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The Slow and Steady passive portfolio update: Q2 2020

The portfolio is up 2.67% year to date.

Well, that’s odd! The Slow & Steady passive portfolio is up year-to-date, by 2.7%. It’s up over the past twelve months by 6.4%. I’ll take that.

It feels unreal to be talking about those kinds of returns as a global recession sweeps our economic shoreline like a tsunami. Can our chums in the world’s central banks hold back the waters long enough for most of us to scramble to higher ground?

For now, let’s just double-take at the numbers that few would have predicted three months ago. Quarterly returns brought to you by Miracle-o-vision:

The annualised return of the portfolio is 8.99%.

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 £976 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.

Too good to be true?

The fate of our portfolio is largely driven by its two biggest holdings: Developed World equities and UK government bonds (or gilts).

Developed World equities are the one risky asset class we own that’s nudged back into positive territory year-to-date.

Our gilts remain substantially up.

Our other equity holdings were all spiraling down 20-30% last quarter but they’ve catapulted back to recover much of their loss, too.

Global Small Cap has bounced (like a dead cat?) up 30% while UK equities are the laggard, ‘only’ putting on 16%.

This is the kind of volatility we can all live with.

I’m not sorry we sold more than £3,000 of our bonds last quarter and ploughed the proceeds back into equities in a timely rebalancing move.

Return of the math

One thing that’s long fascinated me is how large your returns must be in order to recover from a steep fall versus a mere dip.

For example:

  • 10% / 90% x 100 = 11% gain needed to recover from a 10% loss.
  • 50% / 50% x 100 = 100% gain needed to recover from a 50% loss.

The Slow & Steady portfolio lost around 11% last quarter so we only needed just over 12% to tunnel back up to the surface.

The speed of a morale-boosting turnaround like that makes it a lot easier to remain calm if the coronavirus crisis has a few more downward legs in it yet.

The bottom line is that diversification into bonds has proved it’s worth to me in as visceral a way as I could experience.

Another bet that’s paid off so far is backing capital over labour.

After the Global Financial Crisis, it seemed probable to me that my income prospects were permanently impaired. I partially justified diverting a large percentage of my earnings into the capital markets as a way of offsetting a dark future for somebody who’s chance to break into the 1% had likely passed. (Around the moment I was born, I think).

Watching the indiscriminate bazooka-firing from out of the windows of the Federal Reserve et al, it would seem like I picked the right side. For now, anyway.

New transactions

Every quarter we throw £976 to the wolves of Wall Street and hope they eat somebody else. Our fresh meat chunks are 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.

These are our trades:

UK equity

Vanguard FTSE UK All-Share Index Trust – OCF 0.06%

Fund identifier: GB00B3X7QG63

New purchase: £48.80

Buy 0.269 units @ £181.39

Target allocation: 5%

Developed world ex-UK equities

Vanguard FTSE Developed World ex-UK Equity Index Fund – OCF 0.14%

Fund identifier: GB00B59G4Q73

New purchase: £361.12

Buy 0.916 units @ £394.32

Target allocation: 37%

Global small cap equities

Vanguard Global Small-Cap Index Fund – OCF 0.29%

Fund identifier: IE00B3X1NT05

New purchase: £58.56

Buy 0.205 units @ £285.12

Target allocation: 6%

Emerging market equities

iShares Emerging Markets Equity Index Fund D – OCF 0.17%

Fund identifier: GB00B84DY642

New purchase: £87.84

Buy 52.884 units @ £1.66

Target allocation: 9%

Global property

iShares Global Property Securities Equity Index Fund D – OCF 0.17%

Fund identifier: GB00B5BFJG71

New purchase: £48.80

Buy 24.987 units @ £1.95

Target allocation: 5%

UK gilts

Vanguard UK Government Bond Index – OCF 0.12%

Fund identifier: IE00B1S75374

New purchase: £302.56

Buy 1.558 units @ £194.24

Target allocation: 31%

Global inflation-linked bonds

Royal London Short Duration Global Index-Linked Fund – OCF 0.27%

Fund identifier: GB00BD050F05

New purchase: £68.32

Buy 63.73 units @ £1.07

Target allocation: 7%

New investment = £976

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. Consider a flat-fee broker if your ISA portfolio is worth substantially more than £25,000.

