse clicks over half a decade ago (has there ever been a rebalance? – I honestly can’t remember).

    And a small trickle of money in those 5 and a bit years has now become a pot that is greater than the average man’s annual salary and a around a half to a third of the UK average pension pot (thisismoney).

  • 22 Oliver H July 6, 2016, 9:06 am

    Similar to Duncurin
    Pretty much just have two lifestrategy funds, 80 and 20.
    Though the cost is higher I’d say it certainly stops one doing silly things.

    They have weathered Brexit rather well, especially the 80, of course in a global sense the drop in the pound has wiped out gains but in the end turned out to be safer than cash

  • 23 magneto July 6, 2016, 10:25 am

    “I do worry about infrastructure. I bought big into this as bonds were “in a bubble” and the likes of HICL, JLIF and BBGI have done well for us, but those premiums are giving me a nose bleed.” gadgetmind

    Infrastructure has certainly been a truly wonderful investment for some years now, esp for those in retirement seeking IL Income, esp compared with (“bubble” like) Gilts offering such un-enticing real yields.

    HICL is today trading on a premium of 18%ish, having ranged from 3% to 25% over recent years.
    We have been top-slicing one Infrastructure position, part-top-slicing another.
    Book costs for these positions are thereby reducing steadily.
    Any major pricing slump would not be seen as a problem, but rather an opportunity to add back in.

    See as of last night, we are now up to three OEIC Property Funds so called ‘gated’; and counting. Investors may be reassessing Asset Class liquidities and hence most suitable holding structures?

    Carney seems particularly inept, having succeeded in talking down £Sterling, now turning his attention to Buy-to-Let Landlords property exposure. That should ripple on to bank lending and weaken bank shares further?
    It might be better if markets did not look to Carney (or Osborne) for words of wisdom and reassurance.
    But looking on the bright side if Carney does cause a major set-back in Residential Real Estate, those potential first time buyers might be able to at last climb aboard the housing ladder?

  • 24 The Investor July 6, 2016, 11:07 am

    Carney hasn’t talked down sterling, he’s providing just about the only sober leadership at the highest level right now.

    The country talked down sterling by voting Leave and risking a huge economic setback at a time of a yawning massive current account deficit and still strained public finances.

    I have no intention of allowing this casual newspaper commenter style nonsense on this blog, as I’ve said before, as it just leads to eventually noisy rubbish. I will delete as I see fit.

    People can decide for themselves whether that’s a good/bad reason to discuss such stuff here.

    The comments on liquidity are absolutely on topic, of course.

    For at least one of the open ended funds that are closed to new investors, the problem of their cash being too depleted seems to have been made worse still by much of their “cash” being in REITs, which have duly crashed.

  • 25 gadgetmind July 6, 2016, 11:18 am

    I tend to agree that Carney is doing the right thing by trying to get people to take their foot off the gas before we hit the wall. As for sterling, it did what it did without him, and I doubt he could influence it much now using only words.

    Liquidity is an issue for property and could be for bonds too, so my bond ETFs worry me a little. I’ve been tempted a few times to sell the lot and pile into Capital Gearing Trust, but that feels a trifle “active” !

  • 26 The Investor July 6, 2016, 11:56 am

    To me, “talked down” has some connotations of intent. Perhaps on reflection I’ve been a bit hair trigger with the old riot act there, but I’ve quickly grown fed up of even mainstream politicians and CEOs (eg one of housebuilding companies bosses on the Beeb yesterday) saying we’re going to talk ourselves into a recession.


    I agree words of assessment from central bankers can be divined for information that might influence macro economic factors. That’s not talking down though.

    Re: Bond ETFs, somebody did a big study if I recall correctly after the last liquidity scare and decided any hiatus was limited to hours, rather than the months or years you might get with commercial property funds. As you’ll know, it will be high yield and obscure where the risks may be greater, if you are nervous.

