Adjustments to My Investment Strategy

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As I’ve touched upon in recent posts, I thought it was time to review my investment portfolio.

The last time I checked it (and its allocations) was back in 2017, so here’s quite a lengthy (and rather waffly) post as it’s been a long time coming! 🙂

The large part of my portfolio is made up of index tracker ETFs. The other part is mostly investment trusts (ITs). 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 would describe myself as a passive investor, my strategy is predominantly ‘buy and hold’.  However, as there’s an element of investing which I enjoy, I do tinker about with a bit of active investing, small experimental portfolios and the like.

Index Tracker (ETF) Portfolio

I set up this portfolio after I’d read Tim Hale’s Smarter Investing book, combined with Monevator’s Lazy Portfolio post.

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’m thinking now that I do need to perhaps start protecting some of my wealth and increasing the bonds part of my portfolio.

A common rule of thumb is to simply hold a percentage of stocks/equities equal to 100 minus your age. If I followed this rule, that would mean having a 50/50 split equities/bonds, which to me, just doesn’t carry enough risk/opportunity for growth.  Equity to bond ratio of my Portfolio of All Seasons has been 90/10, so rather on the risky/aggressive side.

Apparently some financial planners are now recommending that the rule should be closer to 110 or 120 minus your age and that is what I will initially go for – 120 minus my age so my equity/bond ratio will now aim to be 70/30.

Here’s the Old v New portfolio allocations:

So I’m reducing some of the home/UK bias and the more risky allocations.

If I end up becoming more risk averse, I may go down to 60/40 but that’s for the future.

How did I come up with these allocations? They’re just what I’m comfortable with and happy to invest in. I wanted to start implementing the changes to my portfolio asap and didn’t want inaction as a result of analysis paralysis.

Anyway, here’s how it’s looking right now:

I intend to re-balance mostly via new contributions but I have made a few sales/switches already (sold my entire holding of the global value, VHYL (Vanguard All-World High Dividend Yield ETF)). I’ll be doing more switching over the next month or so.

I may ultimately whittle these allocations down to 4 core holdings for simplification in time, not sure yet – just need to be mindful of dealing fees.

And finally, why ETFs and not funds, like Vanguard Lifestrategy? Although I still hold a couple of funds, I have mostly ETFs as the fees are cheaper for ETFs on the platforms I use.

So here are my main 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
UK Mid: Vanguard FTSE 250 ETF (VMID)
Global Small Co: SPDR MSCI World Small Cap ETF (WOSC)

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 share to buy) so I started to build up a basket of investment trusts (ITs).

I chose from a mixture of ITs considered to be ‘dividend heroes’ (paying increasing dividends over many consecutive years) and diversified across global, UK and recently, more specialised sectors.  There’s also a mix of growth and income ITs, although later on, I’ll likely move to more income.

This portfolio currently generates on average £130 a month, my aim is for it pay out at least £250 a month/£3k a year, which should cover the bulk of my household bills.

I guess I’ll aim to do a bit of ‘top-slicing’, ie take profits from the growth ITs and buy more of the income payiing ones in time – not sure how that will work out as I generally only buy when ITs are showing a decent discount to NAV (Net Asset Value) but occasionally, I will buy on a premium.

So whilst the capital of my ETF portfolio will be whittled down in time, I’m intending to hang onto this portfolio for a good while longer.

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’d rather avoid finding out belatedly that my portfolio didn’t actually pay the income I thought it would.

Anyway, click here to see this portfolio.

Cash

I haven’t got a lot of cash in my portfolio – most of it is in premium bonds, with a tiny amount in my cash ISA. Before anyone pipes up to say how crap premium bonds are, I don’t really care, I just like the fact that they carry no risk whatsoever and that there’s a chance of winning something every month and I’ll be sure to let you know if I win a decent-sized prize! 🙂

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, with interest rates still being on the low side.

Perhaps I’ll do a bigger push later on as I’d like to FIRE with a cash buffer.

Everything Else

P2P and property crowdfunding – over the next few years, these should run down to zero as I’m not adding any capital to these types of investments – currently, I have less than £2k invested.

