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The Slow and Steady passive portfolio update: Q2 2018

The Slow & Steady portfolio is up 5.88% this quarter.

Our plucky Slow & Steady portfolio is well on the road to recovery after last quarter’s bloody nose. It’s sprung back 5.9% in three months, despite the first shots in a trade war zipping past our heads.

Once again reality defies the instinct to pounce on a pattern:

  • Last quarter’s biggest loser, Global Property, is the top performer this time. It’s up 13%!
  • The UK stock market enjoyed a nice 9.5% surge, despite the Brexit turmoil.
  • Like a golden UFO conveying cultists to paradise, the Bond Apocalypse has once again failed to materialise. Perhaps it’s timetabled by a British rail franchise?
  • Our Developed World and Global Small Cap holdings are still powering ahead as the notoriously overvalued US market defies gravity – or at least the gurus’ predictions.
  • Emerging markets are down nearly 3% this year despite being the asset class with the highest expected returns.

All of the above will change, of course, but about as predictably as a Trump press conference.

For now, here’s the blinding truth in Ultra-Dynamic-Dynamic-Dynamic Monstro-vision™:

Our portfolio is up 10.22% annualised

The Slow and Steady portfolio is Monevator’s model passive investing portfolio. It was set up at the start of 2011 with £3,000. An extra £935 is invested every quarter into a diversified set of index funds, tilted towards equities. You can read the origin story and catch up on all the previous passive portfolio posts.

Our annualised return is a that’ll-do-nicely 10.2% over seven years. I wonder how many people realize how good that is?

At that rate your money doubles every seven years. Knock off 3% for inflation and you double every decade in real terms.

Recently a good friend of mine ‘fessed that he’d been warned off investing by an ‘informed’ acquaintance who claimed low interest rates had left the stock market dead in the water. The aftershock of the Credit Crunch, an endless stream of media misery, and a decade of stagnant wages led him to believe the global economy had been clothes-lined.

How many others have missed out on double digit gains due to zero interest rate fairy tales?

The reality is we’re doing pretty well, aided and abetted by diversification. Last quarter the Slow & Steady Portfolio was down 3.1%. The FTSE All-Share was down 6.9%. We were cushioned by other markets doing less badly and our bonds bearing up.

Now our rebound is neck and neck with the FTSE despite our 30% bond safety belt. Viva global capital markets!

Before I sign off with the new transactions, my apologies for the late update this quarter. My day job got a bit out of hand these last few weeks.

New transactions

Every quarter we lay £935 at the feet of the Almighty Markets and hope they smile upon us. Our cash is divided between our seven funds according to our pre-determined asset allocation.

We use Larry Swedroe’s 5/25 rule to trigger rebalancing moves, but all’s quiet this quarter. 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: £56.10

Buy 0.269 units @ £208.67

Target allocation: 6%

Developed world ex-UK equities

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

Fund identifier: GB00B59G4Q73

New purchase: £336.60

Buy 0.972 units @ £346.27

Target allocation: 36%

Global small cap equities

Vanguard Global Small-Cap Index Fund – OCF 0.38%

Fund identifier: IE00B3X1NT05

New purchase: £65.45

Buy 0.218 units @ £300.41

Target allocation: 7%

Emerging market equities

iShares Emerging Markets Equity Index Fund D – OCF 0.24%

Fund identifier: GB00B84DY642

New purchase: £93.50

Buy 59.29 units @ £1.58

Target allocation: 10%

Global property

iShares Global Property Securities Equity Index Fund D – OCF 0.21%

Fund identifier: GB00B5BFJG71

New purchase: £65.45

Buy 31.9 units @ £2.05

Target allocation: 7%

UK gilts

Vanguard UK Government Bond Index – OCF 0.15%

Fund identifier: IE00B1S75374

New purchase: £261.80

Buy 1.599 units @ £163.74

Target allocation: 28%

UK index-linked gilts

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

Fund identifier: GB00B45Q9038

New purchase: £56.10

Buy 0.298 units @ £188.32

Target allocation: 6%

New investment = £935

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 or tool for other good platform options. Look at flat fee brokers if your ISA portfolio is worth substantially more than £25,000. The Slow & Steady portfolio is now worth over £41,000 but the fee saving isn’t juicy enough for us to push the button on the move yet.

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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{ 68 comments… add one }
  • 51 Alexio July 21, 2018, 12:01 pm

    Was the tracking spreadsheet used for these portfolio articles ever made available? I know it was mentioned some time back that it needed preparing for wider consumption. It would be good if it could be shared.

  • 52 Tom July 21, 2018, 3:37 pm

    I’ll just add that my own portfolio is very similar (have the same small cap, EM and property funds) but I have my portfolio set up as about 70% allocated to the Lifestrategy 80% fund. This dilutes my bonds to about 15% of the overall portfolio (I have some other “bond like” diversifiers in the 30% that isn’t Lifestrategy) and gives me a home bias in the equities, and I’ve still achieved 10.2% IRR since Summer 2013, so the home bias in the Lifestrategy fund hasn’t had much impact on returns.

  • 53 Tom July 21, 2018, 3:42 pm

    @Shalp If you look at the Lifestrategy 80% fact sheet, it will tell you which Vanguard bond funds they use and it what % they have them in the portfolio, so if you wanted no home bias on the equity but the same bonds as LS80 you could mirror this exactly just by investing in the same vanguard bond funds directly in the same % proportions.