Average portfolio OCF = 0.15%

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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{ 59 comments… add one }
  • 1 Gentleman's Family Finances June 30, 2020, 1:27 pm

    Thanks for the update. It goes to show that despite that despite the massive changes going on, with a long term view of your finances covid is just a bump in the road.

    And it’s a lot easirr to recover from a big fall if you were sitting on big gains to begin with.

  • 2 Matthew June 30, 2020, 1:30 pm

    I do have the feeling that theres so much correlation between most indicies you could essentially hold something like small caps and still effectively be exposed to FAANGS and EM because everything moves mostly in step and one index is like an amplified version of another. If things are perfectly priced for their risk it wouldn’t really matter what you buy as such, just choosing where on the risk spectrum you want to be.

    Because when people up their risk, they buy everything at once in the same ratios, and when they sell they sell in the same ratios

    I suppose also we already have EM exposure through the activities of mega caps, and its right to hold both to get the appropriate exposure, so EM could be a larger part of the world than its own market cap would imply

  • 3 The Investor June 30, 2020, 1:43 pm

    I do have the feeling that theres so much correlation between most indicies you could essentially hold something like small caps and still effectively be exposed to FAANGS and EM because everything moves mostly in step and one index is like an amplified version of another.

    @Matthew — Not really. As a UK investor if you held UK mid-caps in 2020 you’d currently be down 23% year-to-date. If you held the iShares Emerging Market index fund you’d be down 11%. If you held the Nasdaq 100 (as a FAANG proxy) via the iShares fund you’d be up about 15% year to date.

    Longer term the US market has outperformed the rest of the world for the past 5-10 years or so, but before that the rest of the world did better, and before that the US did better, etc.

    Over 20 years it might all come out in the wash, on a risk-adjusted basis as you say (and taking into account currency moves) but one big reason for diversification is to smooth the ride so you don’t have to sit there wondering and 50% under-performing for a decade. 🙂

    Edit: Oops, pulled the wrong number off my master spreadsheet for the Mid Cap performance. Corrected now.

  • 4 Moongrazer June 30, 2020, 1:52 pm

    Interesting update once again – thanks for your continued efforts! 🙂

    One thing I find curious is this fixation people have with gains and losses expressed as percentages, and how the gain % must be exponentially larger as loss % goes up. As if the percentage being bigger is a psychological hurdle.

    Similarly I once read someone panicking in a forum that “if your portfolio suffers a 90% loss, you need a 900% gain to get back to where you were!!” – as if that 900% was somehow a shocking number in itself (as if the loss of 9/10ths of your portfolio wasn’t bad enough).

    It’s just a ratio, ultimately. If my portfolio shrinks at a ratio of 9:10 (or a 10% loss), then I need a ratio of 10:9 to get back to where I was. If you express it that way, you lose the added hyperbole that gain %s seem to carry.

    Or maybe percentages are a better way of looking at the investing world and the increased difficulty gains have versus losses. 🙂

  • 5 Matthew June 30, 2020, 2:12 pm

    @ti – I think from what I’ve seen geographies tend to differ more than size – perhaps there is more diversification if you filter by size than geography (local industries, weather events, virii, wtc).

    But as you say the time frame matters a lot, as well as how each one chooses to flail around in a crash before re-finding normal (hence the maths quirk – psychological market pressure to go back to a £ amount/ compare a price to previous levels rather than %s)

  • 6 xxd09 June 30, 2020, 2:36 pm

    Over on the Bogleheads forum -the home of John Bogles followers -the success of index investing and buy and hold forever has been so good that all they can accuse each other is of laziness
    ie once the indexes of equities/bonds/cash have been chosen
    The Asset Allocation set
    The Investment Plan written down
    There literally is nothing else to do
    This is of course an impossible position for most investors /human beings to maintain
    It takes real knowledge and self discipline to leave investments alone and not meddle.
    But if you can do it as is shown above success awaits( and a good retirement!)
    xxd09

  • 7 Andrew June 30, 2020, 2:57 pm

    I would be careful. I am sticking to gilts and cash.

    I have heard that a hard rain is coming from the East

  • 8 Vanguardfan June 30, 2020, 3:10 pm

    For those who like to be catatonic, the Lifestrategy 80 is up just over 2% in 12 months, but down nearly 3% since end of December. LS60 has actually done better – up more over 12 months, down less.