Other crowdfunding – small amounts in Freetrade and BrewDog. It’s possible that I may look at other such opportunities but these are strictly in the ‘fun’ category and not part of my retirement planning.

SIPP or ISA?

The bulk 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.

Experiments

My Dogs of the FTSE experimental portfolio also falls in the fun category but the dividend income I receive is reinvested into my ISA, so it benefits my overall portfolio. More on my Dogs at a later date, there’s a post pending!

I may run other little experiments or other fun portfolios although I’ll only be risking a tiny percentage of my overall wealth.

So that’s pretty much it for my portfolio for the next couple years.

I’m sure there will be many who might disagree with my strategy and wonder WTF I’m doing but I’m comfortable with it and although I wouldn’t go so far as to say I’m confident that it will do what I want it to do, well, all I can say is that I’ll do what any investor can do and that is to wait and see.

I intend to ride out any economic catastrophes, keep calm and carry on investing, which might be easier said than done!

47 thoughts on “Adjustments to My Investment Strategy”

  1. Hi Weenie, that’s very interesting that you are going a bit less risky in your investments – I’ve also been thinking of doing the same but not sure enough to pull the trigger yet!

    And as for the premium bonds – I can totally see the appeal when you get a message from Ernie! Besides, it is much better odds than the lottery and you get to keep your stake.

    • Hi Ms ZiYou

      I’d been toying with the idea since the beginning of the year and thought I’d better do something with half the year gone already!

      I have the NS&I app, where I can check if I’ve won a prize on the day of the draw – ERNIE takes another 2 days to send the email out, I’m obviously too impatient!

  2. This is starting to read like a Premium Bond support group.

    “My name is { in·deed·a·bly } and I hold premium bonds.”

    In my case, I have my emergency fund parked in them. Government guaranteed security of capital. Accessible within a couple of days. A vanishingly small chance of winning a £1 million tax free. Given the alternative is a cash ISA or current account, each offering a vanishingly small amount of interest, I choose a serving of frisson with my laughably small returns!

    • Great to see another premium bond fan, indeedably!

      Exactly, I too love the excitement of the risk free lottery-like anticipation each month so I can ignore the pitiful 1% return!

  3. An interesting read weenie and good to see you are thinking about risk and the asset mix. Whether you settle on 70:30 or 60:40 probably won’t make so much difference but I believe the main thing is to think about asset allocation and settle on a mix which feels right at the time.

    Of course, what feel right now may not feel so good after the markets have tanked…but I guess us small investors all learn to live with the ups and downs.

    • Hi DIY

      You’re right, 70/30 or 60/40 probably won’t make much of a difference but it’s just the mix that will give me peace of mind.

      There’s always the risk of the market tanking, it’s just a matter of when and like you say, us small investors will just live with it

  4. Given your annual visit to Hong Kong note Stocks listed on HK pay dividends out gross.Personally I have held HK stocks but have sold them all as dislike the current political trends in China.
    3 foreign brand name companies listed on HK are:
    L’Occitaine,Prada and Samsonite if you like their products

    • Hi Simon

      I don’t have any investments in Hong Kong but various members of my family do. I think investing is more common over there than in the UK, ie normal every day people will talk about the stock markets or currencies going up or down.

  5. “Apparently some financial planners are now recommending that the rule should be closer to 110 … minus your age” is what I’ve been using as my ‘equities’ to ‘bonds’ split for a long time now. Annualised return of my portfolio since end 2007 is now 6.7% although that has been dragged down by a large portion of cash for a home being accrued and also sitting in my portfolio for the last few years.

    “I intend to re-balance mostly via new contributions…” You’ll also be able to rebalance with dividends from the over weights going to the under weights.

    • Hi RIT

      Good to hear that you yourself have been using that ‘updated’ rule of thumb and that it’s been going well for you, despite the large portion of cash for your home purchase.

      And yes, of course, I shall be rebalancing with any dividend income too.

  6. Interesting read as I’m carrying out a similar derisking exercise – a big chunk of my holding is in Lifestrategy 100% / VWRL – you can certainly get hooked on the big gains there over the last couple of years but I’m moving into Target Retirement 2035 / LS 80.

