Wahoop! I have made it through ten years.
In fact, I’ve had a trackable portfolio for over 20 years. But 10 years ago I started tracking my portfolio in a consistent, monthly way – unitising its performance so I could measure its return. It wasn’t until 2015 that I started this blog, but since then I have been reporting monthly on the progress / setbacks I’ve made/encountered.
I have taken a Bogleheads performance tracking spreadsheet as the template for my own portfolio returns tracker, and that template has had a ’10 year’ row staring at me with a #N/A for the last 10 years. No longer!
In any case, I will loosely follow the format I’ve used for the last couple of years. I’m looking at seven generic questions that I think all prudent investors should ask themselves at least annually.
Q1 How did ‘my’ markets do?
The first question is ‘what happened out there?’.
Firstly, how was December?
December 2022 was less than 1% of the 10 year time period I want to talk about, but here are the figures, in the markets that I’m in. It was a fairly sh*t month – one of several in 2022.
And secondly, how was 2022?
This left the year as a whole looking as follows:
2022 was, in a word, sh*t. Unless you were shorting the GBP, in which case you may well have done alright. And before those UK cheerleaders pipe up talking about how the FTSE was the world’s best performing major stockmarket, I will point them to the currency. FTSE-100 is mostly international companies, so when the pound falls by 5%+, you should expect their revenues to gain by 5%+. Which, as it happens, is almost exactly what happened to FTSE.
It is worth looking at bonds for a moment. They had a bad year everywhere, as interest rates started rising significantly faster than expectations. But UK bonds won the bad year award.
It has become fashionable to decry the death of the 60:40 equity:bond portfolio. I think it is far too early to do that. I remain a believer in Modern Portfolio Theory, which advocates combining equities and bonds to create a portfolio with a better risk/return balance than a pure equities (or bonds) portfolio.
The pound fell, as mentioned. But the real story was the rise of the USD. There were several reasons for this – but the USA’s distance from Europe, emergence from Covid, generally good government and robust economy all played a part. In the UK we had almost the mirror image of that.
Next, how were the last 10 years?
When we look back over 10 years, in fact, the picture changes significantly. My table below is an approximate hand-rolled look at the asset classes as I categorise them, over 10 years. I see four clear patterns:
- Equities were great. Particularly USA equities – twice as great as anything else.
- Bonds were lousy. Worse than cash. Up 7% over 10 years – you’d have done better having cash in a savings account, everywhere except the UK. However, if you’d stayed in until 2021 you’d be much happier with your bonds – as you’d have escaped the 25-30% drubbing 2021/22 gave you.
- The pound hasn’t done too badly. It is down 5% against the Euro, which considering Brexit was a mid-decade surprise was much better than I’d thought. The USD is up 30%, but the AUD (which I generally think is an OK currency) is in fact down almost 20%. In truth, the AUD was very strong 10 years ago, and has reverted to the mean. The USD and GBP have continued their long term trends.
This 10 year summary shows a very different view from the annual patchwork quilt. The patchwork quilt tends to be wheeled out to support arguments for diversification. You can’t tell which markets are going to do well/badly, so don’t try – you need to own a bit of everything. UK equities have been top of the ranking twice, and bottom twice. And so on.
But actually the 10 year view says there was a different approach – the Warren Buffet approach – which was just to focus on USA equities. If you had done that, and held on, you’d have more than tripled your money (in USD). You’d have had a fairly wild ride, particularly in early 2020, but if you’d entered in early 2013 when S&P500 was at 1450, you’d be at 3900 today – and you’d have had a further 25%-ish return from dividends.
Q2 How did I perform vs ‘my’ markets?
Needless to say, I did not have a 100% S&P portfolio over the last 10 years. I was however measuring my portfolio in GBP, which gives me a 30% boost versus USD.
My headline number was 8.0% compound. This came with a maximum drawdown of 23% – the most I lost over 10 years. I’ll look at Sharpe too, a bit further on. But what really matters is how this compares to ‘my’ markets – those markets I am exposed too, via my asset allocation.
