Reading my media news feed feels a bit like living in a small American town just before the phone lines are cut and the psychopaths run amok. As if in the opening scenes of a B-movie horror flick, everyday life seems wholesome, and all is normal on the surface…
…but my, those shadows look menacing. And is it just me, or are they closing in?
There’s a dystopian dimension seeping out of my smartphone where:
- Strongmen are unraveling democracy
- Surveillance capitalists are manipulating our minds
- Truth is imperiled by alternative facts
- Technology is rendering us obsolete
- Prosperity’s dream is fading
- We’re sleepwalking into a climate catastrophe and social collapse
- We’re too divided to talk to each other, never mind escape this mess
Not-so-scary movie
Happily there’s another movie playing – global prosperity is still advancing in the theatre of our portfolios.
This picture is not so compelling because it’s plotted in numbers, it’s agonisingly slow, the pacing is awful, and frankly, it’s not very believable, fashionable, or exciting.
But in the eight years we’ve been watching the world through our Slow & Steady passive portfolio, a more hopeful storyline has unfolded:
- The astonishingly innovative US continues to kick-ass and you should never bet against it solving its problems while creating a slew of new ones.
- Europe has held together and stubbornly refuses to crack, despite the dire predictions of all those who think compromise is a synonym for weakness.
- The UK is doing okay, though it’s lagged the rest of Europe throughout the last decade.
- Japan is fine, too, regardless of its supposed stagnation and all the decades lost down the back of the sofa.
- Advances in many emerging markets show prosperity is still spreading around the globe, though progress is uneven.
Every corner of the world has repaid our investing faith, regardless of our ambient level of anxiety. The doomster asset classes – government bonds, gold, and cash – haven’t been needed… yet.
Perhaps the horror is real? Perhaps the phone lines are about to go dead?
Perhaps, but I only have a few lenses through which to view the world: my personal experience, my media experience, and my market experience. And two out of three of them aren’t playing a scary movie.
Here’s the latest portfolio numbers in See-No-Evil-o-Vision:
Last quarter’s recovery has continued, and we’re now up 12% in the first half of 2019.
The overall annualised return of 9.54% is very healthy. Call it 6.5% real return after inflation – that’s way ahead of the expected return I would have hoped for back in 2011. It’s also way ahead of my bank account and my salary negotiation skills.
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 £955 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.
New transactions
Every quarter we lock £955 into the wicker man of global capitalism and pray for a successful harvest. The virginal cash sacrifice is split between our seven funds according to our predetermined asset allocation.
We rebalance using Larry Swedroe’s 5/25 rule but that hasn’t been activated this quarter. Therefore our trades play out like this:
UK equity
Vanguard FTSE UK All-Share Index Trust – OCF 0.08%
Fund identifier: GB00B3X7QG63
New purchase: £47.75
Buy 0.229 units @ £208.97
Target allocation: 5%
Developed world ex-UK equities
Vanguard FTSE Developed World ex-UK Equity Index Fund – OCF 0.15%
Fund identifier: GB00B59G4Q73
New purchase: £353.35
Buy 0.945 units @ £373.95
Target allocation: 37%
Global small cap equities
Vanguard Global Small-Cap Index Fund – OCF 0.38%
Fund identifier: IE00B3X1NT05
New purchase: £57.30
Buy 0.192 units @ £298.28
Target allocation: 6%
Emerging market equities
iShares Emerging Markets Equity Index Fund D – OCF 0.24%
Fund identifier: GB00B84DY642
New purchase: £95.50
Buy 57.12 units @ £1.67
Target allocation: 10%
Global property
iShares Global Property Securities Equity Index Fund D – OCF 0.22%
Fund identifier: GB00B5BFJG71
New purchase: £57.30
Buy 25.298 units @ £2.27
Target allocation: 6%
UK gilts
Vanguard UK Government Bond Index – OCF 0.15%
Fund identifier: IE00B1S75374
New purchase: £296.05
Buy 1.721 units @ £172.01
Target allocation: 31%
Royal London Short Duration Global Index-Linked Fund – OCF 0.26%
Fund identifier: GB00BD050F05
New purchase: £47.75
Buy 45.261 units @ £1.06
Target allocation: 5%
New investment = £955
Trading cost = £0
Platform fee = 0.25% per annum.
This model portfolio is notionally held with Cavendish Online. Take a look at our online broker table 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 £45,000 but the fee saving isn’t quite juicy enough for us to push the button on the move yet.
Average portfolio OCF = 0.18%
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
As concern for our global climate emergency is becoming a big issue, I am wondering if you have considered introducing more climate-friendly funds such as ESG for example?
Hi hi, thanks for sharing this update. I wonder how to calculate the rate of return when you keep adding more cash every month. Do you have a formula?
I know the good times won’t stay forever, but hey, it feels damn good right now!
