Monday 4 January 2010

2009 Yearly Retirement Investing Portfolio Review

Edited 06 June 2010: I have found more exact data allowing me to determine benchmark returns to the day.  I have therefore updated the data in this post to reflect this.  As the blog has developed I have also changed the method used to calculate the returns as I have learnt more accurate methods.  I started with:
- [assets at end of period – assets at start of period – new money entering portfolio] divided by [assets at start of period],
- then used the mid-point Dietz which was a more accurate method,
- and now use Excel's XIRR function for anual returns.  If it is not a full year I then adjust XIRR by the PRR (Personal Rate of Return) = [(1+XIRR Annualised Return)^(# of days/365)]–1.
In those post I also used incorrect weightings for the benchmark portfolio.  It should have been 72% stocks/28% bonds as per here.
Apologies for the confusion but I'm learning here too.

2008 was a bad year for my investment portfolio and by year end the 02 January 2009 I was -19.7% -15.7% using [assets at end of period – assets at start of period – new money entering portfolio] divided by [assets at start of period] as my return calculation method. 2009 also started badly and at one point in March my portfolio was -12.4% and we weren’t even a quarter of the way through the year. As everyone knows the markets then started recovering and I rode the wave to end the year at period 02 January 2009 to 31 December 2009 at +21.5% +24.9% including fees.

My fees are currently running at 0.6% so excluding fees it’s 22.1% 25.5%.

With my current asset allocation I am predicting an average return after inflation of 4.2%. With the UK Retail Prices Index (RPI) currently at 0.3% I therefore needed 4.5% to ‘break even’ so all in all a good year when compared with this.

Now I guess I should benchmark myself against something. Data available from the iShares website as of the 30 31 December 2009 details that the FTSE 100 Index total return (capital & Income) was 26.97% 23.76% and the iBoxx® Sterling Liquid Corporate Long-Dated Bond Index total return (capital & Income) was 11.88% 11.83%. Now constructing some very basic stock/bond portfolios from highest to lowest risk:
Now if I exclude the asset valuation models (for example currently holding less equities because of Shiller PE10 and ASX 200 PE 10 strategies), which are designed to squeeze extra performance from the portfolio, that are part of the strategy my asset allocation would be as detailed in my post “Building My Low Charge Investment Portfolio – Part 2” which simplified is:
- 78% 72% in UK, Australia, Emerging Market and International Equities plus Property and Gold
- 22% 28% in cash, bonds and index linked savings certificates

If I had have held a very basic 78% 72% stocks and 22% 28% bonds portfolio the table above suggests I would have had a return of 23.7% 20.4% or 23.1% 19.8% after my 0.6% fees. So for the asset allocation and hence risk I am prepared to take my strategy this year has not worked with a lost bonus return of 1.6% 4.1% before the effect of taxation is taken into account. I do however take taxation into account when I invest which is why for example I buy National Savings & Investment Index Linked Savings Certificates but I won’t go into that now. Let’s see what 2010 brings...

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