A refresher post on my investment strategy is long overdue (thanks for prompting me, @Curlew 🙂 ), seeing as the last update was back in 2021. A fair bit has happened since then! Apologies, as with the previous post, this one will be long-winded and waffly.
I can’t say that I’ve kept meticulous tracking of buying and selling (not that I do so much selling in any case) and need to collate the info from various disjointed spreadsheets.
Why don’t I keep such records?
Probably because I’m not comparing myself to anyone or anything, no benchmark so I don’t feel like I need to know. Would it matter if I knew my portfolio was doing better or worse than some benchmark? Does it matter if I made X% profit or loss on a trade?
I have a graph that goes up and down showing the value of my FF and that’s all I need to know really. Oh and my monthly ISA dividends. I also know the annualised returns of my entire portfolio and I feel that’s enough info for me.
So a reminder, my Future Fund (FF) is made up of investments in my ISAs, SIPPs, employer DC pension, my cash ISA and premium bonds, and is intended to provide me with income when I retire from full-time work. It is not a net worth number and does not include my DB pension, cash emergency fund or property.
The fund is intended to give me a financial bridge from when I pull the plug on work to when I can draw down on my DB pension and then the state pension – these latter two alone should provide me with a basic minimum income floor.
What’s my FF made up of?
Broadly speaking:
Yes, at some point, some gold sneaked in there, but I’ll cover that a bit later. So, I’m currently 82% in equities and I’m fine with that right now.
The equities/investment portfolio (blue bit of the pie) is made up of index tracker ETFs, investment trusts and some individual shares.
Here’s the basic breakdown of my equities:
ETFs make up 72%, investment trusts 22% and individual shares 6%.
When it comes to drawdown/early retirement, I’ll be selling the ETFs for capital income, whilst taking dividend income from the ITs and individual shares (although I do own a small number of growth shares).
What ETFs?
I originally set up my ETF portfolio after reading Tim Hale’s Smarter Investing book, combined with Monevator’s Lazy Portfolio post.
I created my own Portfolio for All Seasons, one with equities and bonds, which would supposedly weather all kinds of stock market shenanigans and which suited my own appetite for risk. It didn’t do too badly during the ‘pandemic panic’ and I was also able to sleep well during the recent markets see-sawing following Trump’s tariff announcements.
My allocations have changed slightly since I reset them in 2021:
Just need to shift a bit more into the bond/treasuries and gold parts and I’m pretty much there.
I re-balance via new monthly contributions, very rarely selling to buy, although I did sell the so-called ‘defensive’ ITs (eg Personal Assets, Capital Gearing, Ruffer), which I bought when I was a bit fearful of negative bond yields a couple of years ago.
These just didn’t do what I thought they would (namely act defensively!) so over time, I swapped them for a mix of money market funds, more global trackers, a bit of gold (because I didn’t have any) and stocks in Rolls Royce.
The latter came about after I happened across an article about their small modular reactor technology a couple of years ago – I liked what I read, so chucked in some money when the shares were around £2. Since then, with defence and government projects in the pipeline, the shares have rocketed to £10. Yes, of course I should have bought more when they were cheap as chips but I think my average price is around £4 and it seems like a solid growth share that I’d like to keep hold of. The future is nuclear!
And finally, why ETFs and not funds, like Vanguard Lifestrategy? The fees are cheaper for ETFs on the platforms I use, although I am still drawn to the Lifestrategy funds for simplicity, so never say never.
Eere are my main ETF holdings:
Global: Vanguard All World ETF (VWRL/VWRP)
Bond: iShares Ultrashort Bond ESG ETF (UESD)
Gold: Gold Bullion Securities (GBSS)
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)
These are my majority holdings but I have other similar ETFs (legacy ones sitting in HL and AJ Bell) which are insignificant amounts (all less than £1k). I also have a few smaller (more specialised) holdings in other ETFs which are just lumped into my ‘global’ allocation, for example iShares Global Water ETF (IH2O) and iShares Ageing Population ETF (AGES) for a further bit of diversification.