    ITs are superior in respect to their owners not forcing liquidity events, but of course we pay for that with discounts/premiums so still need a long term mindset. But at least a quote of some sort will be there if you decide you need the cash come what may! 🙂

  • 27 FI Warrior July 6, 2016, 11:58 am

    Meanwhile, on the domestic property front, I know an experienced estate agent who covers London & the SE, so was really curious to get an honest opinion, (possible since I wouldn’t be buying anything) on what the immediate aftermath of Brexit is doing to the housing market in their real-world experience.

    She said sales have fallen hard, no surprise there, buyers want to see if they can get a good discount by hanging back because the £ keeps falling and also the sellers are paying bills while not earning during the delay, inevitably that’ll shake out some forced sales. On the rental front there’s less churn too, less tenants are on the move because landlords are not selling and at the same time are not upping the rent either as they wonder if some of those 2-3 million EU citizens bailing out will start to have an effect. (rents are actually falling right now, unless the place is high-spec., in a good area etc., so tenants are able to be pickier)

    Then a lot of employers are freezing hiring, so rental contracts are tending towards the minimum of a year as people get nervous for their jobs, while EU citizens aren’t sure if they’ll be here 2 years from now; the only politician having come out unequivocally strongly on their rights being Nicola Sturgeon, which still doesn’t help down here.

    Everyone is looking nervously at the sh*tstorm created by the chimps’ tea party in parliament and is not reassured by the obvious fact that the only adults in the room are Carney and Nicola, of whom the former has limited room to maneuver, whilst the latter has no power to help.

    A cynic might think there was no plan in the first place, but that would be just ridiculous for such a momentous event; I mean it would be like invading another country to force regime change with no idea how to control the immediate aftermath, let alone the medium or long-term future, now who would do that !

  • 28 Jaygti July 6, 2016, 12:00 pm

    Interesting that these funds have been parking their cash in REITs.

    Definitely one of those ideas that was really clever until it wasn’t.

    As for the economy as a whole, I thought when markets rose after a few days it might be a bit bumpy for a while but we would be OK.

    Now I’m beginning to think that things might get really bad, so apart from increasing my monthly subscriptions into a couple of REITs, I’m going to increase my cash and mortgage overpayments for a while until the situation becomes clearer.

  • 29 The Investor July 6, 2016, 12:11 pm

    @FI Warrior – While I personally agree with pretty much all your political sentiments there, in normal times I do try to be fairly even-handed, and so I’d ask especially on this passive investing post (i.e. not an overt political post like we kicked around last week) that the rhetoric is restrained and ideally the focus is on economy/data/investing. Thanks!

    The first half of your post — the agent’s anecdotal information — is fascinating and useful, cheers for sharing. Sadly they’re exactly the sort of trends I’ve expected since Jun 24. It seems they may be exaggerating at tad though — can they really have knowledge that companies have now stopped hiring and that rents are trending down?

    We’re only half a dozen working days into life after Brexit, so that seems an extrapolation of pub talk to me (albeit exactly what I expect in time 🙁 ).

  • 30 FI Warrior July 6, 2016, 12:32 pm

    @TI – Fair enough, your house, your rules, apologies. I’m vetting new tenants for my buy-to-let right now and have had to drop the price to staunch a longer void. (the bills are hurting) I’ve had to refurbish far more than I wanted and the EU citizens I’m negotiating with right now told my agent of the hiring freezes. It was in context because I was offering a 2 or 3 year term with frequent break clauses and couldn’t understand why this was spurned since they had nothing to lose, the risk being mine as the rent would be fixed while they could still escape.

    They’re in finance in London, so it’s not hard to believe in a hiring freeze in that industry right now, but at places I worked in the past, in these circumstances (uncertainty) it was similar. Often you’d get asked to put your interviewing on hold for ‘ temporary budget reasons’, but for a position that had already got the OK at high-level; it was unspoken, so as to not scare us as to the status of our own jobs. I also have examples for the other points I made, but don’t want to hog the page, just to say they weren’t anecdotal observations, I only wanted supported facts.