Claire
“And is just it me”
The words are correct, just not necessarily in the right order 🙂
Claire, if you’re using excel you’d need to use the XIRR function. Hopefully this link helps https://exceljet.net/excel-functions/excel-xirr-function
@Claire — There are various methods with their pros and cons for dealing with cash additions. Personally I believe the best thing to do is to unitize your portfolio:
https://monevator.com/how-to-unitize-your-portfolio/
Thanks – always enjoy this update. Being a lazy follower of this who uses the Lifestrategy approach I would be interested in seeing how your numbers would now compare had you also just been lazy too. Don’t think the Lifestrategy option was available back in 2011 though.
@John Vanguard launched Lifestrategy in the UK in June 2011 so just half a year after Slow and Steady started. According to trustnet, annualised returns since launch for the 20%/40%/60%/80%/100% levels (‘A’ class Acc units) has been 6.0%/7.2%/8.5%/9.6%/10.7% (but that doesn’t include platform fees – e.g knock off 0.15% if held on Vanguard). Slow and Steady’s 9.54% seems comparable with VLS80, which isn’t bad when S&S seems to contain more bonds (30%?). However I’d be wary of comparing too closely as the Slow and Steady number will be influenced by the drip feeding which means its annualised rate quoted is a blend of rates achieved from different starting points, while those Lifestrategy numbers are just for an initial investment on June 2011…. the main point is they’re not wildly different between things with a similar bonds/equities allocation. Someone would have to do a full “unitization” exercise using historic unit pricing to work out more properly comparable Lifestrategy numbers.
The Slow & Steady and the LifeStrategy fund with the appropriately similar equity allocation are both going to come in with very similar result in any particular year. Over the long-term it will be trickier to figure out, firstly because as @Tim says there’s new money going into the SSPP and also because we’re slowly shifting our portfolio towards more fixed income over the 20-year term.
However there’s no magic here! 🙂 That’s kind of the point. 😉 The LS consists of broad passive funds. The SSPP holds broad passive funds. The results will be similar — if you don’t like the fuss go for LS by all means.
In addition, even if you discovered that one approach beat the other over 10-20 years by a few percentage points you’d need to be sure you knew why before having any reason to change your approach in light of that. If there was a cost advantage that was clearly benefiting one more than you expected, perhaps that might be a good reason. But if it’s just the way the specific markets tracked shimmied by +/- a percent or two over the decades, then that wouldn’t be — because it wouldn’t necessarily hold in the future.
Tim & The Investor – thank you both. Had hoped it would have been broadly similar – certainly not enough to justify a full review of the numbers to get an exact difference anyway. Having 3 young kids I am happy with the time and thought saving the VLS approach provides so will stick with that for the time being. And a fair point on changing approach in future – prior performance being no indicator etc…
@ Claire – I use XIRR as indicated by Nick H. There’s a good piece here on it:
http://whitecoatinvestor.com/how-to-calculate-your-return-the-excel-xirr-function/
@ John – I concur with Tim. It’s approx LifeStrategy 80, but then the portfolio was 80:20 at the outset and shifted 2% to bonds every year since. If running this and my own portfolio has taught me anything, it’s that lazy investing works. There’s no need to overcomplicate it.
@ Ben – good catch! It’s amazing how often you can read something and still not see the wrong.
@ DIY – Here’s the piece about socially responsible investing: https://monevator.com/sri-investing-what-you-need-to-know/
I personally think it’s extraordinarily difficult to match the definitions of SRI or ESG as interpreted through funds to your own values with any degree of confidence. My own view fwiw is that directly contributing to preferred causes (e.g. through purchase, donation or action) and boycotting irresponsible firms is likely to be more effective.
Agreed it can be a bit tricky matching ethical fund to personal values. However, for those investors whose main concern is the impact of our climate emergency, MSCI for example have recently introduced their range of climate change indexes to help us to introduce climate risk into the investing process. I am hoping the likes of Vanguard and iShares will soon offer some funds/ETFs to track these indexes.
I imagine lots of people who are trying to lead a fairly ‘green’ lifestyle would naturally want to ensure their investments and pensions were carbon neutral rather than invested in climate-destructive fossil fuels?
One big difference you need to remember when comparing LifeStrategy funds and the SSPP is the potential sequence of returns risk. Your pension in LifeStrategy 80/20 could be smashed a year before retirement leaving your plans in tatters. SSPP is cushioned against this by gently edging more into bonds year on year. A better option than LifeStrategy would be Vanguard’s target retirement date funds:
http://www.vanguardinvestor.co.uk/investing-explained/what-are-target-retirement-funds
These move you into bonds as you head toward your selected retirement date, albeit in a less smooth transition than SSPP
Windy
Just wanted to say big thank you to Monevator. Sharing stuff like this has really helped me on my investment journey.
@windinthefens
There is nothing stopping you doing the same by mixing LF80 with LF60/40/20. It won’t auto balance, but life is too short to worry too much about having the perfect asset allocation.
Personally I mix a Tim Hale 76/24 (2% drift to bonds each year) global asset allocation in my pension (long term) because I enjoy managing it, but stick with a simpler LF40 in my ISA (medium term). Overall my asset allocation is approx 63/37, which is probably about right.