My target allocation has shifted from time to time. It started off with a substantial home bias, but around 2017 I reduced my UK weighting and then in 2019 I upped my International weighting. Since then, the equity weighting has a slight UK bias but is much closer to the global equity weighting.
Summarising the last 10 years it was generally around 80:20 equities:fixed income. The performance of a simple version of such a portfolio is shown in the graph below, in grey, alongside my actual performance and alongside VUKE (the FTSE-100). I closely tracked the 80:20 portfolio – a small lag unsurprising considering my UK home bias until 2022. Then in 2022 I upped my leverage to ~30%, and then the markets fell…… ouch.
As well as my shift away from UK investments, I have also developed a tech tilt. Tech stocks often have quite a high beta (e.g. Amazon: 1.17). Combining this with the high leverage I took on in 2022 has left my portfolio catching a cold when others sneezed.
I didn’t always have a tech tilt to the portfolio. The table below shows my top 10 holdings at five year intervals. This is quite a blast from the past; iShares’ UK Dividend ETF IUKD used to be a major holding but I don’t touch it these days. The tilt to tech is clear – much of this was from existing positions growing in value, rather than me topping up.
|Jan 2013||Jan 2018||Jan 2023|
|#1||VUKE (7.8%)||IUSA (5.4%)||VTI (6.2%)|
|#2||ISF (6.7%)||AMZN (4.6%)||GOOG (5.4%)|
|#3||IUKD (5.0%)||GOOG (3.9%)||AMZN (4.7%)|
|#4||Cash – GBP (4.3%)||VBR (3.9%)||VFEM (4.2%)|
High Yield (2.5%)
|VWRL (3.6%)||IUSA (4.1%)|
Div Growth (2.4%)
|VUKE (3.0%)||VBR (3.7%)|
|#7||VBR (2.1%)||IGLT (2.7%)||BND (3.6%)|
|#8||IDVY (2.1%)||JPM (2.6%)||MSFT (3.2%)|
|#9||MIDD (2.0%)||VTI (2.5%)||IGLT (2.9%)|
|PFF (2.3%)||AGG (2.9%)|
|% of total||37%||34%||41%|
One view of a portfolio’s performance that I find helpful is to look at its Sharpe ratio. This ratio expresses how much return you get for a given amount of risk. Higher Sharpe ratios are better. In theory, a blend of two somewhat uncorrelated asset classes (e.g. equities and bonds) will have a better risk/return combination than either asset class individually – this should show up as a higher Sharpe ratio.
As it turns out, the VWRL Sharpe ratio over the last 10 years was 0.8. This is pretty high. But the 80:20 portfolio’s, as expected, is even higher – at 1.0. Unfortunately my own portfolio’s Sharpe is only 0.7 – worse even than the 100% global equity index. I can take some comfort from being ahead of FTSE-100, but crumbs of comfort.
|80% VWRL:20% IGLT rebalanced monthly||1.0|
|Actual FvL portfolio||0.7|
All in all, my performance over the last 10 years has been ‘meh’. I haven’t materially beaten the market, at any point (apart, perhaps from the first few years). And I have lagged it significantly in the final year – with my high leverage proving to be terribly timed.
Q3 How am I doing versus my retirement goals?
I’ve said before that I don’t really have straightforward retirement goals.
However I think the crudest retirement objective is having sufficient investment income. And right now my investment income is more or less at the amount I ‘need’ to maintain my (very nice, thank you very much) lifestyle. Investment income rose by 6% in 2022, despite my portfolio falling in value by 20%. Behold, my 10 year ‘weenie graph‘:
I don’t accurately track my spending these days. Or rather, I track it, but the figures are so noisy I don’t have firm conclusions on what I ‘need’. It’s clearly a higher number than it was a couple of years ago though, now that I run two households and with double digit inflation having an impact.
In any case, I definitely don’t feel comfortable at the idea of giving up on paid work just now. My leverage is too high, which is absorbing quite a chunk of my monthly cashflow. I have very little buffer between current investment income and perceived monthly outgoings – so higher tax rates or unanticipated expenses would see me running a deficit. If markets fell 20% and income dropped with them I’d have to sell assets to maintain living expenses. And moreover I have no intention of spending my ISA income for many years yet, unless the unlimited tax break policy changes.