    • Hi Jim

      I’ve not really considered the Target Retiremen funds. Am kind of waiting to see what Vanguard’s SIPP will be like fees-wise and I may either open a new one or transfer one of my existing ones over.

  7. Thanks for the interesting read Weenie. I endorse what DIY Investor says about getting the asset allocation that feels right to you. It’s definitely an art not a science. Talking about myself, I reduced my cash allocation just over a year ago and I don’t feel comfortable with that. So all the money I earn right now is being parked in cash so I can get some of that comfort back. That might mean lower returns (like RIT mentions) but much less worrying.

    • Hi YFG

      Glad you enjoyed the read and yes, I think I will be comfortable sticking to this proposed asset allocation for now. It will mean lower returns (not sure what this will do to my total dividends now) but yes, just seems a little less worrying. At some point, I will start building up my cash reserves but I feel that what I have is fine for now.

  8. Very interesting read weenie. I don’t blame you at all shifting a bit more out of the UK and more into bonds. It makes complete sense for the stage you are at. I’m still used to thinking 70/30 is the amount I’d like for my age as I am more risk averse I think, but I’m still happy with the VLS 60%.. I get a twinge thinking I should be in 80% and include property at times and maybe to remove UK bias, but I’m still sleeping well at night at 60% hehe. Chris

    • Hi Chris

      Everyone is different with their risk tolerance and if you’re sleeping well at night with VLS60% and happy with its performance, then no need to make any changes – FOMO definitely not to be recommended!

  9. I fancy some bonds and I’d like Inflation-Linked Gilts that have a positive real yield. They are not available. So I am considering TIPS. Their real yield is higher, but it’s based on the wrong inflation index i.e. the US’s. It occurred to me that if I could buy them without currency hedging there’s a decent chance that exchange rate fluctuations would correct for the selection of index.

    For example, suppose inflation is higher in the UK than the US. A likely response is that the GBP would sink against the USD. This would give me a capital gain to add to the US inflation linking. Oh experts: is there any merit in this logic?

    And further: is there available a cheap, unhedged ETF of TIPS? I’d want to hold it preferably in an ISA or SIPP, but if necessary outside.

    P.S. Premium Bonds seem fine to me as a tax-free cash component of a portfolio.

    • Hi dearieme

      I had to google what TIPS were (Treasury Inflation-Protected Securities)! 🙂

      I’m afraid I don’t know anything about them – you’d probably be better asking your question to the Monevator lot who are far more knowledgeable, although I did find this which might be useful reading: https://etfdb.com/etfs/bond/tips/ HL seem to allow you to invest in some TIPS, eg ITPS.

      Another Premium Bond fan and yes, love that it is tax free!

      • Thank you. Thinking more about it I might be wiser just to buy a single TIPS with a maturity date as far off as I can find. I wonder whether HL allows that in their ISAs and SIPPs. Or whether anyone else does. I also wonder whether there is withholding tax on them or any other US tax. I must look around.

  10. Very useful post. I’m due a portfolio overhaul shortly so highly relevant.

    Do you mention why you’re ditching P2P?

    I noted the recent folding of saving-stream/lendy and remembered FFB40 had been massively plugging it a few years ago. I wonder how much he has lost?

    • I still have a part of my eventual home purchase in P2P via RateSetter. I first invested back in May 2014 and since then have achieved an annualised return of 4.1%. Of course not all P2P’s are made equal with only time telling which are the winners and which are the losers.

    • Think I lost a response here. Probably got auto-deleted as it had a few links in it? Maybe its in the spam box or something?

      • Hi The Rhino

        Thanks for stopping by and having read that Lendy had gone under recently, I totally forgot that Huw had a fairly substantial amount with them – I’ve not been in touch with him so I do hope he didn’t max out his ISA with them, which was something he had suggested.

        As for me, I decided to make a slow withdrawal from P2P, mostly due to trying to simplify my portfolio but also because I was unable to switch my existing holdings/loans into an ISA, so that annoyed me somewhat. I also found it was quite labour intensive, I didn’t trust the autoloan function so had to spend time reading up and manually selecting the loans. And although I didn’t think it would be an issue at first, the illiquidity started to grate on me a little.

