40 thoughts on “Adjustments to My Investment Strategy (III)”

1. No gold Weenie? It saved my bacon last year, propping up some of the slack as equities fell.

   • Hey Jim
     I wouldn’t really know where to start with gold (a gold ETF maybe?), hence I’ve stuck with bonds which also propped up my portfolio as the equities plummeted.

     • Gold.

       Very complicated asset to think about. Definitely not a growth asset, more of a defensive asset. I see most Wealth Preservation funds holding some element of gold.
       And Ray Dalio’s ‘All Weather portfolio’ recommending it.

       It seems gold can perform as a good ‘team member’ as part of a diversified portfolio.
       https://ofdollarsanddata.com/why-is-gold-valuable/?fbclid=IwAR08j7ysBej8Fnm8eytN9eHbYJRzVzxLYPh1_2N9l1q0Gc2RcO4OGaE33GM

       I am not too convinced of it’s utility in the growth phase tbh. It will be too small a size in any growth portfolio to have much utility and it’s too unpredictable. Probably something to hold towards the end of your accumulating phase or when you are in the decumulating phase.

       • Hi Fireplanter

         Yes, I need to read up a bit more on whether it will benefit me to add a little now to my portfolio or just stick with bonds and cash.

2. Hey Winnie,

   Interesting to read about testing out the income-generating potential of your portfolio.

   I think the idea of a cash buffer, have you read about the cash cushion in Kristy Shen’s book? I’m a way off implementing that as my portfolio is pretty small but defo want to make provision for it in a few years.

   What kind of difference in charges are you seeing between the ETFs and ITs?

   I also plan to consolidate my investment allocations but I won’t be doing that any time soon as I enjoy having a more granular portfolio just now.

   Liking the return you’re getting from your Premium Bonds, defo better than anything you’d get on the high street! Plus always the chance of winning big 🙂

   Keep us updated on how your ITs progress anyhow, always good to see how different tactics play out.

   • Hi John

     Hope you’re feeling better.

     No, I haven’t read Kristy’s book but I think I recall reading something on their blog (or comments on someone else’s blog) that they had a 5-figure cash buffer and I guess that’s what I would probably have, for when the stock market is on a downturn and I don’t want to sell any investments for income.

     The difference in IT and ETF charges can be quite big – looking at one of my new ITs (Target Healthcare REIT), the ongoing charge is a whopping 1.51% – compare this with Vanguard World ETF’s charge of 0.22%. The charges are reflected in the share price so reduce the capital value of my investments – I guess I’m paying for ‘active management’.

3. Thanks for the update, Weenie. A very informative and insightful read.

   I don’t think your portfolio is “out there”. We each have to find something that fits our risk appetite, interests and future income streams. Only you know what’s really best for you.

   In some ways, my own evolving approach is not too dissimilar to yours but the key difference is that I shall be relying on my DB pensions to pay for most of my (relatively modest) annual expenditure from age 55-57 onwards: actuarially-reduced but I can live with that. My savings and investments are mostly there to provide a top-up until state pension comes on tap (which unlike the doomsters I think will be there – probably later than 67 and probably worth less), and to provide money for any big-ticket items or large emergencies (I notionally have a £3k emergency fund for smaller, more likely amounts).

   At the moment most of my non-cash is in global equities, with the remaining 10% or so in a few ITs that I bought at the start of the month. For historic reasons (late starter to investing, sigh), I’m about one-third cash: mostly premium bonds, you’ll be glad to hear! I think they’re fine especially as it’s tax-free – I use the winnings to top up my emergency fund. My return isn’t as high as yours but it’s ahead of the advertised rates (1.4% so far with another couple of months to go in my financial year).

   I have held bonds but ditched them recently because due to low returns, I don’t see them as having any real advantage over cash at present: this may change. The cash acts as my safeguard in case of a market drawdown.

   As for the ITs, I’ll recycle any dividends back into them for the time being but when I stop working I’ll probably reduce my global equities to get extra income from ITs. Nothing wrong with your approach by the way; I just prefer growth to income this side of retirement.