So, for now, One More Year Syndrome is a thing – and until I stop full-time work I’ll keep reinvesting my investment income. In other words I have two roughly equally sized income streams, one of which I live off and one of which I reinvest. With my investment income roughly equal to my earned income (and monthly spending), in effect my savings ratio is about 50%.
Looking back with a ten year view, I feel pretty positive about my portfolio. It has enabled me to make two Big Hairy Audacious moves, both property related, which have changed my life for the better. That has taken some planning and monitoring, but it has happened. The portfolio remains much larger than it started, excluding many millions of pounds worth of property. And if my long term retirement goals aren’t to be able to live life comfortably but also be able to take advantage of opportunities to upgrade when I see them then I have the wrong goals. On that test, my portfolio has performed well.
Q4 How tax efficient
is my portfolio are my finances?
The slow trend to my portfolio becoming more tax efficient continues.
I’m putting the maximum possible into my & Mrs FvL’s ISA every year. This provides a slow upward escalator moving the tax-free portion up every year.
I and Mrs FvL are continuing to top up our pensions. This is not tax efficient, in my case, but my spreadsheet doesn’t know that yet.
Usually I would expect to have enough other income/savings/windfalls to push me down the upward escalator. But that certainly wasn’t the case over 2022. And in 2021 I sold a good chunk of my taxable assets to buy the Coastal Folly.
My effective tax rate on my investment income, ignoring allowances, is about 28%.
As last year, my working earnings are fully taxed – at the additional tax rate of 45%. And as last year, my pension situation is not tax efficient. The problem hasn’t growth, because my pension has dropped in value so it remains, for now, slightly below the total lifetime allowance.
What I have woken up to, and what 2022’s poor performance has crystallised for me, is the need to dramatically accelerate contributions to Mrs FvL’s pension. Her pension is not on track to hit the lifetime limit before she is 65, unless markets do very well indeed, and I need to fix this. I’ve started, this month.
Q5 What does my portfolio cost, in cash terms?
The next question is the fee burden borne by my portfolio. 2022 saw a real backward step here. This was largely because of my increased leverage. I am paying the usual fees (on ETFs/funds/etc) on the borrowed portion of my portfolio, but expressing those fees as a % of the net assets. So with my leverage jumping up from 10% to 30%, my fees have jumped up about 20% too. As before, the bulk of the burden remains the private bank fees I pay. The total fees are just over 0.5% – so while material they are not that big a drag on the portfolio itself. I was paying considerably more, as a %, 5 years ago.
Q6 What does my portfolio cost, in time terms?
Since early 2020 I have been reducing the complexity of my portfolio.
I made slow progress overall in 2022, with my total number of unique holdings dropping from 120 to 113.
However, the UK Govt’s Moron Moment in September saw me take a step backwards. I became so unimpressed by INXG (iShares’ UK Index-linked Bond ETF), but also so tempted by the yields on government bonds, that I bought a few bonds directly. Not large holdings, and really just as a learning exercise. But this has increased my unwrapped holdings by a few, and increased the number of small (<£20k) holdings I have to 9. This feels irrational and I will fix it in 2023.
Q7 What key risks am I taking?
The last question on my list is about risks.
The year 2022 was a vivid lesson in the risks that come with leverage. I’ve been monitoring my leverage carefully, and redirecting taxable investment income into paying it down. But it’s been all I can do to maintain the overall Loan to Value ratio as my portfolio has dropped in value. I finished the year roughly where I started, thankfully.
What you don’t see on the LTV graph is the good progress I’ve made in shrinking the absolute size of the loan. The graph below shows the loans by size. My leverage started for real in early 2016, when I bought my Dream Home with it. I had the loan firmly back under control by late 2018. Then came the sharp jump in Dec 2021 when I bought my Coastal Folly, taking my loan to unprecedented levels. You can then see the steady progress over 2022 I made in gradually reducing the balances. I still have another four or five years to go on that trajectory though. Meanwhile my interest costs have doubled during 2022 – which absorbs considerably more cashflow than I like.
