As mentioned in recent posts, I’m making some adjustments to my investment portfolio.
The last time I made any real changes to it (and its allocations) was back in 2019 – apologies if this post is just as lengthy (and rather waffly) – I’ve added a bit more detail as to what’s in my Future Fund.
My Future Fund is made up of my ISAs, SIPPs, employer DC pension, cash savings and premium bonds and will 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 any property.
Do I have Passive or Active investments?
The bulk of my investment portfolio is made up of index tracker ETFs (passive). The other part is mostly investment trusts (active). The intention, when it comes to drawdown/early retirement, is that I will likely sell off the ETFs for capital, whilst taking dividend income from the ITs.
I’m mostly a buy and hold investor. However, I do enjoy tinkering about with a bit of active investing, small experimental portfolios and the like – I guess the ETFs and ITs are the ‘core’ part of my portfolio and the other bits (individual stocks, Dogs of the FTSE etc) are the ‘satellite’ part, which make up around 5-6% of my entire portfolio. Here’s some more info on the core and satellite approach which I loosely follow.
What’s in my Future Fund?
This bit is probably more for my benefit, since before I did this, I only had a vague idea of what it all looked like – too many disjointed spreadsheets which didn’t give me a complete picture!
So it looks like I have an equity/bond ratio of around 75/25 (I’ve lumped the cash and bonds together) which is probably on the more aggressive/risky side for someone my age but I’m ok with this.
However, over the next few years, I’m likely to increase the bond/cash allocation a bit to perhaps 35 or even 40, just for peace of mind.
Index Tracker ETF Portfolio
Thus, I created my own Portfolio for All Seasons, one which would supposedly weather all kinds of stock market shenanigans and which suited my own appetite for risk. I thought it didn’t do too badly during the ‘pandemic panic’.
The original % allocations have altered slightly over the years but not by that much:
How did I come up with these allocations? They’re just what I’m comfortable with and happy to maintain right now.
I re-balance via new monthly contributions but when the bottom fell out of the market in March 2020, I sold some bonds (which were in the green) and reinvested in some of the others which were looking rather rubbish in the red.
I may ultimately whittle these allocations down to 4 core holdings for simplification in time, not sure yet.
And finally, why ETFs and not funds, like Vanguard Lifestrategy? The fees are cheaper for ETFs on the platforms I use.
So here are my main ETF holdings:
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)
These are my majority holdings but I do have a few smaller (more specialised) holdings in other ETFs which are just lumped into my ‘global’ allocation, for example iShares Global Clean Energy ETF (INRG) and VanEck Vectors Gaming Esports ETF (ESGB) for a further bit of diversification – these did quite well in 2020:
Investment Trust/Share Portfolio
I wanted a part of my portfolio which I would just hold and which would generate regular income.
Originally, I had a smattering of individual shares but wanted more diversification (plus it’s really time consuming trying to research the best individual shares to buy) so I started to build up a basket of investment trusts (ITs).
I initially chose from a mixture of ITs considered to be ‘dividend heroes’ (paying increasing dividends over many consecutive years) and diversified across global, a mix of both growth and income ITs.
However, it was time to ditch the growth (and lower income paying) ITs to see the potential of higher yielding ITs.
Using the AIC Income Finder, I had a look at what ITs paid a decent yield (generally >4%) and did some further research into the ones which caught my eye.
Big thanks to Gez, who I know from Manchester FIRE meet ups and who provided me with some helpful ideas to research! This Monevator post on investment trusts was also handy for reference.
In the first week of January, I wielded the big ‘Sell’ Axe, so out went the likes of (with their respective gains in brackets) Bankers (+38%), Alliance Trust (+7%), Brunner (+27%), Finsbury Growth & Income (+8%), Aberforth Smaller Co (+7%), Scottish American (+31%), JP Morgan Asian IT (+39%) and yes, the insanely high-flying Scottish Mortgage (+169%) – well, most of the latter anyway, I still have a small holding with one of my providers, so I don’t miss out on future gains…
No, it wasn’t easy hitting the Sell button – I sold them all in quick succession before I waivered about my plan and changed my mind!
In their place, I picked a bunch of ITs for their high(er) yields, including Aberdeen Standard Equity Income Trust, Civitas Social Housing, Henderson High Income Trust, Target Healthcare REIT, Supermarket Income REIT, Bluefield Solar Income and JLEN Environmental Assets Group. Some others will have been added by the time this post goes out – click here to see the full portfolio.
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.
In 2020, I received around £1.8k in income from my IT and share ISA portfolio. I think the changes I have made (and will continue to make) will mean I should have a good chance of hitting my 2021 income target of £2.5k. Ultimately, I think I might aim for £4k a year in income (which would cover most of my utitlity bills) but I’m nowhere near there yet – that will be a goal in a few years’ time.
I still have holdings which yield less than 4% but I’m fine to hang onto those investments for now.
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.
Cash, or rather premium bonds makes up just 7% of my Future Fund. Before anyone pipes up to say how crap premium bonds are, I don’t really care that they are rubbish, I just like the fact that they carry no risk whatsoever and that there’s a chance of winning something every month.
Last year, I won a total of £325, which works out as a return of 2.25%, better than any instant access bank account that I know of. All winnings were chucked into my ISA. If I ever win a decent-sized prize, I’ll be sure to share the happy news here! 🙂
Much in the same way that I’m increasing my bond allocations in my ETF portfolio, I will gradually increase my cash allocation although I’m not rushing on this one.
I’ll likely do a bigger push later on as I’d like to FIRE with a cash buffer.
SIPP or ISA?
Pretty much all of my savings/investments are ‘tax efficient’, ie either in my SIPPs or my ISAs.
I still continue to invest in both, although I plan to build up more in my ISAs as I feel they offer more flexibility and (hopefully) will continue not to be subject to tax, future government meddling notwithstanding. I currently have more in my SIPPs but hopefully that will be addressed over the years. Note that by the time I FIRE, I will have access to my SIPPs.
Fun Investment Experiments
Why can’t investing be fun?
My Dogs of the FTSE experimental portfolio falls in the fun category but the dividend income I receive is reinvested into my ISA, so it benefits my overall portfolio.
I may run other little experiments or other fun portfolios (like my Winter Rock fund) – I was thinking of doing an actual Dogs of the Dow portfolio, which the UK FTSE version is based on. This wasn’t possible to do when I first started these experiments, due to the high value of US shares but with Freetrade*, I’ll be able to buy fractions of shares. Maybe I’ll do it once I’m done with the FTSE one.
I might even run a future Monkey Stocks challenge – thinking about it anyway!
So that’s pretty much it for my portfolio for the next year or so.
I’m not trying to beat any sort of benchmark – my annualised returns since I started tracking my investments in 2014 is around 8.6% so if I can maintain that, I’ll be well happy!
I’m sure there will be many who might disagree with my strategy (eg how many holdings??) and wonder WTF I’m doing but I’m comfortable with what I’m doing and I think I know what I’m doing! 🙂
I’m certainly not 100% confident that it will do what I want it to do – all I can do is wait and see, keep calm and carry on investing!
Anyone else have a similar kind of portfolio or is mine so ‘out there’, there’s nothing else like it? 🙂