Well that’ll do nicely. The Slow & Steady enjoyed 9.5% growth over the past year. Not bad for a portfolio on auto-pilot. I think it’s fair to say that reports of the death of the 60/40 portfolio are greatly exaggerated.
Here are the latest numbers:
[1]The Slow & Steady is Monevator’s model passive investing [2] portfolio. It was set up at the start of 2011 with £3,000. An extra £1,310 is invested every quarter into a diversified set of index funds, tilted towards equities. You can read the origin story [3] and find all the previous passive portfolio posts [4] in the Monevator vaults. Last quarter’s instalment can be found here [5].
With the exception of global property, our equity holdings had a spectacular year:
[6]Source: Morningstar Portfolio Manager [7]
The returns for Emerging Markets, Global Small Cap, and the UK’s FTSE All-Share would look wonderful if they weren’t put in the shade by the blowout performance of Developed World equities – specifically US equities.
Indeed the S&P 500 delivered nearly three times the return of its nearest Developed World compadre this past year:
[8]Source: JustETF [9]
And this isn’t a new story. The US has been the Slow & Steady portfolio’s main engine [10] of growth over the course of its 14-year lifespan:
[11]Charts like this can shake your faith in the power of diversification.
If this is a free lunch then it comes with a bad case of food envy.
Where to go from here?
Do you want some more of what the guy in the cowboy hat is having? Or are you (sensibly) wary of piling in near the top?
There are three options as I see it.
You could:
1. Fold your non-US cards and project that the current trend will continue forever. Because that usually works out [12], right? [Editor’s note: Strong ironic tones detected.]
2. Conclude the trend contains the seeds of its own demise, as hinted at by valuation measures. For instance, Research Affiliates’ expected returns metric [13] forecasts a real US annualised return of just 0.04% for the next decade:
[14]If this version of the universe comes to pass, then ditching your diversifiers now to go all-in on Team America would be precisely the wrong move.
3. Finally, you could ignore both visions of the future, remembering that the US can indeed lag the rest of the world for years but also that the switchover point is inherently unpredictable [15]:
[16]Data from JST Macrohistory [17]1 [18], The Big Bang [19]2 [20], MSCI [21] and Aswath Damodaran [22]. August 2024.
The longer-term view revealed by this chart shows that lengthy periods of dominance are quite common.
They do end – or at least they always have before – yet in the meantime the winners in those eras probably seemed ‘locked-in’ to many investors at the time, too.
Worldly wisdom
The World index is now 72% occupied by US shares. If the S&P 500 continues to crush it, then World funds will pass that on, mildly diluted by the also-rans.
On the other hand if other locales do have a moment in the sun, then with a globally-diversified portfolio you’ll at least have some exposure to those new sources of momentum.
Personally I’m uncomfortable banking my net worth on any single sector, country, or asset class.
I’m happy to take my time getting to where I’m going, which is exactly why we called this project the Slow & Steady portfolio and not the Get Rich Quick Or Die Trying Mega-Punt portfolio.
Long story short: stand down, as you were.
Fourteen years down, six to go
I can scarcely believe it but the Slow & Steady portfolio is now 14-years old.
Back in 2010, I gave it a 20-year time-horizon – never thinking that was a destination this series would ever arrive at.
Now it looks like we might.
In the meantime, the original £3,000 seed money has multiplied to nearly £91,000 thanks to regular cash injections, reinvested dividends, and capital gains.
Here’s the story in a chart:
[23]The first half of the journey was almost a cakewalk, barring the launch year’s knock back:
[24]And the portfolio has only suffered one serious blow, in 2022. That year saw a bad-enough 13% loss in nominal terms – but a knuckle-gnawing 20% takedown after inflation.
Indeed, inflation went on to pour cold water over 2023’s glowing 9.2% result too, leaving us with a tepid 1.8% return in real terms.
Inflation stayed becalmed for most of my adult life. Yet old hands – and books – had warned us for years that ballooning prices was the most fearsome enemy we might face as investors.
Well, now we’ve lived it. Hence all the articles we’ve published on various ways to defend against [25] galloping money rot.
Landing the plane
Still, such setbacks have done little more so far than knock the froth off the portfolio’s early promise.
Right now our annualised return is bang on average at 4.2%.3 [26]
However the next six years will have an outsized impact on the portfolio’s eventual fate due to sequence of returns risk [27].
If this was not a model portfolio but rather our life savings – and if we couldn’t afford to take a big loss from here on – then there’d be a strong case for allocating more to wealth-preserving, short-term inflation-linked bonds [28] than we currently do.