        Nothing wrong with the companies I was with, I’ve made on average 7% in return from total loans, including the dodgy Funding Circle defaults. As per RIT, of the ones I’ve been with, I’d probably rank Ratesetter at the top and use them again if I reconsidered.

        And yes, one of your responses was stuck in the spam folder! 🙂

  11. Hi Weenie. Always interested to hear about other people’s investment strategies.

    I’ve been making my fund choices for my new workplace pension and have definitely been struck by analysis paralysis in terms of a) how much to have in bonds and b) how much of a UK bias to have.

    I have decided to invest in two funds to keep it simple for now – an all-world (exc. UK) index tracker and a multi-asset fund that includes some UK shares and bonds. I have since kept fiddling with the split between the two when really I just need to let it be. I might add some more UK gilts to the mix though.

    It’s very difficult as a beginner not to tamper!

    • Hi FF

      Good to hear that you kept things simple – whatever is most comfortable for you and as you say, if you feel like adding more UK gilts, then go for it.

      Very hard yes to not want to tamper or tinker with it – the key thing is that you are invested, that’s what’s important!

    • It is interesting (but unsurprising) that many UK investors have a large % tied up in UK-based funds, when I believe the UK forms about 6% of the world markets.
      Of course many UK FTSE100 are really global firms, so that is perhaps diluted, but I must admit I have more Stateside than most. Probably because of working for US firms for almost 30 years!

      • Hi MikeW

        Yeah, the cursed ‘home bias’! Hopefully by dropping the UK allocation down to 10% will address this somewhat.

  12. It’s interesting that you are reducing risk in your main portfolio. I agree that you need to be comfortable with the risks you are taking. Over the years I’ve grown to be comfortable with more risk, and hopefully more return (sooner or later).

    • Hi Getting Minted

      Who’s to say that I may decide that I want more risk later on, but for now, I’ll go with what feels right for me.

      Good luck with your returns!

  13. Hi Weenie,
    Another great update. I hope that wasn’t a dig about my premium Bond post 🙂
    I am trying to run down my P2P investments as they are so illiquid but its taking a while (due to it being illiquid). It took 6 weeks for the last withdrawal and this one is taking longer. The advertised 7.5% is now down to 4.5% and Im hoping to get the rest out before it falls further.
    I completely agree that you need to be comfortable with your asset allocation etc. I have a DB pension, so I can take a bit more risk, hence still fully invested in equities. I know I need to look at bonds but for now I’m happy with the trade of of risk against higher returns.
    I prefer a SIPP over an ISA due to tax relief but it depends on tax band, age and when you hope to FIRE, so I understand your preference for ISA’s.
    Keep doing what you are doing. There is no point in retiring early if you are invested in assets you are not happy with and spend your retirement worried sick you could lose it all in a crash.

    • Hi Grizgalonfire

      Hah, not a particular dig at you but whenever I’ve mentioned premium bonds in the past, there’s always someone who pipes up that I should be ‘investing’ somewhere else due to the pitiful interest. I’m just dreaming of the day when I announce my big win! 🙂

      You’re so right about the illiquidity of P2P – it didn’t bother me at first, not when I was viewing it long term but now that I want to shift my money out, it’s not great. Hope you can get your money out soon.

      I can’t access my DB pension til I’m 65, so I just want to take a little risk away my investments to see how I feel and to see how it continues to grow.

  14. Interesting article. Your choice entirely. But I’d go for 15% cash and 15% bonds, rather than 30% bonds. Not uncommon for funds to hold this much cash. You can get cash isa fixed term which match CPI.

    • Hi Adam

      As mentioned, I do have some cash (in the guise of premium bonds) but don’t feel the need to hold much more than I do now, although this will likely change in time. I find fixed term ISAs too restrictive – I’ve been occasionally chucking bits periodically at my cash ISAs so prefer this flexibility.

  15. Interesting post Weenie. Gives me some inspiration for my own re-allocations. I’m currently a bit stuck in ‘analysis paralysis’, but have started to sell off some of my company shares (the only stock in my ultra concentrated portfolio). Until I have a better idea I will simply keep it as a cash position (apart from using a bit of ‘fun money’ for crypto assets). This has a couple of advantages. For one it will serve as a cushion for when the next downcycle arrives. Access to cash also means I can act quickly in the event I want to make a more or less opportunistic move and buy ‘cheap stocks’ (for example). At the same time it’s going to be an emergency fund.
    I am also considering low volatility and/or high dividend yield etf’s. But these are still stocks. So maybe I should look into bonds as well.