I continue to own plenty of other assets I could draw on, but many of them remain in tax sheltered accounts which I would only access in a last resort.
Lastly, some concrete progress – I have updated my Will, and set up a Power of Attorney. Well, I say set up – it is sitting in my inbox waiting for final review/execution. But good progress on something I’ve been poor at clearing from my list.
The ten year view is sobering.
On the one hand, my portfolio has enabled some big life decisions that have made me very happy. And I’ve achieved over 8% a year, on average, which doubles things in less than a decade. If I have good health, and maintain these rates, I am going to become extremely wealthy – inflation or no inflation (UPDATE: inflation, as measured by the CPI, averaged 2.7% during the 10 years analysed here. So my portfolio delivered real returns of around 5.3% per year, which doubles every 13 years).
On the other hand, I’ve put a lot of effort into managing my money and barely managed to track the market. There is a lesson here about continuing to simplify the portfolio – if I can’t beat the market, then I should focus on reducing time/complexity instead.
I need to sort out Mrs FvL’s pension, which is inefficiently small at the moment. The ten year views help on these sorts of question.
I also finish the decade carrying more debt/risk than feels sustainable in the long term. While I have just endured a torrid year and come out OK, and am generally making OK progress, this issue isn’t going to be fixed in the short term.
And then there’s the blog. For the last 7 or so years I have kept a running commentary at least monthly. At times this feels arduous – and unnecessary even. But it also gives me discipline, and helps me organise my thinking. I’ve also had some fantastic support and input – via my comments section mainly – from some far smarter / more knowledgeable people than I come across In Real Life. So while I’m not committing to keep it up for the next 10 years, for now at least I am going to continue.
And on that note, what do you, the readers, think and feel if you’ve made it this far? Am I missing any other conclusions? How carefully do you track/monitor your portfolio, your expenses, etc – more or less than me? Is there anything you would do differently if you were me?
33 thoughts on “10 year review”
Fantastic review and very sobering indeed.
I hope you continue your blog for many years to come.
I’m surprised by your low total cost especially that you are using a private bank.
Does your fee analysis fees include trading costs, the interest expense on your outstanding loans, TER of funds and the custody fee at bank?
>Is there anything you would do differently if you were me?
– Simplify, simplify, simplify. Continue to aggregate and get rid of small positions.
– Remove the leverage especially at IBKR which can increase their margin to 100% and -automatically liquidate positions. Keep low cost mortgage if any.
– Continue your int’l diversification in the equity part.
– You could add portfolio distribution gross net % in addition to monthly statistics
Thank you @Pro. Particularly for your suggestions. You (I think) and others have made the point about IBKR – tho i have never had any issues with them changing margin to a level that has unsettled me. I have limited my IBKR holdings to *very* liquid holdings like BRK, AMZN, VTI, AGG, VUKE, IGLT etc which probably helps.
Q – by portfolio distribution gross net % what do you mean exactly? Dividend income as %, i imagine – but gross vs net?
I use the private bank for as little as I can get away with – basically to continue the relationship but not to grow it – and hence view the costs as borne by the total portfolio, not the PB bit. My fees here are mostly one advisory holding which is basically ‘cost of doing business’ and custody fees on execution-only direct holdings for the rest of it – so even my PB fees are not that high.
My fee analysis includes advice fees, TER/OCF charges, custody fees and platform charges. It does NOT include trading costs nor interest expenses, though both of those are hitting my portfolio net returns.
IBKR might send a notification only if you have a position in the instrument they are increasing the margin for, not to all clients. They’ve done it lots of times in the past but usually for less liquid ETFs and they do give some days or even weeks warning. I doubt they’ll do it for VTI, but still it’s something to keep an eye out for as it’s all quite automatic.
Portfolio distributions = yes dividends. Gross would be before withholding tax (if any on US divs) and net would be after however as WHT is usually 15% for all, the gross / net might not matter since you offset that WHT from your UK tax.
Trading costs & interest expenses would be important to keep track of outside of the net portfolio return which bakes these in. It’s very easy to pull them up at IB. Might end up adding up to another 0.5-1% pa if not more. LSE ETFs are 0.1% per round trip at IB so lots of trading might chew away returns and GBP loan is 4.5% so 1/3rd LTV adds another 1.5% ‘cost’ ?
