My financial goals for 2017

In my professional life I’m a big believer in having clear objectives.  I want these objectives to be SMART – i.e. measurable, timely, relevant and so forth.  I first practised what I preach on my investing side last year, and found the exercise helpful but flawed.  So I’ve been pondering what goals to work towards this year.

Last year’s goals: no longer useful

My three goals last year (debt reduction, sticking to my target asset allocation, income) reflected the major change I made to my portfolio in January 2016.  I had taken on significant debt, which I wanted to know I could control.  I had shrunk and restructured my portfolio, and wanted to know it could generate a certain level of income.  And asset allocation is probably the single most important aspect of managing my (any?) portfolio so that needed to be in there too.

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My performance in Jan ’17 – Trumping begins

What a month.  First of all we get Theresa May’s Brexit 12 point plan, a.k.a. rebranding Great Britain as Global Britain (despite its lack of resonance with voters). Next we get the Trump inauguration.   Then we get Trump’s hyperactive first two weeks.  Never mind the hackneyed First 100 days of a new POTUS – Trump has done more damage to the USA’s overseas reputation less than 14 days into the job than Bush / Obama / etc managed in their first year.

Amidst all this the equity and bond markets have struggled to form a view.  USA equities are up a bit, UK bonds are down a bit, not much else to report.  Phew.

The USD has fallen a bit, thanks to concerted talking down by Trump and his putative administration.  They are accusing China of being a currency manipulator (which appears to be broadly true, albeit in the opposite direction to their claims), Germany of being an EU hegemon and currency abuser (for which there are quite good arguments, so I watch this meme with interest) and Mexico of, well, I’m not even going to go there.

For some reason the AUD has risen against the pound.  I’m not sure why. Combined with the USD fall this is quite a big shift in the terms of trade between Australia and the USA.

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Updating my target allocation

The key to my investment philosophy is having a target asset allocation.  Ideally, this allocation hardly changes – perhaps a slight shift towards bonds and away from equities every year as the Grim Reaper approaches, but aside from that nothing significant. In practice, it’s time for a quick update to the allocation.

The main trigger for my allocation update, to coin Harold Wilson’s phrase, is: events, dear boy, events.  The portfolio I let a private bank manage for me was restructured last year, and left me with significantly more US exposure and less UK exposure than before.  And almost every asset class gained a lot last year, measured in pounds, so being levered proved to be a significant boon.  While I could rebalance, I want to consider whether my target allocation is still right.

My old allocation had UK equities and US equities equally weighted.  This left, when you factored in my bonds allocation, the UK at a target weight of 35%, and the US only slightly higher at 40%.  And my old allocation had bonds:equity  at 29%:71% – an equity-friendly mix, to be sure, but with a very significant minority of bonds.

Looking at my old allocation from current perspectives, I want to make some changes.

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