Well time marches on relentlessly and this is now
my 6th end of year review since starting my blog in 2013.
It's been quite a year...Brexit, Trump, climate
change, Novichok, plastic in our seas, cave rescue in Thailand, the ups and
downs of the markets and me officially becoming a pensioner...I've been
practicing rattling my walking stick along the public railings...
Now with my monthly flow of pension from the DWP,
my focus is changing as I no longer need my portfolio to generate income. The
revised plan will now re-focus on growth. I was particularly intrigued by some
research by Bessembinder which seems to suggest the outperformance of equities
over bonds is generated by just 4% of the market and over half of all equities
returned less than government bonds over a 90 year period. (Article from June)
Climate Change
In October, I was reminded of the dire threats to
the environment with the latest IPCC report calling for a limit of 1.5C on
global warming.
However unsatisfactory the Brexit outcome might be,
it is nothing of consequence compared to the devastating effects of global
warming. Yes, many will have enjoyed the long hot Summer this year...4 months
of t-shirt and shorts weather from May to September.. but at the same time they
cannot have missed the news of extensive wildfires, floods, hurricanes and droughts around
the globe.
The past 4 years have been the hottest on record
and the Met Office have forecast temperatures in the UK could be 4 degrees
warmer on average by 2070.
At the COP24 conference in Poland earlier this month, Sir David
Attenborough said:
"Right now, we are facing a
man-made disaster of global scale... our greatest threat in thousands of years.
Climate change. If we don't take action, the collapse of our civilisations and
the extinction of much of the natural world is on the horizon."
A week previous we had a brief response on the
subject from President Trump:
"I
don't believe it"
The patterns seem to get more severe and
unpredictable each passing year and I fear the movers and shakers are showing
little concern and sleepwalking into the abyss. How many more warnings do the
global community require before we start to take this issue seriously?
I am not sure why this is not yet breaking through.
Maybe as a species we are unable to translate the warnings into how we are
likely to be impacted but we do make long term plans - marriage, saving for
house purchase, bringing up our children, saving for retirement. However there
are many positive signs and I have been encouraged by the direct actions of
Extinction Rebellion in recent months and wish them well in their efforts to
raise more awareness and move this issue up the political agenda.
As I said in one of the subsequent posts, if I
become aware of a threat I have a responsibility to do something. At that time
I decided to make some adjustments to my portfolio to bring on board a few
ethical/green funds which I believe are attempting to address some of the big
issues raised by climate change.
I think my lifestyle is fairly low impact - for the UK at least - and
registers 6.8 tonnes of annual carbon emissions on the WWF scale - lower than
the UK average and could do a bit better - but I want to do more to align my
investments. The UN has warned that today's generation are the last that can
prevent a catastrophic warming as well as the first to be suffering from early
impacts. There are one billion people from developing countries who are least
responsible for climate change but are most vulnerable to its effects.
This surely is the most important issue facing the
global community.
Brexit
What can I say? This omni-shambles was the subject
of a couple of lengthy posts - Brexit Fudge in July and Another Fine Mess Olly
in November.
I imagine the feeling of betrayal will be long-lasting
if MPs fail to deliver on Brexit but we still have a little time. The
deliberations on the deal will resume on 9th January with a vote the following week. I imagine in the absence
of any significant changes, that the deal will be rejected and we are then left
with the prospects of some sort of managed no deal or another referendum or
revoking Article 50. My money is on the no deal option but after the past year,
absolutely nothing this government came up with would surprise me.
Sport
As long-term readers will know, I am a big follower
of sport and this has been a vintage year. The highlight for me was the 5th
test at the Oval and the retirement of England cricket legend Sir Alastair
Cook. He scored a century in his final innings to round off a wonderful career
which included 33 test match centuries and over 12,000 runs at an average of 45.4.
In the same match, Jimmy Anderson overtook Glen
McGrath to become the leading fast-bowler wicket taker of all time.
Against all predictions England reached the
semi-finals of the World Cup in Russia having won a penalty shoot-out along the
way. The country was starting to believe "It's Coming Home..." sadly they
couldn't quite get past Croatia losing in extra time. My consolation was that I
had placed money on France at the start of the tournament.
In the world of cycling, Geraint Thomas OBE was
inspirational winning the Tour De France and I was delighted to see him secure
his SPOTY award last week. On the track, I was saddened to hear that double Olympic
champion Kristina Vogel suffered a horrific crash in training which severed her
spinal chord and left her paralysed. She talked about this and coming to terms
with her new situation in this interview which I found very moving.
Investments
It was all going so well until October but the
sharp downturn over the past few weeks has seen my portfolio return a loss for
the year. This is not unexpected, I have been half expecting the downturn for
some time...it's what the markets do. Now is a good time to evaluate asset
allocation!