  • 9 Vanguardfan June 30, 2020, 3:16 pm

    @matthew, the real value of diversification is in having different asset classes, I feel, rather than just shades of the same asset class (equities) which tend to be fairly highly correlated across geography, size, etc.
    That is my main reason for holding a proportion of bonds. My experience to date is that on the whole, bonds do behaviour differently to equities and tend to stabilise the portfolio.

  • 10 Vanguardfan June 30, 2020, 3:18 pm

    I have a feeling my rebalancing strategy will call for sinking this year’s ISA allowance into the FTSE250. I knew there was a reason I was putting it off…;-)

  • 11 Dawn June 30, 2020, 4:18 pm

    Always enjoy reading the updates.
    First time I’ve experienced a sudden dramatic drop in equities with a sizeable amount of money invested. People I knew where panicking and it wobbled me a bit but I held fast and actually added a bit more to equities. So I passed a big test for myself. I’m 55 yrs old so wealth preservation matters more now.

  • 12 Richard June 30, 2020, 4:26 pm

    “it seemed probable to me that my income prospects were permanently impaired. I partially justified diverting a large percentage of my earnings into the capital markets as a way of offsetting a dark future for somebody who’s chance to break into the 1% had likely passed.”

    Amen to that.

  • 13 c-strong June 30, 2020, 4:50 pm

    @TA Nice numbers 🙂 Sadly I’m underweight the US and have no bonds, so mine are … less nice. But we’ll see where we are in 15-20 years.

    @Moongrazer I agree. This also takes no account of the elasticity of the market – i.e. because the market tends to over-correct, the rate of return in the months/years after the market bottom is usually higher than the long run rate of return. So it’s not actually as difficult to attain the percentage increase as it would be if returns were normally distributed. Considering historical drawdowns and looking at time to recovery is a better way to understand the position in my view.

  • 14 Matthew June 30, 2020, 7:28 pm

    @vanguard – indeed, especially in drawdown, but for me I think that will be a £ amount rather than a %, I don’t mind volatility during accumulation and I gather that although you can have a rebalancing bonus it’s usually more about risk control because bull runs sufficiently long – so at the mo just keep the cash emergency fund & equity investment. I don’t actually want to ever retire until forced to (I can sleep when I’m dead, like to be useful), but I actually feel safer in the long term by diversifying my income as quickly as possible (health issues etc) – and I don’t really have anything better to do with my savings, it feels like a productive thing to be part of the engine of capitalism to drive development, better than giving to charity

  • 15 never give up June 30, 2020, 8:12 pm

    I also log my ISA quarterly and my pension I check on every six months. Part of this logging involves recording their value on a line graph. The pension one especially is just a smooth line veering slightly upwards after my latest update. Anyone looking at this in the future would have no idea a pandemic existed or the volatility that a daily or weekly graph would show.

    I’m not saying this is over yet and markets won’t slump again but it really emphasises the value of leaving the investments alone and ignoring them. It really is the single best way of avoiding tinkering, timing the market, going to cash, changing asset allocations etc at a time of panic.

    Slow and steady as she goes Captain Monevator!

  • 16 Haphazard June 30, 2020, 10:42 pm

    I’ve been rereading some of the older posts linked to this portfolio, and following the recent discussions about bonds.

    You decided to ditch the inflation-linked gilt fund from the model portfolio, because of its long duration as I understand it. If you had a longer time horizon – perhaps 25 years – do you think you would have stuck with the gilt linker? My understanding was that duration should normally match the time horizon – but maybe I’m wrong about all that.

    I also have another, possibly naive question, about the bond allocation. I read people talking about pulling out of funds with a longer duration, because of the interest rate risk. Again, I understand that if the duration exceeds the time horizon.

    But doesn’t this raise the same market-timing problems that would arise with equities – i.e., if the problem is that interest rates are very low and might rise, other people will have realised this and it will be priced in. So that there is no point trying to second-guess? Or do people feel this is less of a problem with bonds?