   As it is, my key objective, and why I started investing in equities, is to beat inflation and thus protect the money I’ve been able to put aside. This seems quite a modest aim in the investing community, especially when I read young investors’ blogs, a large number of whom seem to be relying on 7% or much higher to reach early retirement. They really need that growth.

   Anyhow, all the best for 2021 and beyond with your new strategy. 🙂

   • Hi NewInvestor

     Thanks very much for taking the time with such a detailed comment and thanks for the reminder that we are all different in terms of risk appetite, interest and future income streams.

     My DB pension won’t kick in until age 65, so my Future Fund has to do all the heavy lifting income-wise until then.

     Interesting that you use your PB winnings to top up your emergency fund – something else to consider!

     My bonds provided quite a bit of stability to my portfolio in March so I’m quite happy continuing to hold them for now and build them up slowly.

     Ah, I guess I should have mentioned that the only ‘benchmark’ I am seeking to beat is inflation! I think for more peace of mind, I’d probably like to have more cash but the loss through inflation doesn’t sit well with me!

     All the best to you too for 2021 and beyond!

4. weenie, thanks for sharing your portfolio strategy changes. I really enjoy seeing how other diy investors go about building their portfolios and developing a workable system. You certainly can’t be doing too much wrong with an average annual return of 8.6% since 2014.

   Personally, I’m not sure ditching the growth for higher income ITs is a good move but it really doesn’t matter what anybody else thinks, it’s what you feel comfortable with at the end of the day.

   But good luck with the revised strategy and looking forward to seeing how it pans out over the months and years.

   ps would be up for another Monkey challenge!!

   • Hi diy

     Hope you’re well.

     I did think long and hard about ditching the growth ITs and I thought that if I dithered too long, I’d end up not doing it at all and it was something I’d wanted to do, sooner or later. Depending on how the income side grows, I may start building up some other growth ITs, will see how it all pans out after a year or so.

     Thinking about the Monkey challenge makes me smile but if I ran it again, due to the effort in tracking it all, I’d prefer people to have ‘skin in the game’, actually using their own money and it’s how to monitor that. That said, if you wanted to do VLS60% again, I’m fine with that as that was easy enough to monitor! 🙂

     Oh wait, just remembered you no longer invest with Vanguard…so that makes it interesting!

     • No, I wouldn’t be going for the VLS this time. Has to be some of my green energy stocks which could be very interesting! Agreed tho everyone set up and monitor their selections.

5. I’ve been reading your blog for a while but never posted before.
   I like the randomness and element of adventure you have in your investment strategies and, similar to yourself, I too hold Premium Bonds on top of IT’s and funds as they are a free punt with potential to win big even if it’s a small potential.
   I can see 2021 being another rollercoaster ride, especially with countries trying to meet climate accord criteria’s. This year will see the start of a new and ongoing industrial and environmental revolution which will be good for investors in this sphere.
   Best of luck and I’ll keep reading your blog.
   Graham

   • Hi Graham

     Hah, I’m all for randomness because I do believe it’s largely underestimated (as is ‘luck’) and the adventure side I guess is really so I maintain my interest in investing. Some might argue it would be better to simply just invest in index funds/trackers but I’m not sure that would work with me, hence my deviations!

     I agree with what you say, I too believe it is the start of a new industrial and envrironmental revolution, all the more interesting with countries navigating their way out of the economic crisis caused by the pandemic.

     Thanks for reading and taking the time to comment.

6. “Regrets, i’ve had a few,….”, as Frank used to sing, comes to mind here (the rest of the song mind, not this particular line!). I see very little wrong with your general approach. You’re saving as much as you can, you’re taking a hands on tax efficient approach to your finances and thinking long and hard about how and where to invest, and then acting on those thoughts. And sleeping easier at night as a result. How many people do you know who continue to stick their heads in the sand and totally avoid the subject. i know far too many.
   Your core and satellite approach is bang on – putting just 5-10% aside for ‘fun punting’ can’t hurt you financially, and the enjoyment and knowledge it provides, plus the additional interest in investing that it must surely generate can only add to your overall long term gains. There are an infinite number of ways to generate an 8.6% average return, none of us will ever hold the perfect portfolio, or an identical portfolio to each other, but i suspect most of us will come in each year with pretty similar overall results. Most FIRE’ers are probably getting 90% of their investment strategy and general lifestyles correct, and for me that’s plenty good enough. I don’t mind paying a fraction more here and there for certain things, or being lazy once in a while – it’s too much hard work being 100% full time.
   So, keep calm and carry on investing. And get those potatoes out on the windowsill to start chitting!

