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The Slow and Steady passive portfolio update: Q3 2015

How are you feeling? A bit roughed up? A little battle weary? Or have you barely noticed your portfolio sinking like a submarine with a leak?

Our passive Slow & Steady portfolio has certainly followed the markets downwards. We’ve lost 3.3% in the last three months [1] and 7.82% in the last six.

But then again, if you zoom out a little bit we’re only down 2.33% in 2015. And we’re up 2.52% in the last year and up on average 6.22% a year since the portfolio was founded.

Crisis is a matter of perspective.

Here’s how we’re looking right now:

N.B. Glb Prop, Dev World, Small Cap and Inflation Linked bonds show year-to-date returns as holdings are less than one year old [2]

N.B. Global Prop, Dev World, Small Cap and Inflation Linked bonds show year-to-date returns as holdings are less than one year old [3]. (Click to enlarge).

The Slow & Steady portfolio is Monevator’s model passive investing [4] portfolio. It was set up at the start of 2011 with £3,000 and an extra £870 is invested every quarter into a diversified set of index funds, heavily tilted towards equities. You can read the origin story [5] and catch up on all the previous passive portfolio posts here [6].

The recent turbulence is a good test of your mettle because this is normal investing weather. UK data is hard to come by, but plenty of US writers have been fishing out interesting stats…

For example Ryan Detrick [7] tells us that the S&P 500 has pulled back at least 5% in 94% of all years since 1960.

It’s tumbled at least 10% in 53% of all years – that is one-in-two.

So this choppiness we’re going through now? It’s commonplace – it’s the last four years of uninterrupted gains that were the exception.

More optimistically, Larry Swedroe [8] quoted a report [9] from Dimensional Fund Advisors (DFA) on the market’s bouncebackability (Hells bells! I typed that in for a laugh and the spell-checker didn’t even blink. It’s a real word now).

DFA found that after drops of 10%, the S&P 500 between January 1926 and June 2015 returned on average:

Developed markets tend to behave similarly, for the most part. And lo, DFA found between January 2001 and June 2015 that – after 10% falls – developed international markets return on average:

Same analysis for emerging markets, this time between January 1999 and June 2015:

So stay cool. Things will almost certainly get better. Regardless of the crisis de jour, a little blood-letting is normal. Even healthy, because it’s the volatility that forces the weak to sell, enabling resilient investors to buy more at better prices.

The beauty of bonds

If the last six months have been too much for you then consider increasing your allocation of bonds.

Ours have risen to the occasion yet again – slowing the downdraft over the last three months.

Also, despite these quarterly Slow & Steady updates, I can’t recommend enough not looking at your portfolio when things get ugly.

I’ve peeked at my personal portfolio only once in the last six months, and out of sight is certainly out of mind.

I’ve found plenty to worry about during that time, but China’s slowdown and US interest rates haven’t even touched the sides.

New transactions

Every quarter we bowl another £870 down the market’s alley. Our cash is divided between our seven funds according to our asset allocation. We use Larry Swedroe’s 5/25 rule [10] to trigger rebalancing moves, but no boundaries have been breached so we’re just topping up with new money as follows:

UK equity

Vanguard FTSE UK All-Share Index Trust – OCF [11]1 [12] 0.08%

Fund identifier: GB00B3X7QG63

New purchase: £87

Buy 0.578 units @ £150.51

Target allocation: 10%

Developed world ex-UK equities

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

Fund identifier: GB00B59G4Q73

New purchase: £330.60

Buy 1.57 units @ £210.09

Target allocation: 38%

Global small cap equities

Vanguard Global Small-Cap Index Fund – OCF 0.38%

Fund identifier: IE00B3X1NT05

New purchase: £60.90

Buy 0.346 units @ £175.86

Target allocation: 7%

Dividends last quarter: £6.23 (Money, money, money!)

Emerging market equities

BlackRock Emerging Markets Equity Tracker Fund D – OCF 0.24%

Fund identifier: GB00B84DY642

New purchase: £87

Buy 88.703 units @ £0.98

Target allocation: 10%

Global property

BlackRock Global Property Securities Equity Tracker Fund D – OCF 0.22%

Fund identifier: GB00B5BFJG71

New purchase: £60.90

Buy 41.344 units @ £1.47

Target allocation: 7%

OCF down from 0.23% to 0.22%

UK gilts

Vanguard UK Government Bond Index – OCF 0.15%

Fund identifier: IE00B1S75374

New purchase: £121.80

Buy 0.83 units @ £146.82

Target allocation: 14%

Interest last quarter: £12.58

UK index-linked gilts

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

Fund identifier: GB00B45Q9038

New purchase: £121.80

Buy 0.785 units @ £155.16

Target allocation: 14%

New investment = £870

Trading cost = £0

Platform fee = 0.25% per annum.

This model portfolio is notionally held with Charles Stanley Direct [13]. 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 [14] for other good platform options. Look at 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 [15].

Take it steady,

The Accumulator

  1. Ongoing Charge Figure [ [18]]