  • 17 Matthew July 1, 2020, 12:11 am

    @haphazard – I can’t see rates rising quickly until QE is completely unwound, I believe avoiding any potential bondmageddon is more imporant for central banks (and for the trustworthiness of the system – as thered be another gfc) than avoiding high inflation, they could increase bank reserve limits too if they had to

  • 18 The Accumulator July 1, 2020, 7:55 am

    @ Haphazard – essentially you are correct that bond duration should match time horizon. There comes a point though in every passive investor’s life where it may serve them well to look at the balance of risks. By way of analogy: imagine in 1989-90, you’re invested in a Japanese equity tracker. The P/E ratio has hit 60, many multiples of its historical average, Japanese shares are gobbling up an outsized portion of the global stock market… do we accept that we have no edge, that there is nothing we should do because we’re ‘passive’, who are we to second guess the wisdom of global capital? Or is it a bubble? Or at least a highly risky situation where it may be prudent to scale back your allocation to Japanese equities due to unusual market conditions.

    There are techniques for dealing with this using a rules-based approach such as over-balancing. Essentially you shift your allocation by some pre-determined amount in ratio with the market moves. No guarantee it’ll work, but it can make sense.

    Back to bonds: we’re in a historically extreme situation. Interest rates through floor / looking glass. QE pumping like we’re at an all-night rave. That loads up the risk for long bonds. My over-balancing solution was to be more cautious. Not try to outguess the market – there are long bonds in the intermediate gilts fund – but to prune back the risk exposure. It’s interesting to note that so far that’s been dead wrong. Returns would look better at the current time if we were just rocking long bonds. There’s a long way to go yet though.

    @ Moongazer and C-Strong – I think clawing your way back from a big loss is a tough psychological hill to climb. Especially in a world where we can check in on our portfolio at the touch of a button and see that it’s still down. Year in, year out.

    I agree that being familiar with the nature of market crashes is important for every investor. Know your enemy! One of the problems is that often drawdowns are presented too optimistically. For example, some sources don’t show how long it took the market to bounce back in real terms, after inflation. ERN wrote a good piece on how long it can take:
    https://earlyretirementnow.com/2019/10/30/who-is-afraid-of-a-bear-market/

    Wade Pfau showed that it took the UK stock market 10 years to recover from the 1973-74 crash. Down 71% in 1973, it wasn’t above water again until 1983:
    http://wpfau.blogspot.com/2014/01/greatest-hits.html?m=1

    @ Dawn – well done. Good to know you held on when tested.

    @ Vanguardfan – haha. I know how you feel.

  • 19 AnAdmirer July 1, 2020, 1:01 pm

    @TheAccumulator – I don’t follow your “Asset class annualised return %” total figure of 8.99% (this seems high to me for what is basically a 30/70 portfolio). I make it 8.52% from your figures (attributing “Asset class annualised return %” by “% of portfolio”). Could you explain (or link) how you calculate this?

    I’m curious because Trustnet lists Vanguard LS 60% as 7.9% and LS 80% as 8.8% which seems more consistent with my calculation (8.52%) than yours but I’m very interesting if somehow your figure is correct and you’re picking up alpha here!!

  • 20 Grumpy Old Paul July 1, 2020, 1:09 pm

    @ The Accumulator – I’m always interested to see the performance of The Slow and Steady portfolio. It fascinates me that my own, different portfolio has had a very similar performance to yours over the last six months. It almost seems to be the case that if you have a defined process for contructing an index-based, low cost portfolio, don’t tweak it too often, follow the process and rebalance occasionally, the details don’t matter that much!

    With regard to the Japan scenario, I allocate the equity components of my portfolio between the USA, Europe ex UK, Japan, Pacific ex Japan and UK based on the GDP of each area. This is implemented via Vanguard funds using VG Dev World ex UK as a core holding. This is to avoid over-exposure to any individual area which is experiencing some kind of bubble. It requires a bit more effort to do this and I obviously have to check the VG Dev World ex UK geographic allocations but its an approach with which I’m comfortable. Having said all that, I wish I’d over-rebalanced during the depths of the plunge! I haven’t made any adjustment so far because of Covid-related plunging economies but may well schedule a review for January 2021 when some of the dust has settled.

    Re bonds and investment horizons, there is a very interesting discussion over on Bogleheads at https://www.bogleheads.org/forum/viewtopic.php?t=259330 .