   • Hey KC

     Yes, the main thing for me is sleeping easier at night!

     I think I will always be doing some ‘fun punting’ in some shape or form – in a way, this gives me a kind of ‘gambling fix’, except it’s far less riskier and the house doesn’t always win!

     Thanks for the assurances that there’s no such thing as a perfect portfolio, mine is far from it (in any guise) but as long as it does vaguely what I want it to do, I’ve probably got it right! Getting 90% right is good enough for me!

     I was thinking of chitting the spuds in Feb to plant out in March – it’s a bit too chilly at the moment?

     • if you’ve only got a few tubers then yes i’d wait a while until the optimum moment. I’ve got a surplus this year so i’ll be planting a few indoors soon in yogurt pots (check out Home Grown Veg on Youtube), to hopefully get them off to an early start, then transfer outdoors once things warm up.

7. Amazing annualised return, well done! I would take that any day!

   I’m just over a year into investing, currently, my portfolio weighted dividend yield is 4.09%. Pretty happy to stay at that level. Maybe drop back to 3.5% or so.

   You seem very well-diversified though. Mine is about 70% single dividend stock, 20% ETF and 10% growth stocks..
   To soon to really see how well its working, but at least for now I’m happy!

   • Thanks Sean C!

     I figured out quite early on when I started investing that I was uncomfortable with the greater risks of individual stocks – I wouldn’t know how to select individual winners.

     But it sounds like you are happy with your allocation and diversification, so good luck and long may that continue!

8. Thanks for sharing your strategy.

   I wonder have you annualised returns of your basket of IT/shares with your basket of index trackers? I suspect the index trackers might beat the ITs if the IT are generally income focused IT.

   I myself have gone a different route. I was running a basket of index trackers modelled after TEA’s The Simplicity Portfolio which has a Value Tilt with VHYL. I also had a small side-experiment with smaller companies via geographical specific funds. However, I realized there the past few years, value had a poor performance compared to growth stocks. The smaller companies dabble had some success but with greater volatility.

   It is difficult to tell when the reversion to mean for value will happen. The more I think of it, it reminds me of Buffet’s long bet and JL Collins and Jack Bogle’s advice which is to just lump it into a simple broad based index fund. Therefore, I have decided to change my strategy to a All World Tracker with a smaller company tilt. From what I have gathered, it is better to capture the smaller companies premium with an active fund, ideally a geographical specific fund because they manager will be more attuned to the local markets and be able to capture the inefficiencies of the market. It will definitely be more volatile but I think the past few years of experience of being in the market has improved my understanding of volatility and risks.

   I have also switched to mostly accumulating version of the funds to minimize currency conversion loss when dividends which pays out dividends in USD gets converted to GBP into my account.

   I look forward to reading how you build your income portfolio. I will need to learn to build it in the future at some point.

   Fireplanter

   • Hi Fireplanter

     Unfortunately, I don’t measure the annualised returns of my basket of ITs/shares separately but I would agree with you, despite the mighty performance of Scottish Mortgage, the index trackers would have beaten the ITs, even before I made the changes.

     It will be interesting to see how I deal this lack of growth in my portfolio, whether it will bother me so much that I end up reconsidering my strategy at a later date.

     Let’s see how this looks after a year!

9. Within your investment trust holdings you have about half of my holdings. In choosing my holdings I am more trusting of the equity income dividend heroes that increase their dividend every year, and I am more sceptical of the alternative income sectors that have less of a track record. I think what you are doing will be a valuable learning experience for you (and your readers) as you follow how this part of your portfolio progresses in growing both income and capital.

   • Hi GM

     It did feel like I was being a bit sentimental when I chose to keep some of my existing dividend hero ITs but perhaps that was me being more trusting of these ITs and a bit more cautious about going all out and replacing all of them with the higher yield ITs (which seemed a bit drastic!).