    • Hi Marc

      Ah yes, I recall you mentioning the sale of some of your company shares and dipping your toe in crypto assets – good luck with that but good idea to have a balance in cash for the next downcycle.

      I think there are high yield bonds but I don’t know enough about them to invest.

  16. Thanks for the discussion Rhino (and all), especially the links. I remember doing a lot of research into p2p and it seems to come down to assessing the underwriting quality (I turned what I learnt into a blog post). From reading around the FT at the time and from the various p2p forums (our friend ZXSpectrum being a helpful guide) I recall Lendy had been under scrutiny for a while. It seemed to be particularly exposed to questionable low quality property loans and even a year ago quite a few of them were turning sour and red flags were popping up. Then again, I have sympathy with investors. I’m a forensic accountant and I found dissecting the underwriting for some of the more established platforms to be too difficult to be worth it.

  17. Very interesting post, Weenie!

    I have to say, I prefer this new “120 – your age in stocks” rule-of-thumb. The original “100 – your age” always sounded a bit too risk-averse to me. Either way, I’m currently all-in on stocks, with a smattering of p2p (>2% of my net worth) and some cash. I don’t have any bonds, but the emergency fund I have in cash is fairly sizeable, so I’m inclined to think that will do. I’m unsure if I’ll move some equities to bonds (especially with equities being so high at the moment) or if I’ll just ride the storm! One advantage I have is that my overall net worth is relatively low anyway.

    • Hi Dr FIRE

      You’re a lot younger than I am so I’d be inclined to lump into equities.

      My emergency fund is only around 3 months’ of expenses and I’m just slowly adding to it.

      I do need a bigger cash buffer but want to concentrate on adding to my investments first.

  18. hi Weenie
    Your approach seems sound to me… a sensible approach to fit to your risk appetite. and avoiding expensive funds and intermediaries… and overtrading.
    you are a bit overweight on the uk but that isnt a terrible idea at the moment as far as i can see.
    If you were lookig for a few suggestions and challenges:
    – a few funds might be worth a bit of your money. personally i like Terry Smith’s Fundsmith and i like his insight driven approach to weeding out the dodgy companies – his book is good too. the outperformance seems to justify the fees, although this isnt guaranteed… A few other too eg Nick Train. good performance (albeit without quite so mich reassuring back story)
    – yes do steer clear of bitcoin, precious metals, etc
    – is ot worth doing startup investments via eg angels den or syndicate room? or a decent VCT like amati? the EIS and VCT tax breaks are quite appealing… but the risks are bigger and you need to have patience… and enough shekels to spread the risk across ten or more early stage investments. it might be a p
    ossible for your fun 5-10% pot of money, if you find the early stage stuff interesting, if premium bonds pall, if the illiquidity isnt scary.
    – re your individual stocks – these tend to work best if you are buying in lumps of £1k or more, preferably quite a bit more eg put £5k in each company.
    At £1k trade sizes, the whole round trip buying and selling and taxes and spreads will eat up 2-3% or more of your money. this can easily cost you 1% a year or more. you might as well put the money in an ETF tracker like VWRL or VEVE…

    • Hi David

      I do have a small holding in Fundsmith, occasionally add to it but not too much to keep platform costs down.

      Yeah, those individual stocks are only small amounts and really do need to be minimum £1k but I bought most of those in the early days. May top them up, not sure yet.

      Hopefully most of my buying and selling will be with Freetrade to keep trading costs to a minimum. I’ve not really thought about transferring from my existing platforms but may consider in the future.

  19. Pingback: The Full English Accompaniment – Sticking my head in the sand – The FIRE Shrink

    • Hi Rhino

      That EM I’m holding is one of the few funds in my portfolio which I haven’t yet converted into ETF. The ETF I was considering wasn’t IEEM however, but Vanguard’s VFEM – similar holdings only the latter’s fees are cheaper, 0.25% compared to 0.75%.

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