In time, it’s likely I will ultimately whittle these ETF allocations down to just 4 core holdings for simplification. Or if I may just sell the whole lot and put it all in Lifestrategy 80% or 60%. There’s always a possibility.
Dividend Income Portfolio
I wanted a part of my portfolio which I would just hold and never sell and which would generate regular dividend income. This would be made up of investment trusts (ITs), individual shares and a perhaps the odd ETF.
I built up a basket of ITs, a mix including so-called ‘dividend heroes’ (paying increasing dividends over many consecutive years), diversifying across different sectors.
Using the AIC Income Finder, I researched and picked ITs that paid a decent yield (generally >4%), whilst trying to avoid ones that paid huge dividends as those seemed too good to be true and likely unsustainable.
Here are my IT investments broken down by sector:
While I was tossing out the defensive ITs, I took the opportunity to whittle down some of the investments in this income portfolio, with iShares UK Dividend ETF (IUKD) and Henderson Far East Income (HFEL) falling by the wayside and the funds from their sale just spread across the existing holdings.
Might I add more sectors to this pie or just continue to build on the smaller slices of the pie? I’m tempted to just do a one in, one out system and indeed I did just that this month; European Assets Trusts will be wound up so I sold my entire holding. Didn’t find anything similar to replace so went for something completely different, opening an investment in Schroder Japan Trust (SJG), Japan being a sector I had no previous exposure to.
Click here to see all my ITs and shares (inc growth shares).
I’m fine spreading the risk across many different ITs rather than a concentrated few, although it does mean there are more to keep tabs on and I have to be honest, there are a more than few of them which I haven’t looked at since I did the initial research on them years ago. As long as the dividends are still getting paid and not cancelled or cut and there’s no negative press about them, I’m happy to stay invested.
In 2020, I received around £1.8k in income from my IT and share ISA portfolio.
In 2024, I received £4.3k, which has surpassed my original goal of £4k a year.
Getting an average £400 a month in divi income would cover most of my utility bills so I’m pretty much there with my goal now.
Question – why have income paying investments while I’m still accumulating?
Mainly because I need to see that I can actually generate a certain amount of income from my investments – I don’t want to pull the FIRE plug, only to find out belatedly that my portfolio didn’t provide me with the income I thought it would. Or to suddenly have to decide what growth investments to sell and what income investments to buy with the funds from the sale. I’ve done all most of my homework already, the income is ready for me to take now even, if I wanted to.
Of course, dividends are not guaranteed but thus far, I’ve only experienced a very small number of my holdings cancelling or reducing their dividends, and only one cancelled during COVID.
Cash
Cash/premium bonds makes up just 3% of my Future Fund.
This needs to be a lot bigger.
SIPP or ISA?
All of my savings/investments are ‘tax efficient’, ie either in my SIPPs or my ISAs.
ISAs offer more flexibility and hopefully, Reeves won’t mess about with them too much. I currently have more in my SIPPs but that’s fine, considering I can already access them should I wish because yes, I am that old 😀
Last leg of my journey
So, serious knuckling down to make sure my investments do their best before I retire.
As I approach the last leg of my FIRE journey, will I be considering different decumulation builds and changing the allocations of my portfolio? Other than abovementioned 4 core ETFs or Lifestrategy funds, not really. I don’t have the mental strength for that currently.
So that’s my investments right now.
As mentioned earlier, I’m not trying to beat any sort of benchmark – my annualised returns since I started tracking my investments in 2014 is around 7.2%.
This might be decent or rubbish compared to some other investors but I’m not in a competition so it doesn’t matter. Me sleeping well is all that matters.
Of course, I’m certainly not 100% confident that my strategy is the best one for me – however, as a generally optimistic person, so I guess I’m cautiously confident of what I’m doing, but all I can do is wait and see, keep calm and carry on investing!
