Having come to the conclusion that my individual shares have been the weakest link of my income strategy to-date, I have been in the process of gradually winding down the shares portfolio and redirecting investment proceeds towards my investment trusts, ETFs and also to incorporate more low cost globally diversified index funds such as Vanguard LifeStrategy.
By the end of 2015, my portfolio had been reduced from 24 to just 9 holdings. The remaining shares consisted of BHP Billiton, Next, Unilever, Tesco, Sky, IMI, Amec Foster, Legal & General and Berkeley Group.
The portfolio was set up in January 2013 and has gained a total of £5,025 - a return of 14.0% to date which equates to an annualised average of ~4.1% p.a. The FTSE 100 stood at 5,900 at the start and is currently around 6,350 - a return of 7.6% plus dividends of around 3.8% per year.
Running an individual shares portfolio can be interesting but, as we have seen recently with Next which lost 25% of its value within a week earlier this year, individual shares can be very volatile and I have not noticed any greater return from my portfolio for the additional risk compared to my collectives - managed and passives.
Today I decided to sell my holding in Unilever which has had a good run - up around 13% year to date - and passed my target price of £32.50 - 63 shares @ £32.90 to give nett proceeds of £2,063. I still hold quite a significant holding in Unilever via most of my investment trusts and Vanguard funds.
The proceeds have been recycled into my Vanguard LS 60 fund. These are accumulation units and therefore no income is distributed. My plan is to sell off some of the units each year to provide ‘income’.
It may take some time before all the shares are sold however I will now draw the shares portfolio to a close as there are just 8 remaining holdings. I will therefore amalgamate this portfolio with my collectives income portfolio. There is already some overlap with the Vanguard Equity Income funds and LifeStrategy funds.
Here’s the updated portfolio
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I’m now more globally diversified - not perfect but for now - good enough. I am edging away from the rollercoaster of individual shares and entering the relative calm waters of the 60/40 Lifestrategy option. Returns on cash savings continue at record lows - the average interest currently on offer from cash ISAs has fallen from 1.5% to just 1.0%.
The average annualised return from my Vanguard LS 60 fund since inception is currently 7.6% (VLS40 is 7.1%). Over the coming few years I will be reducing my exposure to equities, therefore I am thinking of a steady 5% or 6% return on average (after inflation) with very little effort - that will do for me, slow and steady…..
I will update the combined income portfolio for end June. Take it easy..