HHow quickly things can change! Another record quarter for global stocks has helped banish the blues like a glimpse of spring sunshine.
Our Slow & Steady model portfolio has grown by 3.7% within the last three months. This is on top of the 7% gain within the previous quarter.
Overall, the annualized returns are actually back at a whopping 7%. Let’s call it 4% after inflation. If you own a stock-heavy passive portfolio, you may be even happier.
Here are the numbers in Zippity-Doo-Dah-o-vision™:
The portfolio is a model portfolio for passive investments. It was founded in early 2011 with £3,000. Each quarter an extra £1,264 is invested in a diversified range of index funds focused on stocks. You can read the origin story and find all previous passive portfolio contributions within the vaults.
While much of the rise within the fourth quarter was because of an increase in government bonds and real estate, they’ve each weakened somewhat since then.
Instead, we return to the standard routine: US large caps because the engine of our passive portfolio.
When we first invested in 2011, our developed market fund was roughly 50% invested within the US. This allocation has now risen to over 70% – a worryingly high exposure to a highly valued stock market and an economy boosted by government stimulus programs.
I wrote a wonderful article about how one can think through this case, including ways to take fallback measures.
He showed up too Article by Larry Swedroe about how hot the US market would need to run to repeat the returns of the last decade.
In short: We would want a tech bubble Part II to get anywhere close.
It goes without saying that I won’t be selling Slow & Steady’s equity allocation any time soon to place 100% of it into an S&P 500 ETF.
However, I’m also not prepared to commit to a comprehensive switch to a World ex-USA Tracker.
American idle
For one thing, the Slow & Steady portfolio only consists of 28% US large caps when your complete portfolio is taken into consideration.
And even when we were to scale back the US portion of the Developed World fund back to the 50 percent level at which we originally invested, the US large-cap allocation would only be reduced to twenty percent of the full portfolio.
In other words: the portfolio is already sufficiently diversified. If Big Tech’s future returns are subpar, a 28% shift to twenty% won’t make much of a difference.
Second, nobody is predicting negative returns for the US. Just that the market must mean a comeback – and that one other region must take the lead for some time – since the S&P 500 doesn’t win every decade.
I’ve been reading predictions like this for greater than a decade. Nobody can advocate for one more market except
Mean reversion will not be a physical law. It is a pattern present in the last 100 years of information. That does not imply low cost markets cannot get cheaper.
The Russian market gave the impression to be of great value before the Ukraine war. I’m glad I didn’t bet my shirt on these stocks.
For years I’ve been siphoning off money in my personal portfolio to speculate in emerging markets and UK stocks because they were low cost. That didn’t work.
However, it taught me a useful lesson about attempting to outsmart the market.
I can not do it.
New transactions
Every quarter we add £1,264 value of investment fertilizer to our portfolio. This fresh crap and brass is distributed across the seven funds in our portfolio in keeping with our predetermined asset allocation.
We restore balance using Larry Swedroe’s 5/25 rule. Since this has not yet been activated this quarter, the transactions are as follows:
British equity
Vanguard FTSE UK All-Share Index Trust – OCF 0.06%
Fund identifier: GB00B3X7QG63
New purchase: £63.20
Buy 0.24 units at £262.85
Target allocation: 5%
Stocks from developed countries (excluding the UK).
Vanguard FTSE Developed World ex-UK Equity Index Fund – OCF 0.14%
Fund identifier: GB00B59G4Q73
Purchased recent: £467.68
Buy 0.722 units at £647.54
Target allocation: 37%
Global Small Cap Stocks
Vanguard Global Small-Cap Index Fund – OCF 0.29%
Fund identifier: IE00B3X1NT05
New purchase: £63.20
Buy 0.148 units at £428.36
Target allocation: 5%
Emerging market stocks
iShares Emerging Markets Equity Index Fund D – OCF 0.19%
Fund ID: GB00B84DY642
New purchase: £101.12
Buy 53.63 units at £1.89
Target allocation: 8%
Global ownership
iShares Environment & Low Carbon Tilt Real Estate Index Fund – OCF 0.18%
Fund identifier: GB00B5BFJG71
New purchase: £63.20
Buy 27.95 units at £2.26
Target allocation: 5%
British government bonds
Vanguard UK Government Bond Index – OCF 0.12%
Fund identifier: IE00B1S75374
New purchase: £316
Buy 2,355 units at £134.21
Target allocation: 25%
Global inflation-linked bonds
Royal London Short Duration Global Index-Linked Fund – OCF 0.27%
Fund ID: GB00BD050F05
Purchase recent: £189.60
Buy 179,546 units at £1,056
Target allocation: 15%
New investment Contribution = £1,264
Trading costs = £0
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Average Portfolio OCF = 0.16%
If this all seems too complicated, try our greatest multi-asset fund suggestions. These include comprehensive, diversified portfolios just like the Vanguard LifeStrategy funds.
Interested in tracking your personal portfolio or using the investment tracking spreadsheet? Our post on portfolio tracking shows you ways.
Finally, learn more about why we expect most individuals prefer passive investing to energetic investing.
Be calm,