Weenie,
Thanks for responding to the message I sent yesterday. I thought there was something unusual about the commenting system: it wasn’t until I posted the message that the penny dropped with me (yeah, I’m a bit slow!). Glad to see you’ve added the commenting function now.
“…I’m certainly not 100% confident that my strategy is the best one for me…“.
Who is? It’s worked for you this far.
All the best.
Hey Curlew
True true, it’s what investing is all about I guess!
Thanks!
Nice update. In the latter stages of employment i’d be taking a very close look at the benefits of ploughing as much cash as possible into the employer DC pension, even selling some ISA holdings short term to achieve this, thus benefiting from the tax (and possibly National Insurance) savings/uplifts, then at retirement having the option of pulling a bigger 25% TFLS out of the pension and shoving that straight back into the ISA, maxing it out for a few years to get an improved balance between the two wrappers. The only slight downside i can think of is if the Govt were to reduce the £20k annual ISA allowance, but i think i would still take the chance.
Cheers KC
I don’t know yet what I plan to do with my SIPPs/DC pensions, by which I mean how I will take them, eg flexi access draw down, UFPLS. But soon, I will be looking at it in more depth so I can consider my options.
I did consider ploughing more into my employer DC pension but putting more into my SIPPs seems more flexible for me, in case I change my mind, month on month. Of course, I will miss out on the lower NI benefit. I will however ask my employer if my next bonus (if I get it) can be added entirely into my pension.
I hardly ever check our historical performance but yesterday I looked at our Precious Metals. Over 17 years they’ve returned 8.5% p.a. nominal. Is that good or bad or so-so? I don’t know. Nor do I know how to allow for the riskiness of the investment. Still, it’s part of our diversification in a way, for instance, that bonds are not.
But I may soon sell part, in favour of income-yielding equities. Maybe. Perhaps. Or wait for an equities crash? Dunno.
Hey dearieme
Well to me, 8.5% pa is good, above (current) inflation, better returns than stuck in a savings account!
As you say, it’s part of your diversification and you’re happy to own it so that’s all that counts.
Whatever you do, don’t try to time the markets!
Ah but I timed the markets in late 1999, sold all our equities and bought bonds (gilts and convertibles). Huge success.
I have no ability to time the purchase of equities so we are still coasting on that success of a quarter of a century ago. I sorta, kinda, intend to do something about that but at our age it may be a bit late.
What a pity that the ns&i Index-Linked Savings Certificates offer such poor terms nowadays. I can remember when we held some paying 4.25% p.a. above RPI. That meant they made a perfectly decent competitor for equities.
I think timing the markets needs a big wedge of good fortune and being at the right place and the right time! If I thought I was that lucky, I would try to do it! But good to hear that you are still coasting on the success from back then! Sadly, NS&I Index-Linked Savings Certs were never something I got into, I didn’t have any money to buy them when there were any good. We’ll not be seeing those rates again!
Hi, been following your blog for a while and am very impressed with what you have achieved. You have stuck to your plan and it is now bearing fruit.
Slowilly building up my own dividend paying investment trusts and ETFs. Compounding is King, well Queen in your case.
A friend of mine invested in Rolls Royce at one pound and is now sitting on a gold mine.
I was wondering what money market funds do you use? One part of my plan was to have some money allocated to them and use the income generated after tax to invest in the stock market.
All the best and keep up the great work
Regards
Lee
Hi Lee
I’ve not had the chance to research more so am only in one MMF at the moment, iShares Ultrashort Bond ESG ETF (UESD). Yield is around 5.07%.
As I build up that part of my portfolio, I will probably look at another one or two MMFs.
All the best with building your own dividend paying portfolio and thanks for reading!
Ah Rolls Royce, shoulda woulda coulda! Well done to your friend! I’m still buying the occasional shares as the price continues to go up!