  • 21 The Investor July 1, 2020, 1:13 pm

    @AnAdmirer — Do remember this portfolio hasn’t been static. It began life way back in 2011 with an 80% allocation to equities, and @TA has slowly dialed that down and added bonds over time. There have also been a couple of changes to the asset allocation. The in-article link to the origin story takes you back to the beginning. There are also links in the article to a list of all 30+ updates.

  • 22 The Investor July 1, 2020, 1:15 pm

    It almost seems to be the case that if you have a defined process for contructing an index-based, low cost portfolio, don’t tweak it too often, follow the process and rebalance occasionally, the details don’t matter that much!

    They don’t. 🙂

    See the following:

    https://monevator.com/is-any-asset-allocation-best/

  • 23 Haphazard July 1, 2020, 2:54 pm

    Thanks to everyone for the comments on bonds! Also to @Grumpy Old Paul for the bogleheads link. I’m gradually getting my head round it I think. At least for those of us who do have longer duration bonds, if we wanted to sell at some stage, I can see that this might be a good time.

    As regards the impact of QE, am I correct to think that the Bank of England buying bonds is likely to prop up prices (higher demand=higher prices), whereas if it starts selling them, prices would fall? I heard read that Andrew Bailey thinks it would be better to scale back on QE (sell bonds) before raising interest rates.

    If QE is scaled back, wouldn’t that affect all bonds? Why just long duration?

  • 24 Adam July 1, 2020, 3:42 pm

    @AnAdmirer
    I’d assume the 8.99% annualised return is calculated using the method described here:
    https://monevator.com/how-to-unitize-your-portfolio/

    Personally, I track returns using the CAGR instead. Not what’s recommended here, but it works for me. I’d rather compare against mortgage rates and cash savings rates than against other funds. Based on my (possibly questionable!) sums, the slow&steady CAGR is 8.16%, which is in the same ball-park as 8.52% and 8.99%. Close enough for me.

    My own CAGR is much lower at a bit under 5%. A heavier UK weighting brings it down, but I didn’t know much about diversification when I started out…

  • 25 David July 1, 2020, 5:08 pm

    A question – if you (or me!) were looking to move away from having investments managed by investment manager (they choose what funds we invests in etc.) because you felt the fees were just too high (about 2% by the time you add the manager’s circa 1% and the ongoing fees averaging about 0.9% across the mostly active funds we are invested in) would you choose to do it “now”?

    My concern is that I feel like the equity markets have overdone the run back up since late March and so putting money in tracker funds (or others!) is likely buying at a high point. 2nd wave or similar COVID, US elections, Brexit, China / US trade war – it just feels like for equities to be near their Jan highs is somewhat crazy. And bonds – I don’t see how I don’t lose capital on the portion that goes into them with interest rates having so little room to move other than up (albeit probably not anytime in the immediate future) and central banks having to ease off QE at some point.

    We are currently about 70/30 equity / bonds and 10-15 years out from needing the money we are investing. We are and adding what feels to us like quite a lot of new money to the portfolio each year but not enough to overcome a huge drop in the existing capital. And so I look at the slow and steady portfolio and at things like the simple world tracker portfolio recommended by Lars K and find them really attractive in theory … but then I really do wonder if it’s the wrong time to be moving a whole lot of money into a passive, index based portfolio like this all in one go.

  • 26 c-strong July 1, 2020, 6:43 pm

    @David Yes, do it now. The sooner you stop paying those hideous fees the better for your expected returns.

    It’s only really the US market that has bounced all the way back, most other markets are still down, substantially so in the case of Japan and the UK, so don’t look overvalued. And most active funds are in love with US tech (sweeping generalisation I know) so are probably at least as exposed to the US market as a global tracker.

    Your tacit assumption is that active funds are better able to deal with volatile markets, but studies have generally shown this not to be the case.

  • 27 Ruby July 1, 2020, 7:57 pm

    @ David – the prospects for passive investments may or may not be poor but they’re almost certainly better than what you’ll get with an active manager. If the prospect of going passive in one go is all too much you could always drip the money in over a few months and make the change that way. If it’s still a bit daunting go to 60/40 equity/bonds or whatever allows you to sleep. Then forget for the ext 10 -15 years until you need it.