Portfolio maintenance [29]
We rebalance [30] every year so that our portfolio doesn’t drift too far from our preset asset allocation.
Meanwhile our key equity/bond split is fixed at 60/40 for the remainder of the portfolio’s lifetime.
As the Developed World performed spectacularly in 2024 and bonds handed us another year of defeat, rebalancing amounts to selling off around 4% of our primary equities fund to plough into cheaper bonds.
Perhaps we’ll be rewarded for such saintliness in the next life – or maybe in the near future, if equities have a shocker in 2025.
Either way, remember rebalancing is about controlling your exposure to risk rather than juicing returns.
Our final move is to shift our 40% bond asset allocation by 2% per year until this sub-component is split 50/50 between conventional gilts and short-term index-linked bonds.
Which means that this quarter:
- The Vanguard UK Government Bond index fund decreases to a 23% target allocation
- The Royal London Short Duration Global Index Linked (GBP hedged) fund increases to a 17% target allocation
The reason for this is we believe short-term index-linked bonds help defend the purchasing power of a portfolio once you’re ready to spend it.
(See our No Cat Food decumulation portfolio [31] for more on our thinking.)
Inflation adjustments
We increase our regular cash injections by RPI every year to maintain our inflation-adjusted contribution level.
This year’s inflation figure is 3.6%, and so we’ll invest £1,310 per quarter in 2025.
That’s an increase from £750 back in 2011. We’ve upped the amount we put in by 75% over the past 14 years simply to keep our nose ahead of inflation.
New transactions
Every quarter we’ll drip-feed £1,310 onto the stalagmites of our funds. This time our trades play out as follows:
UK equity
Vanguard FTSE UK All-Share Index Trust – OCF [32] 0.06%
Fund identifier: GB00B3X7QG63
New purchase: £72.87
Buy 0.262 units @ £277.74
Target allocation: 5%
Developed world ex-UK equities
Vanguard FTSE Developed World ex-UK Equity Index Fund – OCF 0.14%
Fund identifier: GB00B59G4Q73
Rebalancing sale: £3222.39
Sell 4.46 units @ £722.32
Target allocation: 37%
Global small cap equities
Vanguard Global Small-Cap Index Fund – OCF 0.29%
Fund identifier: IE00B3X1NT05
Rebalancing sale: £21.81
Sell 0.048 units @ £456.45
Target allocation: 5%
Emerging market equities
iShares Emerging Markets Equity Index Fund D – OCF 0.19%
Fund identifier: GB00B84DY642
Rebalancing sale: £161.45
Sell 77.532 units @ £2.08
Target allocation: 8%
Global property
iShares Environment & Low Carbon Tilt Real Estate Index Fund – OCF 0.18%
Fund identifier: GB00B5BFJG71
New purchase: £403.84
Buy 171.789 units @ £2.35
Target allocation: 5%
UK gilts
Vanguard UK Government Bond Index – OCF 0.12%
Fund identifier: IE00B1S75374
New purchase: £1434.45
Buy 10.985 units @ £130.58
Target allocation: 23%
Global inflation-linked bonds [33]
Royal London Short Duration Global Index-Linked Fund – OCF 0.27%
Fund identifier: GB00BD050F05
New purchase: £2804.48
Buy 2653.248 units @ £1.06
Dividends reinvested: £196.10 (Buy another 185.52 units)
Target allocation: 17%
New investment contribution = £1,310
Trading cost = £0
Average portfolio OCF = 0.16%
User manual
Take a look at our broker comparison [34] table for your best investment account options.
InvestEngine [35] is currently cheapest if you’re happy to invest only in ETFs. Or learn more about choosing the cheapest stocks and shares ISA [36] for your situation.
If this seems too complicated, check out our best multi-asset fund [37] picks. These include all-in-one diversified portfolios such as the Vanguard LifeStrategy funds [38].
Interested in monitoring your own portfolio or using the Slow & Steady spreadsheet for yourself? Our piece on portfolio tracking [39] shows you how.
You might also enjoy a refresher on why we think most people are best choosing passive vs active investing [40].
Take it steady,
The Accumulator
- Òscar Jordà, Katharina Knoll, Dmitry Kuvshinov, Moritz Schularick, and Alan M. Taylor. 2019. The Rate of Return on Everything, 1870–2015. Quarterly Journal of Economics, 134(3), 1225-1298. [↩ [45]]
- Dmitry Kuvshinov and Kaspar Zimmermann. 2021. The Big Bang: Stock Market Capitalization in the Long Run. Journal of Financial Economics, Forthcoming. [↩ [46]]
- 2024’s annual inflation figure is currently estimated to be 2.5%. [↩ [47]]