Fuel shortages, an energy crisis, the Winter of Discontent [1] reboot…
There’s been so many callbacks to the 1970s lately I’m dusting off my flares.
By which I mean the absurdest trouser [2] style in history – not my emergency distress fireworks.
Still, it’s hard not to FREAKOUT when the Slow & Steady portfolio got SLAUGHTERED 0.36% in the last quarter! [3]
Sorry, I went a bit CNBC News there.
Anyway it’s okay, I’m coping with the loss. I took swift and decisive action.
I started a brawl in a petrol station.
Then I sold everything in exchange for a hard drive of crypto.
I feel much better now.
Steady on
Alright, you got me – I did nothing as usual. Except reflect on the 9.45% annualised the Slow & Steady portfolio has made for over a decade.
Things aren’t so bad, huh?
This quarter’s returns are brought to you by 5D-Anxiety-O-Vision:
[4]Truth is, the portfolio’s pond is mostly still. The two biggest ripples emanated from:
- The enduring volatility of Emerging Markets – down nearly 5% in a quarter. (Damn you, China!)
- The slow puncture of conventional bonds [5]. They’re the first asset class to become a net drag on the portfolio, having inflicted a -0.51% annualised loss across the portfolio’s 11-year lifetime.
This small loss from bonds is the price we’ve paid to insure against the worst fate in investing [6].
The Slow & Steady portfolio is Monevator’s model passive investing [7] portfolio. It was set up at the start of 2011 with £3,000. An extra £985 is invested every quarter into a diversified set of index funds, tilted towards equities. You can read the origin story [8] and find all the previous passive portfolio posts [9] tucked away in the Monevator vaults.
Signal vs noise
Do these disturbances mean anything? And surely we can’t put up with a loss-making asset like those rubbish bonds?
Judging when (if ever) such information should be acted upon is one of the main challenges of passive investing [7].
Does a signal show:
- Something is fundamentally wrong?
- The steering wheel needs a nudge?
- Or that things should be left well alone?
The irony of the Smartphone Age is it deluges us with more information than we can cope with. While at the same time superficially offering us the power to immediately respond to every compelling tip, lead, and theory.
For any story in my investing feeds, I can dive down a rabbit-hole and discover:
- Someone who’s woven a plausible-sounding thesis around it. (Plausible because I don’t have time to untangle the cat’s-cradle of connections enmeshing every story that mews for attention.)
- Social proof that people are acting on the thesis. (Are they the cognoscenti or a cult?)
- The product (or targeted ad campaign) that’ll ‘change my life’.
Why don’t I do something?
- Am I stupid?
- Uninformed?
- Scared?
- A dinosaur?
I hold the line, because I know I’m being hosed.
Separating signal from noise is impossible in this environment. It’s like fishing with my teeth in the Niagara Falls.
I only hear from the success stories du jour. Never how most of the stories end.
Yet these flashes-in-the-pan leave me with an after-image of someone else’s win. Even though most flame-out later.
There’s a mismatch between my life’s time-horizon and their 15 seconds of fame.
This dissonant loop locks my instincts and rationality in an eternal battle – like warring gods in heaven.
The proof points of a 24/7 culture can make long-term thinking appear flat-footed and flat-capped. (More dubious fashion advice there.)
The world has always been uncertain. But today’s excessive illusion of control further raises our anxiety levels.
It takes a lot of willpower to not scratch every itch.
Crypto insecurity
I do think that crypto is the most interesting challenge to evidence-based investing I’ve seen.
How do you respond when there’s no firm evidence?
Is it all tulips, or will crypto come up roses? Either is possible.
More likely, one or two cryptocurrencies will enter the pantheon of worthy asset classes [10]. But I don’t know which of the current crop will make it, or whether they’ll all be supplanted by new competitors.
I’ve heard some say that they’re ‘indexing’ baskets of crypto because you should diversify across as many assets as possible.
But how many would bother to do that without having first heard all the crypto-millionaire stories? Huge wealth that was typically achieved by actually going ‘all-in’ on a particular digital asset, when it cost just peanuts?
Do they also advocate investing in asset classes where the gloss has long peeled off the marketing brochure? For example, commodities, private equity, and volatility?
I have exposure to esoteric assets insofar as the global stock markets tracked by my index funds include companies with fingers in these pies.
I take that as proof of financial value. And that’s how I’ll get my exposure to blockchain technology, too.
Cryptic conflicts
The most insidious insult in the knowledge economy is being labelled as someone who ‘doesn’t get it.’
If you don’t know what’s going on, then you’re deemed useless.
The obvious defense is to stretch ourselves ever more thinly. Put just enough skin in the new game and you can:
- Participate in the upside
- Limit the downside
- Quell an unquiet ego
I think this exercise can help. In the last resort, I use it to enforce a ceasefire between my rational and instinctual sides. Because my ego is an arch-troublemaker. And its interventions usually solve problems as effectively as handbags on the forecourt.
Still, I won’t be including Bitcoin [11] or any other crypto assets in this model portfolio anytime soon. Almost certainly “any time ever”, actually.
But if some of the companies our money is invested in via our index funds hit it big with blockchain, I’ll be happily cheering them along.
New transactions
Every quarter we throw £985 at the King Kong that is the global market. Our peanuts are split between seven funds, as per our predetermined asset allocation.
We rebalance using Larry Swedroe’s 5/25 rule [12]. That hasn’t been activated this quarter.
These are our trades:
UK equity
Vanguard FTSE UK All-Share Index Trust – OCF [13] 0.06%
Fund identifier: GB00B3X7QG63
New purchase: £49.25
Buy 0.220 units @ £223.54
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: £364.45
Buy 0.711 units @ £512.42
Target allocation: 37%
Global small cap equities
Vanguard Global Small-Cap Index Fund – OCF 0.29%
Fund identifier: IE00B3X1NT05
New purchase: £49.25
Buy 0.122 units @ £402.14
Target allocation: 5%
Emerging market equities
iShares Emerging Markets Equity Index Fund D – OCF 0.18%
Fund identifier: GB00B84DY642
New purchase: £78.80
Buy 40.807 units @ £1.93
Target allocation: 8%
Global property
iShares Global Property Securities Equity Index Fund D – OCF 0.17%
Fund identifier: GB00B5BFJG71
New purchase: £49.25
Buy 20.746 units @ £2.37
Target allocation: 5%
UK gilts
Vanguard UK Government Bond Index – OCF 0.12%
Fund identifier: IE00B1S75374
New purchase: £305.35
Buy 1.73 units @ £176.84
Target allocation: 31%
Global inflation-linked bonds [14]
Royal London Short Duration Global Index-Linked Fund – OCF 0.27%
Fund identifier: GB00BD050F05
New purchase: £88.65
Buy 77.9 units @ £1.14
Target allocation: 9%
New investment = £985
Trading cost = £0
Platform fee = 0.35% per annum.
This model portfolio is notionally held with Fidelity [15]. Take a look at our online broker table [16] for cheaper platform options if you use a different mix of funds. Consider a flat-fee broker if your ISA portfolio is worth substantially more than £25,000. The Slow & Steady portfolio has long since passed that threshold. I’ll explore a move to a flat-fee platform in the next installment.
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 [17] such as Vanguard’s LifeStrategy series [18].
Interested in tracking your own portfolio or using the Slow & Steady investment tracking spreadsheet? This piece on portfolio tracking [19] shows you how.
Take it steady,
The Accumulator