  • 54 The Accumulator July 22, 2018, 10:37 pm

    @Shalp – There’s nothing wrong with what you propose. Some ideas here:
    http://monevator.com/low-cost-index-trackers/

    @dearieme – Great idea on doing a deaccumulation portfolio. I’ll look into that once I’m back in regular action.

    @ Ritch – just taken a look – Year-to-Date Total Return on this portfolio from 1/1/2018 through 22/7/2018 = 1.97%. The Investor will probably ban me now for speciously using 2 decimal points 😉

    @ Paul Harsley – Re: creating similar spreadsheet formulas and calculating personal return:

    http://whitecoatinvestor.com/how-to-calculate-your-return-the-excel-xirr-function/

    These are helpful too:

    https://onedrive.live.com/view.aspx?cid=826E19AB9B5B8CE9&resid=826e19ab9b5b8ce9%21137&wacqt=sharedby&app=Excel

    http://www.experiglot.com/2006/10/17/how-to-use-xirr-in-excel-to-calculate-annualized-returns/

    Or, there are some links to ready-built portfolio tracking software and spreadsheets in the portfolio tracking section of this piece:http://monevator.com/financial-calculators-and-tools/

  • 55 Paul July 23, 2018, 6:26 am

    Thanks, I understand the XIRR formula but your spreadsheet (or the snapshot) doesn’t have the data for this? I’m guessing there’s data that you don’t post on the snapshot picture? I run a total value at specific date intervals and use the XIRR to calculate the return but I can get my “snapshop” as simple as what you post.

  • 56 The Accumulator July 23, 2018, 7:51 pm

    Hi Paul, yes that’s right. The XIRR data is out-of-shot. I also use Morningstar’s portfolio manager to track and back-up.

  • 57 Paul July 24, 2018, 6:22 am

    Thanks! That makes sense. I need to spend some time on it. I started using morningstars portfolio tracker too. Thanks for all the hard work that goes into the site. It’s one of the best and it has really helped me in so many subjects and is very much appreciated.

  • 58 The Borderer July 26, 2018, 5:41 am

    @TI (45)

    You may find this interesting if you ever get chance to write that article. https://www.kitces.com/blog/how-bond-funds-rolling-down-the-yield-curve-help-defend-against-rising-interest-rates/

  • 59 Russ July 26, 2018, 11:42 am

    Hi,
    I’m contemplating a £17.6k lump sum in to VLS60 with iweb, but worried about talk off markets at all-time highs and bond bubbles etc…I already have: 8k VLS80, 20k CGT IT, 20k RICA, 10k L&G MI4, 5k L&G MI5, 10k fun portfolio.

    any thoughts on this?

  • 60 The Investor July 26, 2018, 11:47 am

    @The Borderer — Cheers, will take a look at the weekend.

  • 61 The Borderer July 26, 2018, 11:35 pm

    @TI (60)

    Check out the very erudite comments too.

  • 62 Veez August 7, 2018, 11:00 am

    @Russ – You and me both. The conclusion I’ve been able to draw is “nobody knows”; I think I might just average it in until April (my £17.6k is born of ISA allowances, I wonder if yours is too?) — it’s not doing much good sat stagnant in a savings account anyway.

  • 63 Adrian August 12, 2018, 9:19 pm

    Are we still convinced that UK gilts funds are the way to go for the debt part of the portfolio? The multi-asset funds offered by Vanguard, Fidelity, HSBC, L&G largely go with overseas and corporate bonds.

  • 64 Joe 45 August 19, 2018, 4:59 pm

    Fascinated by your portfolio. I’m in the process of creating something similar. One question though: can you please explain how the Vanguard UK inflation linked gilt index fund (which I am considering) has grown by an average of 8.78% annually over the past 5 years when interest rates have been steady at close to zero and inflation close to 3%? Thanks

  • 65 The Accumulator August 21, 2018, 7:38 pm

    @ Adrian – convinced is a strong word. If you went for high-grade global bonds hedged to the £ then you’d be fulfilling a similar brief. I personally err on the side of gilts because:
    My bills will be paid in £. Gilts should be more responsive to UK economic conditions for better or worse.
    Hedging isn’t perfect.
    Hedging costs.
    Lots of arguments over the benefit of diversity in government bonds.
    Don’t need corporate bonds in my fixed income allocation. It’s job is to reduce volatility. Equities provide return.
    But if you buy into the diversification argument of global bonds and ensure you’re hedging to the pound then all power to you.

  • 66 The Accumulator August 21, 2018, 7:40 pm

    Hi Joe, they’ve been in demand. This piece tells you a lot of what you need to know before investing in linker funds:
    http://monevator.com/why-uk-inflation-linked-funds-may-not-protect-you-against-inflation/

  • 67 Adrian August 22, 2018, 6:32 pm

    @The Accumulator

    Thanks for your thoughts. I’m not too keen on hedged bonds – I feel they are less negatively correlated to equities than unhedged bonds and won’t go “the other way” as much in an stock market crash. So I’m sticking with gilt funds but also a little VUTY as I suspect for a UK investor unhedged US Treasuries will shoot up in a downturn.

  • 68 The Accumulator August 30, 2018, 6:00 pm

    The evidence is that generally unhedged global bonds are too volatile to make good portfolio crash bags.

    Why do you think hedged bonds are more correlated to equities? The hedge ties them to the pound, so you get the returns of developed world bonds without the currency risk.

    Here’s a link to a Vanguard paper making the case for hedged global bonds. It also runs a risk reduction comparison for hedged vs unhedged vs domestic bonds. https://advisors.vanguard.com/iwe/pdf/ISGGLBD.pdf

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