  • 28 The Accumulator July 1, 2020, 9:18 pm

    @ AnAdmirer & Adam – I don’t use unitisation as that’s a time-weighted return i.e. all time periods are weighted equally, irrespective of how much money is invested when. It attempts to eliminate the effect of cash flows into or out of the portfolio. It’s the method used by mutual funds when preparing their published performance reports.

    I use XIRR which is a better way to determine your personal return. It’s a money-weighted return that specifically adjusts for the portfolio impact of contributions and withdrawals. Time periods in which more money is invested have more of an impact on the overall return than equivalent time periods in which less money is invested. For this reason it can differ substantially from the time-weighted rate of return when large cash flows occur during volatile periods.

    There’s a good explanation of XIRR here: http://whitecoatinvestor.com/how-to-calculate-your-return-the-excel-xirr-function/

    The 8.99% return is an annualised return which is the same as CAGR.

    In case of clumsy data entry, I also track the portfolio on Morningstar’s Portfolio Manager. It shows a 9% annualised return using its money-weighted method. Effectively same as 8.99% bar some difference in rounding somewhere.

    @ Haphazard – yes, if the BOE threw QE into reverse then you could expect bond prices to fall and market interest rates to rise. Price falls would be unlikely to happen evenly across all bonds, and how steep they would be is an open-ended question. Some fairly counter-intuitive behaviour could follow depending on how it was done and how the market weighted the other economic factors in play.

    There’s a couple of pieces here you might find helpful:

    https://monevator.com/should-you-invest-in-short-or-long-term-government-bonds/

    https://monevator.com/bond-prices/

    @ David: this might help you with another part of the puzzle:
    https://monevator.com/how-to-estimate-your-risk-tolerance/

  • 29 The Accumulator July 1, 2020, 9:22 pm

    @ Grumpy – that’s interesting that you’ve kept that geographical granularity. Have you ever been tempted to rein in your US allocation? Do you rebalance it?

    Thanks for the link. Will check that out.

  • 30 Adam July 1, 2020, 10:38 pm

    @TA
    Thanks for the explanation and the XIRR info. Will check that out and see how it differs from the method I’ve been using. Will be good to learn what I need to fix!

  • 31 Hari July 2, 2020, 10:42 am

    Its probably been mentioned before…

    “One thing that’s long fascinated me is how large your returns must be in order to recover from a steep fall versus a mere dip.”

    Something halves , divide by 2, the inverse is that something doubled, multiply by 2.
    They are both a function of 2.

    Percentage figures are, fall of 50%, rise of 100%, one looks bigger than the other but its appearance, not maths !!!

  • 32 Lesley July 2, 2020, 1:52 pm

    I wanted to hear views on holding gold in your portfolio ? I recently opened a stocks and shares isa with the money I had set aside for holidays and social activities . I thought the timing was perfect to test out the asset allocation I had in my head for my draw down pension with a relatively small sum compared to my pension and see how it reacted during a difficult investment period . I struggle with bonds as a defensive asset . I have currently 5% holding in gold 20% in bonds and the rest across three global equity portfolios . I don’t have a timescale for holding these would be min 5 years or much longer and won’t sell at a loss . Thoughts on holding gold as it seems to be a better buffer than bonds albeit not typical market

  • 33 The Accumulator July 2, 2020, 2:47 pm

    Hi Lesley, gold isn’t better than bonds but it may help when nothing else works. Or it may not. The thing with gold is it tends to do its own thing. Its historic correlation with stocks and bonds hovers around zero but its long-term expected real returns aren’t much better than that either. Personally I wouldn’t hold more than 5-10% in gold although currently I hold 0%. This piece explains more:

    https://monevator.com/how-to-protect-your-portfolio-in-a-crisis/

  • 34 Grumpy Old Paul July 2, 2020, 4:40 pm

    @The Accumulator – last time I checked the VG Dev World Ex-UK had about 65% US exposure. Of the equities within my portfolio, I have 41% US exposure, 33% Europe, 13% Asia/Pacific ex-Japan, 11% Japan and 2% UK. So I’m underweight US compared to VG Dev World ex-UK which was a deliberate decision based on allocation via GDP very roughly.

    I’ve had approximately this split within overseas equities since May 2017 but I used to have much more UK exposure which I reduced to a minimum in 2019.