To be clear, I have had those emails from IBKR yes. But generally only for small positions – notably Lyxor ETFs or Australian ETFs.
Interest expenses I am recording as negative dividends. Mainly because when I borrow £1m at 2% (those were the days!) to buy equities yielding 3%, it felt sensible to record the debt as costing me a negative yield. So my net income has dropped a lot over the last two years. But my ‘weenie chart’ shows the divi income only (net of WHT, as it happens), and ignores the interest expenses. Right now, thanks to interest, my actual investment income is a lot lower than my weenie chart suggests. But I am pretty confident I can repay that over time, so what I care about is the underlying income levels.
Trading costs I do not track that carefully. I have occasionally totted up my total transaction volumes, and multiplied by £20. It is a material number relative to my other expenses, but not material relative to my overall AUM.
Great to hear! Sounds like you are keeping the margin loan in check. I wish for us all many years of wonderful positive real returns and blog updates 🙂
I’ve been a long time reader, but a first time commenter. I find your blog really important: it’s well written, it’s first hand, you’re doing a lot yourself, you’re not running a ‘paper’ portfolio and you’re not obfuscating. I also just understand your lifestyle choices more easily than with some of these lcol guys. As someone in the earlier stages of a similar journey, you’ve been essential reading to me. Thank you.
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Very kind of you to leave a comment. It’s helpful to have feedback and good to know I’m helping people on similar journeys.
Long time reader. I just wanted to say how much I love reading your blog. We have very different lives but I feel your writing style is very down-to-earth and approachable.
I sold my business in May 2021 and I am currently working part-time hours on a project I took equity in and a couple of freelance gigs. I’m technically FI but I am enjoying the slower pace of life while raising kids and still having my toe in the game. My work schedule covers our living expenses.
The other game I am currently playing is how I slowly invest my business sale windfall. As you know from the last 10 years it’s been a lot harder than you originally think.
I’ve been an avid reader of yours for the past 5 years since discovering FIRE and your guidance (subliminally) has helped put my family in the most wonderful financial position.
I am excited to hear more about the coastal folly, how you are feeling about that decision and perhaps the impact on your expenses. I think the human side of the journey is just as thrilling as the financial.
I wish you all the best for the year ahead and thanks for your writing.
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Very interesting review.
I have two questions:
1. What is you rate of return after inflation? (I might have missed that by reading too quickly, if so apologies
2. What is your investment income as a percentage of capital (I know it will vary, and gross or net) – ie what would your withdrawal rate be, should you decide to spend rather than reinvest the income.
Btw, personally, I wouldn’t count investment income in the denominator for savings rate. That’s mainly because I’m not an income investor but consider total returns only – so the default position is reinvestment of income. I would say that someone spending investment income (and with no other income) is decumulating. Someone not adding new money from earnings is not saving. But of course, everyone is free to decide their own approach and metrics, and I can understand your perspective.
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Hi Red Kite
Inflation – according to https://www.rateinflation.com/consumer-price-index/uk-historical-cpi/ the UK CPI went up from 97.6 to 127.2, which is 2.7% per year. So my portfolio beat that by about 5.3% per year.
And my income, over last 12 months, as a % of portfolio today, is about 2.9% gross. If I was withdrawing right now, I would withdraw almost all of that – let’s call it 2.7%.
I know that counting investment income in the denominator is highly unusual – almost nobody considers their pension income (in accumulating phase) as income – but it feels to me like the right long term approach. I intend to glide from employed income to investment income and in the meantime all income is income.
Thanks for the review @FvL and cheers for the candor. It’s so interesting to read the specifics of a high net worth individual / investor like yourself, as you have a different and rarer set of problems. 🙂
As we’ve discussed elsewhere I had a terrible 2022 too. I think if you had a great 2022 then you probably had a bad decade before! Unless you were especially nifty. (Something I feel was within my grasp given my outlook / articles in late 21 / early 22 but I utterly flunked in reality)
I know I’m a stuck record on the leverage. Even my mortgage has become a bit of a millstone post-Truss, I can’t imagine the psychological trauma I’d feel in volatility with all that debt. If it’s working for you then fair enough — you clearly seem to have a handle on it, and you’re quite calm at least in these posts, perhaps more of a drain in real-life? — but I can’t help thinking it is impacting your real world choices now too.
