Calculating historic portfolio returns and particularly my return versus a sensible benchmark

As I’ve explained many times my Retirement Investing Low Charge Portfolio has both a Strategic and Tactical Asset Allocation associated with it. The construction of this portfolio can be seen here. The tactical element is an attempt to squeeze some more performance from the portfolio however I want to monitor the return of my total portfolio carefully to ensure that I am not under performing a simple stocks/bonds allocation. After all why put all the effort in and then under perform.

The Bank of England holds the UK Bank Rate at 0.5%

The Bank of England today held interest rates at 0.5% for the fifteenth month in a row and decided to do no more quantitative easing (QE). This was no surprise to me and just continues with the unspoken strategy that I have previously suggested the Bank of England have formulated. Meanwhile in the real world the retail prices index (RPI) has risen from 4.4% to 5.3% and the measure supposedly followed by the Bank of England, the consumer prices index (CPI), has risen from 3.4% to 3.7%.

My Current Low Charge Portfolio – June 2010

Buying (New money): Since my last post I have had a good month of savings and managed to save 72% of my after tax earnings and pension salary sacrifices. Total new money entering my Retirement Investing Low Charge Portfolio was around 0.8% of my total portfolio value. The allocation was as follows: 42.0% to cash, 8.7% to UK equities, 12.2% to international equities, 2.3% to index linked gilts and 34.8% to UK commercial property. This money was invested outside of tax wrappers and also within a pension.

UK Property Market – May 2010 Update

David Cameron, George Osborne and others are I guess as I write this post working hard trying to pull together the emergency budget that will take place on the 22 June 2010. We have already seen in the press plenty of commentary about the possible increases to Capital Gains Tax (CGT) and the effect it may have on property prices, particularly the Buy to Let (BTL) brigade out there. Personally I’m not seeing them doing anything to engineer a crash (or even significant reductions in values). This is for a couple of reasons:

Buying Emerging Markets Equities

Yesterday I rebalanced my Retirement Investing Today Low Charge Portfolio by moving 0.6% from cash into emerging markets equities (ie buying equities with cash). Emerging market equities are an important part of my portfolio as I explained here.

Investing mistakes I’ve made – not considering investment fund fees

When I first started investing in the stockmarket I was extremely naive. The first thing I did was a search for the share funds that had given the highest return over the past few years. (What is it they say as a warning on many investments – past performance is not necessarily a guide to future performance or similar – I really was naive). Of course that was an actively managed fund. I have now changed my opinion and where possible only buy passive index tracking investments in my retirement investing low charge portfolio in vehicles like Exchange Traded Funds (ETF’s). I won’t go into the justification for passive versus active in this post today as there is plenty of information out there on the web already. A Google search of ‘passive versus active investing’ or ‘Bogle investing’ would be a good start for those that are interested.

Gold Priced in British Pounds (GBP) – May 2010 Update

In absolute terms gold continues to climb in value reaching a new high of £839.93 (when compared with my monthly historic dataset which goes back to 1979) since gold started its upward climb in 2005. In the last month gold is up £90.32 an ounce however in real (inflation adjusted) terms as shown in today’s chart gold it is up ‘only’ £83.32 per ounce. In real terms that’s an increase of 11%.

Are the cracks starting to show in the Bank of England’s unspoken strategy

I’ve been suggesting for many months now and most recently here that the Bank of England want inflation which they think they can control. This is so they can allow the large UK government debt and the debts of the reckless general public to be inflated away (effectively a free bailout). Of course somebody has to pay for this and that will be the prudent savers amongst us. Additionally, keeping the Official Bank Rate at historic lows of 0.5% for so long, while allowing the inflation to occur, also helps the banks recapitalise themselves as they proceed to lend money out at rates far above this. Of course savers are again punished as the banks pay below inflation interest rates to the savers. So far (of course in my untrained opinion only) it’s all going to plan for the Bank of England except I saw a couple of cracks beginning to open this week.

Gold Priced in US Dollars (USD) – May 2010 Update

Within my Retirement Investing Strategy I currently hold 5.5% (up from 4.1% at the last USD gold update) of my portfolio in gold with a targeted holding of 5%. Gold is the only portion of my portfolio that does not provide a yield (dividends, interest etc).

Average UK Earnings – May 2010 Update

As we know inflation according to the retail prices index (RPI) year on year is currently running at 5.3%. This is the highest it has been since July 1991. Looking at historic RPI inflation data shows the average year on year RPI annual change since 1991 at 2.9% and the trendline since 1991 shows inflation year on year trending downwards. My chart today shows these RPI figures in blue.

Australian (ASX 200) stock market including the cyclically adjusted price earnings ratio (PE10 or CAPE) – May 2010 Update

To try and squeeze some more performance out of a retirement investing strategy that is heavily focused on asset allocation I am using a cyclically adjusted PE ratio (known as the PE10 or CAPE) for the ASX 200 to attempt to value the Australian Stock Market. The method used is based on that developed by Yale Professor Robert Shiller for the S&P 500. I will call it the ASX 200 PE10 and it is the ratio of Real (ie after inflation) Monthly Prices and the 10 Year Real (ie after inflation) Average Earnings. For my Australian Equities I will use a nominal ASX 200 PE10 value of 16 to equate to when I hold 21% Australian Equities. On a linear scale I will target 30% less stocks when the ASX 200 PE10 = 26 and will own 30% more stocks when the ASX 200 PE10 = 6.