The Slow and Steady passive portfolio update: Q1 2017

The Slow and Steady passive portfolio update: Q1 2017 post image

You know how we humans like to shoot the messenger when they bring bad news? Well, I feel like I should be treated to a ticker tape parade and my choice of wives. Because here’s the latest dispatch – our investment garden is looking very rosy right now. Last quarter was good, and things have only gotten better thanks to Trump, Brexit, Hawaiian pig farmers, or your own rationale du jour.

Every asset class is higher. The portfolio has put on over 4% in three months and a staggering 11.8% on an annualised basis. That’s well above historical averages. The FTSE All-Share has managed 9.8% over the same period.

Here’s the portfolio in 8K RetinaBurn™ spreadsheet-o-vision:

Slow & Steady portfolio tracker, Q1 2017

So that’s another one-up for globally diversified passive portfolios.

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 £900 is invested every quarter into a diversified set of index funds, heavily tilted towards equities. You can read the origin story and catch up on all the previous passive portfolio posts.

Wait a second – is everything going a bit too well? Shouldn’t we do something? Y’ know, tweak a few knobs to keep the pace up, bob and weave to evade onrushing disasters?

The US – it’s overvalued right? Everyone says so. Maybe we should dial back on that and switch into something cheap. How about Russia? That Vladimir Putin knows a thing or two…

Whenever my brain starts playing these kind of tricks on me, a good antidote is to consult this jellybean chart from Vanguard:

Which asset wins guessing game

The chart hurts my eyes, but it also shows the annual asset class winners and losers over the last decade. Each asset class is colour-coded, so you can quickly feast on the patterns that emerge.

Except they don’t. What we’ve got is a violent patchwork quilt that even grandma would burn because the pattern is about as meaningful as Snakes & Ladders.

For instance, emerging markets topped last year’s table. Up from bottom place the year before, and in 2013, and in 2011. Yet that period in the dumpster came after taking the top spot three times out of four from 2007 to 2010. Though the same asset class took the wooden spoon in 2008. It all tells you more about the volatility of emerging markets than anything else. Be prepared for a wild ride.

North American equities haven’t been out of the top three for the last four years – hence the current frothy valuations – but they registered six years of mostly mid-table mediocrity before that. Reversion to the mean then?

Interestingly, global equities have managed a top half performance in every year bar two. Diversification is looking pretty sound again. Take that brain.

The clash of colours on this table is nothing more than the flashing reels of the world’s most complicated casino. Nobody can predict the winners with any long-term consistency. And the Irrelevant Investor blog has this brilliant chart on how today’s US bull market stacks up against its predecessors.

How far does the US bull market have to run?

If history is any guide then today’s US bull market could have a long way to run. Of course it might not, but you could give up a lot of upside by swinging away now. I don’t bet against America, although I accept that the future returns of a highly valued market are unlikely to be as lucrative as a cheap market in the long term.

If you simply must do something, take a look at over-balancing. In the meantime, I’m going to stay out of the fiddling game and let the chips fall where they may.

We’re nicely diversified. Something’s gotta be the loser but for now let’s just enjoy the fact that everything is coming up, er, trumps.

New transactions

Every quarter we grease the market’s palm with another £900. Our cash is divided between our seven funds according to our asset allocation.

We use Larry Swedroe’s 5/25 rule to trigger rebalancing moves, but all’s quiet this quarter. So we’re just topping up with new money as follows:

UK equity

Vanguard FTSE UK All-Share Index Trust – OCF 0.08%

Fund identifier: GB00B3X7QG63

New purchase: £54

Buy 0.287 units @ £187.65

Target allocation: 6%

Developed world ex-UK equities

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

Fund identifier: GB00B59G4Q73

New purchase: £342

Buy 1.109 units @ £308.29

Target allocation: 38%

Global small cap equities

Vanguard Global Small-Cap Index Fund – OCF 0.38%

Fund identifier: IE00B3X1NT05

New purchase: £63

Buy 0.24 units @ £261.96

Target allocation: 7%

Emerging market equities

BlackRock Emerging Markets Equity Tracker Fund D – OCF 0.25%

Fund identifier: GB00B84DY642

New purchase: £90

Buy 61.058 units @ £1.47

Target allocation: 10%

Global property

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

Fund identifier: GB00B5BFJG71

New purchase: £63

Buy 32.077 units @ £1.96

Target allocation: 7%

UK gilts

Vanguard UK Government Bond Index – OCF 0.15%

Fund identifier: IE00B1S75374

New purchase: £234

Buy 1.44 units @ £162.48

Target allocation: 26%

UK index-linked gilts

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

Fund identifier: GB00B45Q9038

New purchase: £54

Buy 0.287 units @ £188.15

Target allocation: 6%

New investment = £900

Trading cost = £0

Platform fee = 0.25% per annum.

The portfolio is notionally held with Charles Stanley Direct. 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 for other good platform options. Look at flat fee brokers if your ISA portfolio is worth substantially more than £25,000.

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.

Take it steady,
The Accumulator

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