    I rebalanced (very belatedly, unfortunately!) in early May maintaining the same geographic allocations.

    Obviously, also possible to make the allocation by Shiller P/E or some other metric or combination of metrics. I could have included Emerging Markets but I’m more comfortable with lower volatility.

    With regard to overseas equities, I may have to (or perhaps should) hedge against the possibility of the UK economy making an unexpectedly strong and rapid recovery and acquiring safe haven status!

    Finally, as an old bloke, I do compare my returns with VG LS40, VG LS60 and HSBC Global Strategy Balanced (and Cautious) with a view to simplifying life as my faculties decline still further.

  • 35 The Accumulator July 2, 2020, 7:01 pm

    @ Grumpy – I guess simplifying life will see you eventually merge the country funds into a global one?

    My historic decision to use VG Dev World ex-UK has meant I’ve been carrying more US equities than I’m comfortable with based on valuation. But my inability to do anything about it due to the constraints of the regional fund has played for me rather than against. My faith in the emerging markets and the UK to come good based on relatively low P/E metrics is being sorely tested too. I keep telling myself I’m playing the long game 🙂

  • 36 Grumpy Old Paul July 3, 2020, 1:47 pm

    @The Accumulator,
    I think I’ll eventually go for full-on simplification of my ISA down to no more than 3 or 4 investment vehicles. I’ll probably look at VG LS40/60, HSBC Global Strategy and similar vehicles possibly splitting between management groups and for a bit of diversification. I will also consider as an alternative just one global equity fund (or ETF) and a global hedged bond fund. The advantage of the first approach is that I can probably forget about it in my dotage whereas the second works best with periodic rebalancing.
    But you’ve prompted me to step back and ask myself fundamental questions about what my objectives are and note aspects of my ISA portfolio which reflect tactical switches made within the last few years because of B*t and the global geopolitical environment and which should be reversed in the near future. I’m retired and in a lucky position and, for me, the objectives of the ISA portfolio are:

    a) To provide a degree of inflation protection with relatively low volatility
    b) To provide financial back-up in case of a DB pension going belly up then into PPF and then PPF folding!
    c) To provide a bit of fun and interest

    I’ve also realised that I need to look at all of my savings rather than my ISA in isolation because I’ve been guilty of compartmentalisation. The biggest investment risk to me is that the UK makes a remarkable recovery with resurgent sterling, rising stock market, inflation and interest rates. I therefore need to increase my UK equity exposure from its current minimal level, hedge some of my overseas equities and make a fairly substantial switch from bonds to equities. I’m in no hurry and will put this in on my January 2021 to-do list!
    I’m still expecting that new contributions to ISAs cease to be permitted within the next few years but a) like @The Investor wrt to a property sell-off, I’ve been predicting that for years and b) I’ve no plans to add much to my ISA.

  • 37 Al Cam July 3, 2020, 3:19 pm

    @Grumpy:
    Do you currently have any preferred candidates for your alternative strategy of “one global equity fund (or ETF) and a global hedged bond fund”? Also, are you fully committed to [currency] hedging the bonds?

  • 38 Grumpy Old Paul July 3, 2020, 4:43 pm

    @Al Cam,
    VWRL and Global Bond Index Fund – Hedged Accumulation – Vanguard. And I might be tempted to introduced a hedged global equity fund/ETF too. But that is not advice. Do your own research. People’s ages, circumstances, needs and temperament vary hugely and all these factors should feed into investment planning.
    I’m not a sophisticated investor and have dabbled with limited success for decades until the last 7-8 years. The difference recently has resulted from reading this blog, low-cost index products being available and understanding the importance of asset allocation. When I started, we had 5% front-end charges and 1.5% annual charges: if you switched funds too often you’d be wiped out by the front-end charges.
    I’m not trying to live up to my name! No offence intended.

  • 39 Al Cam July 3, 2020, 6:28 pm

    Thanks for your feedback/thoughts.
    Personally, I am looking to diversify away from Vanguard – for what I assume are probably similar reasons to those you mentioned at #36 above.
    I currently quite like the look of the HSBC FTSE All-World Index Fund and was just asking out of curiosity.
    Absolutely no offence taken

  • 40 MrOptimistic July 4, 2020, 2:07 pm

    @Al Cam. I like the HSBC global strategy funds, you could look at the ‘ dynamic’ one. The small print says they hedge their bond funds. Also this avoids the home bias in the vanguardLS funds.