I decided
to review my whole investing strategy as my state pension kicked in earlier
this year. I no longer require my investments for income and have therefore moved
towards growth and also to increase my global index funds. I have also moved a
portion of my portfolio into 'green' investments and plan to increase this over
the coming year.
 |
| My Allocation end December 2018 (click to enlarge) |
Over the year I have therefore replaced most of my
income-generating funds. However for the time being I still hold on to a few of
the original investment trusts - Aberforth Smaller Companies, City of London
and Finsbury Growth and Income.
In August the BofE raised interest rates to 0.75%...the highest level since 2009. My saving rate with the Coventry was increased by 0.15% to 1.4% which is still not great and below the current rate of inflation. Had I relied solely on savings interest for the past decade my standard of living would have been severely compromised and I doubt if I could have afforded to retire early.
In August the BofE raised interest rates to 0.75%...the highest level since 2009. My saving rate with the Coventry was increased by 0.15% to 1.4% which is still not great and below the current rate of inflation. Had I relied solely on savings interest for the past decade my standard of living would have been severely compromised and I doubt if I could have afforded to retire early.
Portfolio Returns
I have just completed a review of my actual
investment portfolios - sipp flexi drawdown and ISAs - for the full year to
28th December.
The FTSE 100 started 2018 at 7,688 - and has
gradually declined to finish the year down 954 points closing at 6,734 or -12.4%
- if we add back in say a further 3.8% for dividends paid, this will give a
ballpark total return figure of -8.6% for the full year. The second line FTSE
250 has lost 13.5% and the FTSE All Share index is down -9.5% for the year.
My Vanguard Lifestrategy 60 fund is a diverse mix
of global equities and bonds and provide a good benchmark for a balanced global
portfolio. The fund is down -3.0%
over the past year.
Investment Trusts & Funds
Over the 12 month period, I purchased a further holding
in Scottish Mortgage for my ISA. I have also added Mid Wynd, Polar Cap
Technology and Edinburgh Worldwide. I have also added Impax Env. Markets, newly
launched Smithson, Baillie Gifford Managed fund and also their Positive Change
fund.
The better returns for the year came from Finsbury
Growth & Income (again) up 0.2%, Capital Gearing up 3.4% and the best
performer Scottish Mortgage +4.9%. The trusts that has struggled for me
this past year have been Aberforth Smaller -10%, City of London -8.2% and
Tritax Big Box -6.7%.
The total return for my basket of trusts over the
year was -3.5%.
Index Funds
Over the past year I have added VLS 60 to my new
ISA with Vanguard Investor, also HSBC Global Strategy and Baillie Gifford
Managed.
The contribution from my index collectives has seen
a modest fall over the year with a total return of -1.6%.
Fixed Interest
As ever, the fixed interest sector has provided a
steady and predictable income of 5.1% however the capital has taken a hit with
a sharp decline of 15% for my Lloyds Preference shares. The total return is -3.1% for
the year.
Most of my income generating FI funds are no longer
required and have been sold.
The Complete Basket
As a whole, the portfolio has
delivered a total return of -2.7% over the past year.
Here's my portfolio returns covering the past decade since the big crash of
2008.
2009 37.2%
2010
9.9%
2011
-3.0%
2012 15.5%
2013 13.3%,
2014 5.4%,
2015 2.7%
2016 11.4%
2017 11.3%
2018
-2.7%
 |
| (click to enlarge) |
A sum of
£1,000 at the start of 2009 has grown to £2,500 and an average annualised return
over the past 10 years of 9.6%. This has enabled me to take my 4% income each
year since moving to early retirement in 2008 and leaving some held back to
build reserves. Of course, the figures are enhanced by the large bounce in
returns for 2009 following the market turmoil of late 2008 and early 2009
Most Popular Posts
The most
popular this year have been:
1. Sipp
Drawdown Yr 6 Update
2. Vanguard
LS 60 - Year 3 Update
4.
Investing for Grandchildren
5. Equities
Outperform Bonds
6. Brexit
Fudge
Conclusion
In these times of low interest rates
and corresponding low returns from cash deposits, for a little more risk, an
average annualised return of almost 10% over the past decade is for me very
acceptable. Return on my investments have been positive in 8 of the past 10 years and fairly modest reductions for the 2 down years.
The move to index funds provides more
global diversity and in particular the equity/bond balance provided by the LS
funds provides less volatility and more stability. This core stability provides
a little more freedom to take on board a little more risk with my tech funds
such as Scottish Mortgage and Mid Wynd and also introduce some investments
which focus on the environment.
I am gravitating towards an allocation which I hope will continue to provide a
reasonable level of return without too much volatility. I will continue to add
to my 'green' section of the portfolio when I get my head around the challenges
of climate change but I remain mindful of the words of Ben Graham 'The
investors chief problem...even his worst enemy...is likely to be himself'.
Be patient, stay in the game and keep
it simple....
Finally, thanks to all for dropping by during the
past year and wishing everyone all good things in 2019 - especially good health.
I certainly think it's going to be interesting.
As always, if you keep track of portfolio returns,
feel free to leave a comment and share with others how your investments have
fared over the past year.