    I can’t do too much about my own investment diversification right now due to liquidity restraints, but my real worry is what the hell can I do to stop the pain from the £ continuing to devalue? (I suspect this might be true for most in this discussion)

  • 31 gadgetmind July 6, 2016, 12:35 pm

    An IoD survey of 1000+ companies suggests that 25% of them are now planning to freeze hiring and 2/3rds say that they expect Brexit will be negative for their business.


  • 32 The Investor July 6, 2016, 1:01 pm

    @FIW – Cheers, and no worries. Generally I just think we all benefit (including me) if we try to keep overly political/rhetorical/partisan stuff to posts in that vein. Obviously we had a bunch of those last week, and appreciate difficult in the current climate, where there’s an enormous intersect between political uncertainty and economic. Thanks for the further rental market thoughts, which I understand now you’ve observed on the front line yourself. Frightening.

    Re: Currency, while as discussed by @TA in his article ideally one would be diversified beforehand. (I speak as somebody who wasn’t as much as I should have been, as a result of my idiosyncratic active investing that’s for another time/thread). Decisions now feel like active speculation; a Lars Kroijer would suggest you ask yourself how and why you were diversified away from a global tracker, and was it or is it still justified? And then calmly redress if required I suppose.

    @Gadgetmind — I’d missed that data. Ominous.

  • 33 John B July 6, 2016, 2:39 pm

    I’m leaving my equity alone, but fiddling with the 3% in p2p, mainly to be doing something that won’t actually matter, but also because Funding Circle allow you to select individual bits of loans. Every few days some more money is repaid, so I’ve got £100 to play with. The loan parts aren’t being offered at a discount, so no-one is trying to get out the market too fast, but I’m buying the shorter term ones, as I’d rather have repayment in 18 months than 5 years, and anyone that far into their loan is likely to finish now. Still happy to have both property and business expansion loans at the moment. Anyone else having a flutter there?

  • 34 magneto July 6, 2016, 3:32 pm

    “To me, “talked down” has some connotations of intent” TI

    Apologies TI, for poor choice of words!

    But if Carney has some “cunning plan”, then it is very subtle indeed, and far beyond the comprehension of this simple investor; taking note of what has been said post-referendum, albeit not yet put into effect!
    All we have is what has been said!

  • 35 The Investor July 6, 2016, 3:45 pm

    @magneto — Cheers. Re: Carney, he is already being criticised from various Leavers for even warning again about the risks to the economy, even as his first warnings seem to be manifesting around us. Can you imagine what they’d say if he came out the day after the vote and cut rates by 0.25% or some other similarly instant response?

    More importantly, that’s not what Central Bankers typically do. They move slowly, and try to take the market with them by changing expectations. As those expectations change, there will be consequences (e.g. the slight further depreciation in the pound after its steep fall on Brexit night). Ideally, by the time they act the market responds with a shrug, because it’s all baked in.

    It doesn’t always work that way, but unless they’re trying to cause a shock (which sometimes they are) that’s the playbook.

    Note: I’m not particularly making the case for or against his likely moves. I’m saying he’s doing his job, and I’m glad of it (especially compared to if he too had looked at his likely 24 month calendar and then added himself to the resignation count).

  • 36 Richard July 6, 2016, 3:59 pm

    So I may be mad, or totally wrong, but I tried to eliminate risk with the currency I was going to spend my portfolio in by having around 50% in UK funds and 50% in international funds. This way any movement in the pound should be eliminated. Mad because the historic ever dropping pound would suggest I should be more heavily into international equities (I am actually closer to 40% UK funds), wrong because my underlying logic may just be wrong :).

    Risk of other currencies are still there, but as small portions of the total (US is the biggest and is around 20%). This portfolio is up around 8.5% so not far off the one presented here.

    As mentioned on another thread, I am thinking of continuing with pension contributions as planned and keeping the ISA money as cash to either pay off the morgatage, in an emergency or to take advantage if I spot an opening. Of course the slow and steady says I shouldn’t stop dripping it into the markets, so i may take a different view once the emotions start to clear…..