For example, you have all that taxable portfolio and you’re also running debt. I understand that in some mathematical sense this makes sense (and enables the two homes I suppose) but always painful taxable accounts are only getting worse. I appreciate at your level the imminent slashing of the CGT limit probably doesn’t amount to much in the way of beans, but it’s all a direction of travel. If it were *me* (not saying you should) I’d be tempted to use taxable elements of my portfolio to rid myself of leverage (in fact that’s the way I’ve been going in my own more modest way for the past couple of years).
Finally if I may permit myself a link (because you gave us none haha, not even to our bond rants 😉 😉 ) then to your comment about the leverage being poorly timed, I think this is a very common experience:
“The sad fact is gearing up only becomes popular in optimistic times.”
Not having a go AT ALL and just sharing in the spirit of feedback, which you requested.
Cheers again for sharing and good luck for the next ten years!
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I must admit I’m very old fashioned when it comes to debt. I’m always on the side of ‘pay off your mortgage’ rather than ‘borrow to invest’ and for last several years have felt this viewed as unsophisticated ‘poor person’ thinking within the FIRE community. There’s something in that of course, but I look at this leveraged portfolio and I cannot really understand why someone with so much money is still paying for credit. It’s fine until it isn’t. Otoh I’m wondering whether now is the time to buy another property- outright – for my own enjoyment. The only thing rising interest rates has prompted is occasional musings that I should once again be chasing better rates on cash. But can I be bothered?
(My portfolio takes me about 10-20 hours per year with single figures of transactions. To me, FIRE means not having to spend much time thinking or worrying about money.)
I suppose one way to explain my thinking is that I have a bit of Buffett in me. I believe that long term equity returns will continue to be well above the cost of debt. So it makes sense to borrow money to own investments, provided that I am never a forced seller. I need to be able to ride out the booms with the busts. 2022 was a bust. Hopefully 2023 will be a bit of an easier ride.
Yes, I understand the rationale. It does require the ability to weather bad short term periods. And also requires you to keep working. For me, being debt free is a necessary (but clearly not sufficient) condition for being FI.
yes I think if I was entirely reliant on investment income I would have a significantly lower level of leverage and debt. But not a zero level.
Thanks for candidly and regularly sharing your experience and thought process FvL. You write clearly and thoughtfully, creating a rewarding personal finance blog that is one of the very few I actively follow. It provides a fascinating glimpse into a different world, illustrating what is possible and things to potentially watch out for.
You’ve produced some interesting metrics on your financial returns, and highlighted some magnificent qualitative rewards made possible by those efforts.
Some things I found eye opening once I started to think about them was Return On Investment of my time (i.e. calculate what an hour of my time was worth, then assess how much bang for buck each additional hour I invested in something produced). Unsurprisingly it revealed the Pareto principle in all its glory, much of my portfolio monitoring and tinkering with finances achieved very little. Scaling back allowed me to recover a host of time I reallocated to other things. I’ve been happier for the change, but it is a rabbit hole I still slip back into occasionally.
The other one was taking a broader lens on my portfolio evaluation. Shares are fun because their prices fluctuate and they are always in the news. Am I winning? Am I smarter than the next guy? Directly held property is comparatively boring, involving higher transaction costs and longer timescales. Yet when viewed over a medium or longer term lens, comparing the different asset classes becomes interesting (particularly when using leverage). Did that home purchase, made for lifestyle reasons, end up being a sound financial one also? Or was it truly an indulgent folly? The results were surprising.
The last one was the high impact of taxes. Different rates applied to different forms of income or capital return. Hugely different outcomes depending on the jurisdiction and wrapper used to hold investments. How decisions made in one aspect of life (e.g. a lucrative salaried job) can have a major impact on investment returns net of tax, which in turn can lead to the tax tail wagging the asset allocation dog due to the tangible impact those taxes result in.