  • 41 Al Cam July 4, 2020, 3:50 pm

    @MrOptimistic:
    Thanks very much for the suggestion.
    What concerns me about the HSBC global strategy funds vs the Vanguard LS funds is that the former are manged with somewhat more discretion,
    see e.g. https://monevator.com/passive-fund-of-funds-the-rivals/
    P.S. I am also currently not sold on hedging to the £ either

  • 42 David July 4, 2020, 7:11 pm

    Thanks C-Strong, Ruby and TA – replies much appreciated!

  • 43 Shaun July 5, 2020, 3:32 pm

    Hi there,
    I’ve been doing this passive investing stuff in my ISA and SIPP over the last 3 years and so far it’s had good results, so thank you to this website for helping me with my research.

    I just want to double check something in asset allocation and I still find something unclear (I’m probably sweating the small stuff here, but still…)

    I’m happy with my 80-20 split. Say for example I’m investing £10k:

    £2k into the bond fund, that’s the easy part.

    Now, when constructing a global equity tracker, I’ve used UK, Dev World Ex-UK and Emerging Market trackers.
    Say I want 10% of that global equity tracker to be EM, is that 10% of the whole portfolio i.e. £1000, or should it be 10% of the 80% equity portion i.e. £800
    Similarly for a 5% UK allocation, should that be £500 (whole pft) or £400 (5% of 80%)
    Leaving the rest for Dev Ex-UK.
    I’ve also allocated 10% to property, does that then also come out of the equity portion.

    I’m currently doing the former, however I feel as if the latter makes more sense. Since I’ve only got about £15k invested, I know I’m quibbling over a hundred pounds here and there. Apologies if these are basic questions, however, I’d still like to get it correct and make any amendments if necessary.

    Thanks!

  • 44 Jaygti July 5, 2020, 9:02 pm

    @shaun, I personally work it as a percentage of the whole lot.
    I.e. 10% emerging markets would be £1000.

  • 45 The Accumulator July 5, 2020, 10:46 pm

    Hi Shaun, a 10% allocation to emerging markets would be 10% from your equity allocation. Same again for UK and property. Good luck with it all.

  • 46 Simon T July 7, 2020, 7:57 am

    Re: Global World Equity funds, I use FIDELITY INDEX WORLD CLASS P, OCF of 0.12%

  • 47 AfroLatino July 9, 2020, 11:36 pm

    Hi The Accumulator,

    I am very new to this and like David, I am looking to start investing myself as opposed to using an IFA.

    I have found your blog very resourceful, so thank you very much for the time and effort put into this.

    Just a quick question re your S&S portfolio please. I would like to use the Vanguard Platform for my SIPP and interested in knowing if there is any disadvantage in using Vanguard world trackers like VWRL or FTSE Global All Cap Index Fund. I am more keen to use the Global All Cap because it is an accumulation as not really sure of how income distribution works for now in re to VWRL.

    I had wanted to use Developed world ex-UK equities & Vanguard FTSE UK All-Share Index Trust in addition to bonds but missing out on emerging markets, hence my reasoning behind using the world tracker as they include these too.

    From my personal research, Developed world ex-UK equities has performed very well in the past, which of course is not an indication for future performance. The Global All Cap fund is less than 5 years old and you may have decided to continue with using the same funds you started this portfolio with, hence my query.

    Your response would be greatly appreciated.

    Thanks

  • 48 Onedrew July 10, 2020, 8:23 am

    Hi AfroLatino, you can have accumulation and distribution versions of Vanguard’s Global All Cap Fund and the accumulation version of VWRL is VWRP.

  • 49 xxd09 July 10, 2020, 8:46 am

    One point
    The withdrawal of funds on retirement from the Vanguard SIPP is I understand only by buying an annuity
    Otherwise the SIPP has to be transferred to another provider who can provide Drawdown facilities
    This may be remedied in the future?
    A bit of a drawback at the moment
    xxd09

  • 50 AfroLatino July 10, 2020, 9:07 am

    Thanks Onedrew for your response but do not think VWRP is available on Vanguard Investor’s platform as at yet.

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