  • 37 Marked July 6, 2016, 4:22 pm

    Anecdotal evidence from estate agents is sadly purely location based so cannot be taken as evidence on the economy as a whole.

    Carney , I think, is the only adult in the room currently. Doing exactly what his mandate is. Of course Brexiteers want him out, and unclear why. He’s always come under attack from the more right wing of the party. Yes, he’s made a few mistakes but who hasn’t? When working with a crystal ball you can’t always be right.

    My immediate concern is commercial real estate for collateral against loans. Typically there is a covenant on a loan based on a similar thing to LTV with residential. If that goes down banks can call in loans, and that is a whole stack unwind I don’t want to ponder. It becomes a vicious circle.

    I do, however, whilst hating Boris for what he did, agree we should all be united in talking up the Country. If we carry on mourning (like I have been) then the gloom becomes more self fulfilling. Clearly the politicians have got more mud throwing to do, so that leaves us to roll up our sleeves.

    For what it’s worth I am green lighting building some houses, not out of patriotism but I believe the numbers work albeit not as stellar as before. I’m probably going to make 150k less but what I build will contribute to the vibrancy of the area and I can feel proud in doing something opposed to waiting.

  • 38 Planting Acorns July 6, 2016, 11:13 pm

    I’ve only been investing since November…along similar lines to this portfolio, although no bonds and a little overweight on UK funds…

    …however my portfolio is up over 8pc ! I read somewhere 80/20 was both better performance and less risky than 100pc equities but I dont think this took account of rebalancing equities across regions etc

    If ALL your assets are rising at the same time are you not worried they aren’t really diversified ? Could they not all fall at the same time as well, say when quantitative easing dries up? I know diversification doesn’t require assets to be negatively correlated but those gains figures all look very similar to me…

  • 39 gadgetmind July 7, 2016, 7:41 am

    Sometimes asset classes that have negative correlations will move together because the correlations aren’t exactly -1, and in just the same way (say) UK and US equities don’t have a correlation of 1 so can move out of step with each other.

    I’ve seen equities and bonds rise together, and I’ve sometimes seen everything fall at the same time.

    BTW, your “up 8pc” is in post-referendum pounds and you’ve actually slightly lost “buying power” because of the drop in sterling.

  • 40 The Investor July 7, 2016, 8:36 am

    @Planting Acorns — I’m a stuck record on this, but remember currencies, especially over this time scale. That’s what is driving the moves of globally diversified portfolios for UK investors right now, and from the repeated comments I read here I think people are giving it too little mental attention.

    Sterling is at a 35-year low against the US dollar, and the US dollar represents about 50% of global markets (in terms of equities being US domiciled) for starters. It has slumped 12% against a global basket of currencies in two weeks!

    When we were discussing the home bias in Vanguard’s LifeStrategy funds I made the point that currency risk (i.e. your portfolio’s value / income) can move very sharply in the short-term due to currencies (which is why a pensioner with a shorter time horizon needing an income or to sell down capital for income might want to consider currency risk more than a typical investor).

    Well, since June 23 we’ve seen this in action, albeit playing in the opposite direction (i.e. the pound has weakened, boosting diversified portfolios capital value).

  • 41 The Investor July 7, 2016, 9:11 am

    @Planting Acorns — P.S. I should add that I agree that assets have become very correlated in recent weeks (probably driven by changing US interest rate expectations) and that this can’t continue. My point is however that I don’t think that’s what the average globally diversified passive investor is seeing when they look at their portfolios. I think they’re seeing UK fixed income rising (due to risk aversion) and global assets rising (due to currency impacts).

    Cheers! 🙂

  • 42 Topman July 7, 2016, 9:29 am


    “…. against a global of basked …..” a bit of finger slip there TI.

  • 43 Planting Acorns July 7, 2016, 10:17 am

    Thanks Gadgetmind and TI. I was ‘aware’ of currency risk but guess it takes a BIG movement to really see it in action.