Congratulations on achieving a positive 8% (nominal?) return over the 10 year period, while also indulging an enjoyable hobby. Long may you continue to experience many happy positive returns!
Thank you Indeedably for your very thoughtful comments. I follow your blog avidly too and don’t feel our worlds are that different, but everything is relative.
I was conscious writing this piece that I was ignoring the ‘rest of my net worth’ – namely the assets I hold which are not included in my investment portfolio. The blessing of my investment portfolio, as I treat it for this blog, is that it is liquid and trackable. But my other assets are significant and, though not liquid or easily trackable, I don’t completely ignore them.
I haven’t done an up to date analysis but last time I checked my London property assets had grown by 3-5% per year, on average. In nominal terms. But they are leveraged. So my actual return on equity is higher – between 5% and 11%. On this basis property is giving a “stocks/shares” portfolio a reasonable run for its money. And after tax, principal private residences that are mortgaged compare particularly favourably. If you ignore the liquidity advantages of stocks/shares.
My 10 year review also ignores my angel investments. My average returns here are considerably higher than the 8% nominal returns my investment portfolio has achieved. Without an up to date analysis, my angel annual returns are definitely double digits. I think 20%+ IRR. However the liquidity and scaleability of these investments is miserable.
Lastly, you are right that if I took my time into account my returns suck. The only real response to that is to flag that this is a hobby that I gain enjoyment from. You have called it, Indeedably.
As you approach giving up on the paid work I think you will need to monitor and manage your investment income and expenditure much more closely. Continuing to simplify the portfolio should help on this.
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Congratulations on the 10 year anniversary! Looking at my sheet I can see that I produced my first unitised returns for the FY ending 2012, so I also have hit the 10 yrs of data milestone. We’re part of an elite ‘I know my ten years returns’ club 😉 Here’s praying to a more pleasant 2023..
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Whilst you have not gotten the market returns, you have gained a lot of experience. Simplification of your portfolio would be the top priority for me, S&P ETF and finished.
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Congrats on the 10th anniversary of the blog and double congrats on the honesty of the analysis.
Now that the nice bit is out of the way. Your portfolio is hugely positively correlated with a VWRL/IGLT portfolio but underperforms. Morever, it performs worse on the downside moves so it’s Sortino lags the benchmark by more than the Sharpe. Negative alpha, no added value in terms of devolatization and protecting the downside. I’d strongly consider firing youself!
Perhaps time to focus on what the objective of the active management is and where you have a competitive advantage. Personally, I’d really question using an 80:20 as a benchmark since I don’t see how that hedges future liabiltiies for somebody in the HNW2 category. Nonetheless, if you really believe in MPT (umm …) and think that is the way to go then just move that into trackers and forget about it. It’s really hard to outperform in liquid, easily replicatable, indexed markets.
For example, I’ve held nearly all my equities and bond risk in trackers over the last 23 years. For bonds, I only really take an active view in terms of curve position (where I have a significant comp advantage) or where there is extreme value/convexity. For equities, I never trade single stocks. Moreover, any tilt is not driven by a market view. It’s a hedge. I tend to be overweight whatever might hurt my career or future (hence tech, healthcare) and underweight what doesn’t (financials). When Alphabet dumps, I might lose some money in the portfolio but relative to my “Google” competitors for houses, schools etc, I’m quids in.
Perhaps you’d be better off refocussing into an investment area that is less transparent. You haven’t included your private equity in the above analysis. Dig more into that area and ignore the liquid stuff. Plus what is your private bank providing in terms of access? They should be providing your with transaction capabilities that add value and investment opps that retail cannot get access to. Are they?
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ZX – many thanks for your thoughtful comment. I agree with your assessment – I definitely need to be on a performance improvement plan.
You make many very wise points.
I think you are right to highlight where I have competitive advantage. I allude to this in another comment on this post. My angel portfolio is where I have edge. But it has issues. I may look more at that in another post.
I would stress though that I have never claimed to outperform, nor set an objective around delivering alpha/outperformance. My basic strategy is to track the markets and minimise fees / tax drag. Against that strategy I think I am doing alright. One benchmark that nobody tracks accurately is what ‘non-Monevator readers’ achieve – via IFAs, private banks, cash savings accounts etc – and I certainly am confident I am beating them. Thankfully, so are 90% of my readers.
