- A portion of my exposure to Australian Equities is held with Vanguard Investments Australia in the form of the Vanguard Index Australian Shares Fund. This fund distributes income on the 31 December and so it takes a few days for the distribution to be declared and the unit price to adjust. I can’t close out my year until this occurs.
- I monitor the value of the Retirement Investing Today Low Charge Portfolio on a weekly basis rolling up the values every Saturday. This means for me my year actually started at the market close on the 06 January 2012 and finished on the market close on the 04 January 2013.
My personal investing strategy is now aligned around the mantra – Save Hard, Invest Wisely, Retire Early so let’s review my year around those 6 short words.
My aim is to regularly save 60% of my earnings. Earnings I define as my gross (ie before tax) earnings plus any employee pension contributions. When the year is rolled up I actually missed my target with a result of 55% of earnings being saved. So where did the money go:
- 32% was invested into Pension Wrappers
- 18% was invested into ISA’s, NS&I Index Linked Savings Certificates and non tax efficient locations
- 5% was used by my better half to ensure both our early retirement ambitions stay in sync. Therefore this money didn’t make it into my Invest Wisely but are still family savings so I’ve chosen to include them.
Year end score: Conceded Pass. The amount saved was nowhere enough for Early Retirement Extreme however it should still be plenty for a nice Early Retirement. My plan for next year is to get that savings rate back up to 60%.
I have continued with the Retirement Investing Today Low Charge Strategy. My asset allocations at year end are shown in the chart below.
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I have continued to invest as tax efficiently as possible. At year end 69.1% of the total portfolio is invested this way with the distribution being:
- 39.2% held within Pension Wrappers with the majority being within a Sippdeal SIPP
- 17.3% held within NS&I Index Linked Savings Certificates
- 12.6% held within ISA Wrappers. 100% of which is invested within the TD Trading ISA. I continue to use TD Direct Investing as the Investments I hold within the ISA, plus the fact that I have over £5,100 with TD means I have no annual fees to pay. This helps ensure I minimise fees and taxes and not just taxes.
I have continued to relentlessly look to drive expenses out of my portfolio. I have posted numerous times on the damage expenses can do to a portfolio. This year I have driven portfolio expenses down from 0.40% to 0.36%. That may not sound like much but to me it’s a reduction in fees of 10% while also ensuring I don’t expose myself to unnecessary taxes in the hunt for fee minimisation.
Year end score: Pass.
If one is Investing Wisely then they should be able to beat (or at least match if you are 100% Index Tracking, which IMHO is an admirable pursuit) an Index Benchmark. For me that Benchmark is a simple UK Equity and Bond Portfolio aligned in percentage terms with the building blocks of my own portfolio which is then rebalanced once every year. Today that benchmark allocation is 69% UK Equities and 31% UK. The 2 indices I use to replicate that benchmark are the FTSE 100 Total Return (Capital & Income) Index which this year has returned 12.0% and the iBoxx® Sterling Liquid Corporate Long-Dated Bond Total Return (Capital & Income) Index which has returned 11.7%. The return of my benchmark (69% x 12.0% + 31% x 11.7%) is therefore 11.9%.
In contrast my portfolio has provided a total return of 13.5% beating my benchmark comfortably. This is a true return which allows for the fact that large levels of contributions are being made throughout the year.
Year end score: Distinction. Not only have I beaten my benchmark comfortably but my portfolio sees some costs that the benchmark doesn’t. This includes fund and wrapper expenses, withholding tax on some investments and savings interest tax deducted at source meaning even more true outperformance than declared if we were comparing apples with apples.
I’m happy to have beaten my benchmark over 2012 however if I’m not generating good long term returns then it’s all meaningless as this is a long game. I started tracking my investments in 2007 and so can show how my portfolio has compared against the benchmark and against inflation (RPI) since then. This is shown in the chart below. Note that the chart assumes a starting sum of £10,000. This is not my portfolio balance at that time but is instead simply a nominal chosen sum to demonstrate performance. I never reveal my portfolio values in £ terms because frankly it’s irrelevant to readers as we all have different earnings, investments, risk profiles, savings profiles and target retirement amounts.
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Since then end of 2007 the benchmark has only kept pace with inflation. In contrast my portfolio has increased at a Compound Annual Growth Rate (CAGR) of 6.7%. In real inflation adjusted returns that’s a return of 3.4%. If I am to achieve Early Retirement in less than 4 years and then maintain that spending power throughout retirement I need to be securing a real 4% return (which is a common rule of thumb in the personal finance world) year in year out.
Year end score: Fail. I’ve comfortably beaten my benchmark and inflation but have not achieved my target. I’m not going to make any adjustments to my planned total return yet because I’m fully aware that the period includes part of the Global Financial Crisis. I can’t rest on this statement though because I also know that it includes the subsequent recovery period.
When I started this site in November 2009 I stated that my aim was to retire (which I define as work becoming optional) in less than 7 years. We are now 3 years on and I’m now stating that my aim is to retire in less than 4 years. I’d call that on track. My progress to retirement is now 65.2%.
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How did you do over 2012? Are you happy with achievements?
As always please do your own research.
- RPI for December 2012 is estimated.