    Like I said – my portfolio is very similar to the above, one of the big exceptions being in addition to a FTSE All Share tracker I also have a FTSE 250 tracker which I guess smooths out the currency risk a bit…

    …but… My portfolio is tiny (around a months wages), so 8pc up, down, etc won’t shield me from falls down the line.

    Aren’t I / the passive portfolio going to take significant losses when the pound rises with any monthly purchases now if we’re buying dollars at 1.29 to the pound?

  • 44 gadgetmind July 7, 2016, 10:33 am

    Equities will tend to be “hedged” automatically to a certain extent – the value of the business is what it is and this *should* be true even as currencies move. Fixed interest (bonds etc.) is not so forgiving and you can end up rather exposed.

    As for losses if/when sterling corrects, yes your pounds going in now aren’t worth as much as they were before, but this is true no matter how you choose to invest or spend them.

    As your employer for 10% more of them to compensate. 🙂

  • 45 The Investor July 7, 2016, 10:44 am

    Aren’t I / the passive portfolio going to take significant losses when the pound rises with any monthly purchases now if we’re buying dollars at 1.29 to the pound?

    Clue is in the name @PA — it’s the passive portfolio. 🙂

    The Accumulator didn’t decide to change strategy when the pound was trading at $1.50 to the dollar, and he won’t now. With a passive mindset, you don’t know if the £1 will go to $1 or to $2 next. (It bought over $5 a hundred years or so ago).

    Finally, as @gadgetmind references, over the long-term currency swings tend to even themselves out with equities, and researchers have found there’s not convincing evidence that you should hedge them in terms of improving your returns (it probably would reduce short-run volatility, however, which again was why I was talking about currency risk back in the context of a retirement portfolio).

    Overseas bonds are a different matter. There’s no in-built hedging and returns are historically lower, which further increases the relative impact that currency moves will have on their value. This is one reason why the Slow & Steady portfolio has only UK government bonds.

    (Another option would be to invest in hedged overseas bond exposure, but think about what bonds are meant to be doing for you first. For passive investors, they’re really a stabilizer).

  • 46 John B July 7, 2016, 10:45 am

    With all this discussion of the new deflated pound, I’ve added a GBP to SDR/XDR conversion rate to my net worth spreadsheet, and will be now looking at the XDR rate to see how I’ve been doing. http://www.xe.com/currencycharts/?from=GBP&to=XDR&view=1Y

    I just use version control of the spreadsheets to keep the time sequence, so I’ll be carrying the number in my head rather than ferreting it out

  • 47 The Investor July 7, 2016, 10:46 am

    p.s. Oops, terribly confusing typo in my first sentence there if you’re receiving these comments over email — have fixed it now!

  • 48 Topman July 7, 2016, 11:15 am


    “….. a global of basket of currencies ….” still not quite right TI 🙂

  • 49 Planting Acorns July 7, 2016, 12:12 pm

    @Gadgetmind & TI… Thanks very much…

    …I imagine having to repeat the same message to newbies every few articles who then up and leave is terribly frustrating… If it is any conselation you’ve set my mind at rest and I’m sticking with this passive lark

    (…although I am rebalancing each month by varying the contributions to each fund, kind of best of both worlds – gives me an opportunity to ‘play’ with the portfolio whilst actually leaving it be)

    @TA…I love these Passive Portfolio updates, thanks.

  • 50 magneto July 7, 2016, 12:17 pm

    This currency issue is creating something of a headache!!!

    John B’s quote “With all this discussion of the new deflated pound, I’ve added a GBP to SDR/XDR conversion rate to my net worth spreadsheet, and will be now looking at the XDR rate to see how I’ve been doing”
    John B

    just adds to the perplexity !!!

    We are working as rebalancers in £Sterling, (which is all we know!!!), but has led to recent reductions in International positions.
    How the heck do we rebalance in SDR/SPR, with £Sterling in our accounts?

    Like The Acumulator and as noted by The Investor above, we find all Asset Classes (except cash) UP!!! Yet we know ALL IS NOT WELL.

    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.

    This too shall pass?

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