Wednesday 7 July 2010

My Retirement Investing Today Current Low Charge Portfolio – July 2010

I first started taking my retirement investing asset strategy seriously in 2007 when I became disillusioned with the financial sector and decided to go it alone. While I made a start in 2007 the majority of the time was spent reading about personal finance and it wasn’t until 2008 that I really started to formulate the strategy that you see today. The strategy could be called extreme. I aim to save on average 60% of my after tax earnings and pension salary sacrifices. Following this strategy has me currently forecasting retirement in 6 years. This monthly entry calls me to account and forces me to assess if I am still on track and to determine if all the effort is worth it or whether I would be better off with a simple bond/equity asset allocation that is rebalanced yearly. What I call the Benchmark.

The Benchmark Portfolio that I am using is simply 28% bonds and 72% equities which is in line with the risk profile I am happy with. I will decrease the risk profile of this Benchmark annually on my birthday by moving 1% from equities to bonds. This is consistent with the approach in my Retirement Investing Today Low Charge Portfolio. Additionally, I assume that the stocks/bonds ratio is rebalanced back to this allocation at the start of each year. The bond fund that I have chosen is the iBoxx® Sterling Liquid Corporate Long-Dated Bond Index total return (capital & Income) index and the equities fund that I have chosen is the FTSE 100 total return (capital & income) index. The performance of these indices I take from the iShares website.

The chart today shows what I call my Desired Low Charge Portfolio and also My Current Low Charge Portfolio. My Desired Low Charge Portfolio has been constructed using both Strategic and Tactical Asset Allocation methods. To understand how I constructed this portfolio then please start here. ( ) My investment strategy is to simply use mechanical methods to work my asset allocations towards that of the Desired. Of course this takes dedication as the Strategic element of the portfolio causes this to always move.

So how has the month been?

Buying (New money): Since my last post I have had a very poor savings month and managed to save only 25% of my after tax earnings and pension salary sacrifices. This is in contrast to last month where I saved 72%. I guess I shouldn’t beat myself up to much as most would call 25% an excellent saving month. I however am not happy with this and intend to focus this month. Total new money entering my Retirement Investing Low Charge Portfolio was around 0.5% of my total portfolio value. The allocation was as follows: 15.0% to UK equities, 21.0% to international equities, 4.0% to index linked gilts and 60.0% to UK commercial property. This money was all invested within my pension.

Reallocation of assets in my retirement investing portfolio: Within my Stocks and Shares ISA I moved 0.6% from cash into Emerging Market Equities as detailed here.

Selling: Nothing this month.

Dividends: No dividends this month.

Current UK Retail Prices Index: 5.1% which is down from 5.3% making it difficult to get a real return on any cash holdings as I’ve discussed in previous posts.

Current Annual Charges: 0.57%

Current Expected Annual Return after Inflation: 3.9% which is down from 4.0% last month

Historical and Current Return Year to Date Performance: (Note that historical performance is calculated using Excel’s XIRR function for a full year and if year to date then further corrected with the Personal Rate of Return, PRR, as detailed here.
*4 Jan ‘08 to 2 Jan ‘09. Low Charge Portfolio -12.0% vs Benchmark -20.8%. There was some luck in there also as this was when I built the portfolio.
*2 Jan ‘09 to 31 Dec ‘09. Low Charge Portfolio +22.8% vs Benchmark +20.4%.
*31 Dec ‘09 to 02 July ’10 (Year to Date) Low Charge Portfolio -1.2% vs Benchmark -5.0%. So while I’m going backwards in both inflation and non-inflation adjusted terms at least I’m doing better than the benchmark. Only time will tell if my strategy is sensible however it continues to look sensible to my Average Joe eyes.

How close am I to retirement: With the falls in many markets continuing this month my retirement has moved yet further away going from 44.5% to 42.7%, with 100% being retirement (well at least work becoming optional).

As always do your own research.

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