     I agree, this will be a valuable learning experience – I hadn’t really considered how the lack of growth in capital might affect me and whether the increase in income would counter that and ultimately, what would I end up doing?

     I guess I just have to wait and see!

10. Hi Weenie,

    Thanks for sharing your portfolio and investing strategy. I’m looking to grow my share portfolio this year, and seeing how you’re building yours is incredibly valuable. Your annualised return of 8.6% is awesome!

    I think targeting more income from your portfolio now is a wise move, even at the possible expense of greater returns through growth assets. I’m sure it will provide more peace of mind when you FIRE, plus, having money drop into your account that you didn’t have to work for is always a nice feeling.

    • Hi Jamie

      Yes, am very happy with 8.6% returns, would be briliant if this was maintained for the foreseeable future!

      You hit the nail on the head there mentioning money dropping into my account – psychologically, I think I need to see money coming into my account as if I’m being ‘paid’; I know for a fact that I will find it hard to sell investments for my income (although I will have to do this, at least I won’t be relying on this for all my income.)

11. I have sold Hipgnosis.One does not really know the price Merck is paying for recording artists catalogues and it could easily be a business model where a narcissist gets shareholders to pay for his peccadillos via rights issues.
    Moved the proceeds into penny share One Media which is in a similiar space
    I hold Ruffer Investment Trust as an inflation hedge. Believe over the next few years there could be lots of takeovers of UK shares and it is fun to try to pick them – A new IPO Helium One and Yellowcake are my primary choices.
    Also believe that insolvency firms will do very well and hold Begbies Traynor and K3 Capita.
    I have started a subscription of the Simply Wall Street website which is incredible value at £59 a year with the standard discount. .They do a 14 day free trial

    • Hi Simon

      I hear your concerns on Hipgnosis – I’ll keep my investment in this modest for now and will continue to monitor. Hadn’t heard of One Media, I’ll take a look at them, thanks for the heads up.

      I punted on a few shares in Begbies Traynor at the start of lockdown and they’re up around 35% – should have bought more but they’re in my ‘fun’ account and I don’t hold a lot of cash in there.

      Alas, I’ve already used up my 14-day free trial with Simply Wall Street and decided not to go for the subscription. Might reconsider in the future however as I did find it useful.

12. Hi Weenie,
    Interesting read.
    Unless I am mistaken, your moves are in the opposite direction to those that Getting Minted (GM) has talked about making to his portfolio going forwards – i.e. “seek more capital growth whilst sustaining the current level of income”. I notice that GM has commented above. Perhaps he will correct me if I have got this wrong.

    Lastly, for clarification, is your annualised return the internal rate of return (IRR) or does it include all of your contributions?

    • Hi Al Cam

      Haha, yes, it does looks like I’m going in the opposite direction to Getting Minted. Perhaps once I’ve achieved my desired income, I too will go for more capital growth.

      For clarification, my annualised return is the IRR – I use Monevator’s unitization method for my tracking.

      • Thanks for the info/clarification.

        FYI, the unitization method is not the same as the IRR, but in any case thanks for explaining how you calculate your annualised return figure. AFAICT, at Monevator TA uses IRR to report the slow & steady and TI prefers to report using unitization. More info is available at various places but a good starting point is: https://www.bogleheads.org/wiki/Calculating_personal_returns
        From memory on this wiki page they call IRR the “investor return” and they call unitization the “portfolio return”.

        • Ah, thanks for that, Al Cam – for some reason, I had it in my mind that they were the same.

          Thanks for the link for some further reading, which I evidently need to do!

          • Yeah – it took me a while to get my head around all of this and the subtle differences.

            One of the reasons for asking was that I noticed you said that your Future Fund includes your DC pension – and both reliefs (tax and/or NI) and any employer contributions can impact those returns.

13. Hi Al Cam

    My DC pension (and the respective reliefs) and the employer contributions are so small as to be virtually negligble but I guess in time, it will build up.

    Thinking about it, I might leave it out of my overall total for absolute clarity and to clear up any confusion.

    I think I’ll adjust from next month, thanks for the prompt.

