Wednesday 15 December 2010

This year my strategy is not adding any value - My Retirement Investing Today Current Low Charge Portfolio – December 2010

This blog is not trying to sell you anything which means that I can freely share with you both the positives and the negatives of my strategy. Today though is neither really a positive or negative experience with my year to date Personal Rate of Return sitting at 8.6%, compared with my Benchmark Portfolio which has returned 8.5%. Of course given that I spend significant time maintaining my strategic and tactical asset allocations many would argue that if I calculated the cost of my time then I would probably be behind compared to the benchmark portfolio which would probably cost a maximum 1 hour of time per annum with a rebalance at the start of every year. The only defence I have is that my portfolio has had to pay some fees (Equity ETF, Pension etc costs), even if I do try an minimise them, and also has paid some tax (cash is taxed at 20%).

For completeness my Benchmark Portfolio is as simple as it can get by using 29% iBoxx® Sterling Liquid Corporate Long-Dated Bond Index total return (capital & Income) index and 71% FTSE 100 total return (capital & income) index.

Looking longer term (note I didn’t say long term as only many years ahead will I know if my strategy has worked) though my strategy does appear to be working. £100,000 invested in My Low Charge Portfolio on the 4th January 2008 would today be worth £117,303, a CAGR of 5.5%, while if I had have invested in my Benchmark Portfolio £100,000 would today be worth £103,538, a CAGR of 1.2%. For full disclosure though I did get a small run of luck in 2007 when I was underweight equities as I built the strategy and portfolio you see today.

My chart today, as always, 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 that I describe all over this blog. 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.

My portfolio remains reasonably tax efficient. I currently have 35.9% in Pensions, 18.7% in NS&I Index Linked Savings Certificates (ILSC’s), 11.0% in ISA’s and 34.4% exposed to the full wrath of the tax man. I really do wish NS&I would bring ILSC’s back soon.

So now the important statistic that I look at each month. How close am I to retirement? Well my portfolio is sitting at 49.6% of the required assets which is down from 51.1% in November.

If you would like to know more about my Retirement Investing Today Current Low Charge Portfolio or my Benchmark Index then have a look here.

As always do your own research.


  1. I wouldn't worry (and I'm sure you're not worrying!) about only beating your target by 0.1% RIT. That's barely noise. The question is whether it's the shape of things to come.

    The 4.3% outperformance obviously super. Even if we knock it down to 3% you'll be laughing in 20 years if that carries on.

    The big risk with actively rebalanced portfolios with a value-metric tilt is that you'll underperform in market booms and not be sufficiently rewarded for greater resilience in the busts.

    We're in a rallying phase now, and *if* it continues for 1-2-5 years you'll start to lag significantly I'd wager. The real question is where you'll be 1-2-5 years after the subsequent bust! :)

  2. Hi TI

    You're right I'm not worrying. I'm in this for the long haul so only when I reach the end of the journey will I know if I've won or lost and by then it will be to late to worry So far over a period of nearly 3 years I'm ahead but who knows what the future holds.

    Some good points about the risks my strategy carries. I'm very much aware that markets can remain irrational far longer than you can remain solvent so have decided to allow the stock markets that I use tactical allocation for to run quite a long way before I rebalance. New money will of course continue to go into the most under valued asset class (which is effectively rebalancing) however I won't do a physical rebalance until I am out of whack by 25% in either direction. I'm still exposed to what you mention but hopefully less so than continual rebalancing.


  3. With your diversification I'd expect you to have lower volatility than your benchmark, so if your gains are similar over time then that's still a good result.

    have a good 2011.

  4. You're doing a great job. I've been in the industry 15 years (in the U.S.) and know that many investors can do better on their own than working with the traditional advisor.

    To me, diversification can work against you as much as it can for you because of the averaging affect. I only want to expose my clients money to market risk when the probabilities are in their favor. Otherwise, I focus on protection.

    You might increase your return by including some indicators to determine when you should be invested in any particular class. For instance, you can use a 50 or 100 day moving average. You can also look at using 2 moving averages and their crossing points as in/out signals.

    The idea isn't to take action at every little turning point, but to help you find a way to be on the sidelines during the major market declines.

    Keep up the good work!

  5. I think that knowledge is the key. If you are looking for passive investment but you have very limited knowledge in investing; everything is risky.