@ DIY Investor – I agree it’s a laudable aim, I’m just wary of greenwash with companies in the index qualifying because they’re as adept at exploiting loopholes as they are at reducing carbon emissions. Though maybe that’s a fake news story spread around by Big Oil!
@ Windinthefens – good point. I do wonder how many people invest in a LifeStrategy fund and then forget all about it. By all accounts that’s one of the best investing strategies known to humanity, but you can imagine someone still being 80:20 on the eve of retirement and being badly hurt.
I just think that continuing to support big oil companies via our investing decisions is not compatible with the need to transition to clean energy and achieve net zero GHG emissions by 2050. I would urge you to reconsider.
Obviously we all understand where you’re coming from with this DIY Investor, and I’ve enjoyed your posts (and linked to them) where you’ve written about this on your own blog.
However that’s not what this model portfolio is about. If @TA actually did reconsider and tried to change the mission of this market-tracking model portfolio halfway through its life, then me and him would be having one of our infamous (metaphorical) knife fights in a phone box. 😉
I also (as I’ve written before) don’t really think the logic stacks up much, especially for large companies. I don’t believe you’re “supporting” big oil companies by owning their shares. They don’t get any extra capital from you (in fact they pay you dividends). It’d be different if they were new ventures raising new money — or even issuing shares — but they’re not.
If anything they are buying back shares — and by that logic selling the shares and presumably micro-contributing to a lower share price would actually support them, because they’d be able to buy back their own stock more cheaply leading to higher earnings to be distributed among ongoing shareholders!
In contrast one could buy shares in a big disruptive energy/transport company like Tesla, which is undoubtedly going to raise more money in the future — and hence needs a high share price as a form of capital — and arguably you would be supporting it for that reason.
And of course you can invest in venture capital funds or companies that raise new money to pursue alternatives.
Otherwise, for me, ethical investing when it comes to these large mature companies is more about what you can stomach getting money from. For instance, as an active stock picker I’ve always avoided tobacco companies, even though I recognised them as great value plays 10-15 years ago. I just couldn’t sleep at night thinking I made money from that habit. I have a friend who avoids (and urges me to avoid) Diageo for a similar reason re: alcohol.
I think it’s very intellectually coherent to say “I don’t want to buy my groceries on the back of big oil profits”… i.e. you don’t want *them* ‘supporting’ you. But that’s a different issue.
Anyway ultimately we need technology to solve the problems… which again points more towards putting money into innovators (although they yet may include the energy companies…)
I more or less stopped doing weekend city breaks and stuff on the cheap flights nearly 20 years ago due to my concerns about global warming. None of my peers did, and over the years I’ve noticed the ‘greenest’ who are the keenest to march here or protest there flew the most. I even bought a tiny sliver of forest as a partial offset; they bought extra overseas clutter and transported it back by airline to their living rooms.
I realized from watching all this that consumer behaviour is everything, and most people won’t change their behaviour *even when* the house is on fire. Just go and look at the people smoking outside hospitals while recovering for a heart attack, for instance (or loading up on chips in the canteen).
None of which is to decry your own efforts, but that’s my point. This is a personal area. The Slow and Steady Passive Portfolio is an agnostic market tracker. It should stay that way!
Thanks for more clarity on your thinking TI. I can understand your reluctance to make changes to a project after 8 years. However, we have a global climate emergency and, as you suggest, this is an ethical/moral issue so I hope you will keep on open mind to the possibility of introducing more climate-friendly index funds when they become more widely available.
Many thanks for your advice, I am looking forward to reading more.
I spent about 6 hours today looking on the ETf db website
https://etfdb.com/
Only to discover that 100% of my chosen EFT’s can’t be traded in the UK
Is there a list of EFT’s that can be traded in the UK?
how do you get guilts bought from the DMO into your Sipp wrapper ?
hello looking for help with buying guilts direct from the DMO… how do you get them into your sipp ?
Love this series and the updates.
In the last update you said you planned to quickly get the Short Duration Index Linked fund quickly up to 50% of the fixed income part of the portfolio. Did you change your mind on this and if so why?
Hello, Question for you.
I’m ahead of the passive portfolio in being nearing 63 and planning to retire at 66 so just 3 years to go. My passive portfolio is currently on the heavy side being 65% equities/34% Bonds mix. I do have a house I will downsize to provide an annuity for the necessaries. However I’m about to rebalance my portfolio to a more conservative balance for my age! Thinking of 46% Equities/54% Bonds to end up with 40% Equities/60% Bonds in three years time. Can’t work out the new split though. How would you rebalance the Equities and Bonds with 3 years to go? Thanks
@ MattP – no change of mind, if anything recent research confirms that this is a good move. The Slow & Steady is rebalanced in Q4 so I’ll shift more into linkers then.
@ Josie – there’s no set method. To go from 65% equities to 46% now, you’d just sell 19% of your equities and use the proceeds to buy the remainder of your allocation in bonds i.e. 54%. Then you could shift 2% from equities to bonds for the next 3 years until you achieve 40:60.