    • OK – I did wonder if that might be the case with your DC.
      Having said that, I assume, tax relief also applies to your SIPP contributions, which will, of course, become taxable (but not necessarily taxed – depending on your allowances, method/annual amount of drawdown, etc) when you take it.
      My point being that returns (particularly money weighted returns aka the IRR) can, in some circumstances/wrappers, be boosted significantly due to reliefs and/or employer contributions. The key determinant being the differential between tax paid on the way in versus tax paid on the way out.

      • Actually looked at my numbers and I think I can probably just leave things as they are – my DC pension at the moment stands at just over £2k and the total tax relief I received for my SIPP payments totalled less than £800 for 2020 – no significant boost to my numbers from either but I will add a note for future clarity.

14. Hey weenie,

    That was a really interesting read. I really like the variety to your investments especially the idea of the fun investment category which I know you have been doing before. It makes complete sense to me to reduce your exposure to equities the closer you get to FI, this is wise to me. I like to think I will keep mine at 60/40 even in retirement but my risk appetite might well change.

    I am definitely more of an armchair investor myself so a single life strategy fund does it for me along with NHS and State pensions as backups at 68+ if my plans fail with my 60/40 split. Owning my own house along with an inheritance at some point highly likely make me sleep better at night. I think also the fact I will adjust my withdrawals in times where there are big market drops. My FI figure means I will not be close to the bone so to speak with expenses.

    I aim to have my entire FI fund in a tax free ISA as my pensions are more of a backup as waiting until 68+ is just shocking…(NHS pension). If I were to invest in a SIPP and get tax benefits up front giving me access let’s say at 58 years old. I just don’t like locking my money away for so long personally…

    That monkey stocks challenge is interesting also, thanks for pointing that out.

    TFJ

    • I think at retirement, my portfolio might be closer to 60/40 but for now, I’m happy to risk more in equities for more potential growth.

      It’s possible that the reason I am happy to take on more risk is because I have my DB pension to fall back on if all else fails – that and the state pension will be enough for my needs, although unlike you, I don’t own my own home so I still have housing costs to factor into my numbers.

      Inheritance doesn’t figure at all in my planning, I’m hoping it will be nothing, that my parents will have spent and enjoyed all their money while they are living. In any case, I have a big family so if there is anything, it’s not going to be a significant sum.

      Will figure out at some point if I can viably run another Monkey Stocks Challenge without it all being too much of a faff!

15. WTF are you doing with so many holdings weenie! This made me laugh! Haha

    Adding my portfolio in the Trustnet website recently made me realize how heavy I am invested in the UK, approx 20%. I think that’s too much for me and I would ideally like to decrease it down to 10% like yourself. On the other hand, as I only contribute to global stocks now, this 20% will lower as time goes by, so I think I won’t rebalance and let time take care of it.

    Thanks for giving us an update on investment strategy.

    • Haha, cheers Tony 🙂
      Yes, as you are still accumulating, I think it’s easier to ‘rebalance’ by buying – this is what I do mostly. The only time I sold to rebalance was back in March when there was a big ‘imbalance’ in my bonds vs stocks.

16. I have a question regarding this part.
    “Global: Vanguard All World ETF (VWRL)
    Bond: Vanguard Government Bond ETF (VGOV)
    UK: Vanguard FTSE 100 ETF (VUKE)
    Property: iShares Developed Markets Property Yld ETF (IWDP)
    Emerging Markets: iShares Emerging Markets Equity Tracker (EMIM)
    UK Mid: Vanguard FTSE 250 ETF (VMID)
    Global Small Co: SPDR MSCI World Small Cap ETF (WOSC)”

    I already buy the top two listed once a month. Do you buy equal amounts of the rest so for simplicity sake one unit of each once a month?

    Thanks

    • Hi Ian

      The answer is no – I buy, or rather top up in accordance with my allocations in the various sectors.

      So at the moment, emerging markets, bonds and property are below my desired allocation (due to market movements) so my monthly investment will just go to one or split across all 3, to nudge them towards my allocation.

      I am a little concerned about what bonds are doing however, so perhaps I won’t top up as much as I would have in the past.

      Hope that makes sense.

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