I find your point (on this and previous comments) about hedging vs lifestyle/career issues to be fascinating. I haven’t however quite worked out how to do that, and don’t think I would have the confidence to. I have consciously matched assets to ‘lifestyle liabilities’ , which is a reason for UK home bias and Australia bias. This is a hedge of sorts. I think the other things I would need to hedge against to follow your strategy are a) falling property prices, b) UK meltdown c) the tech industry cratering d) personal medical incapacity/trauma. Any suggestions for suitable hedging strategies for those are very welcome.
And lastly your point about the private bank is again on point. I really struggle to explain why I keep it other than some vague insurance factor. In a mafia-style dilemma right now the very same bank is causing me grief on a Ltd company account; the sense that I can probably leverage my PB relationship to stop anything smelly really hitting the fan is one of the reasons I stay. Of course if they were more competent I wouldn’t have the grief with my Ltd company account. Inertia bias all over. The most I can say in my defence is that if I find myself out of work unexpectedly, and really forced to sort myself out, then I would close the PB account and redeploy into IB/HL/others. But I worry with IB that my relationship counts for zip and if their compliance team (or margin algorithm) started causing me grief I would feel powerless. For now my PB is one of only two parties who will offer me margin/leverage and I do value that resource, as you know.
I started investing in 2005 so I’m closing in on my 18th year of investing. I’ve been in various forms of global trackers since day one and my annualised return has been 8.4%. Interesting to note that as of January 2022 my annualised return was 12%. Last year truly was an absolute shit show.
I am thinking about now moving the seven figure portfolio out of VWRL/P and into an S&P500 tracker fund. VWRL/P seems to move in tandem with the S&P500 when it goes down but not when it goes up; all the risk of the downside and none of the upside. Also, almost half of the revenue generated by S&P companies come from overseas so there is a global element to this index. It’s also way cheaper than VWRL (0.22%) vs (0.07%) – that’s more than a 300% difference! Finally, I’ve learnt my lesson that you should never bet against America, people there are just cut from a different cloth.
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Thanks for the detailed and candid assessment. I’m achieving 8.49% over the same period and apply only very simple metrics to assess the performance of my assets. I don’t say this to be smug. In truth I don’t believe I have the competence to carry out the analysis you do…but we are achieving similar performance. Perhaps there’s something to be said for keeping things simple.
Also, at 8.49% return and the significant and continued upward shift in the cost of borrowing I feel far less comfortable that the gap between the interest rate on debt and rate of return on assets is wide enough not to start paying down on debt. Difficult to put a price on the peace of mind this will bring.
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Thanks for sharing, Frank.
I hear you on the spread between debt and asset yield. At the same time I have a reasonable conviction that over the next X years my equities will be worth considerably more than they are now. The question is whether I can afford the debt in the meantime. I plan to look at this a bit more carefully in an upcoming blog post.
p.s. i just checked and Vanguard LifeStrategy80 delivered almost exactly the same here – 8.4% compound in 10 years to Dec-22. With a lot less fuss!
Subzero – many thanks for sharing. Like you I entered 2022 with a much more respectable return – I think it was 11%.
Your point re VWRL and S&P is well made. I have a ‘top of the market’ doubt tho that as soon as I decide to ignore ‘International’ then those markets will start an outperformance spurt! Like you I tend to rate the Americans and their businesses though if you strip out tech firms there is a much less clearcut argument. I am kicking myself for not staying long on LVMH, for instance, which I held until the French introduced their anti-foreigner taxes.
I think in my first stage of simplification I would ‘hand roll’ VWRL partially – my allocation rebalancing method lends itself to it. So the fee difference would not fully affect me.
Many thanks for your review, I enjoy reading your blog and the 10 years figures made me focus on the decisions good and bad I myself have made. 2022 I made the mistake of investing in uk company shares again prior to the Liz Truss disaster after selling practically all my individuals shareholding’s collected over 20 years. The lesson for me, sit on my hands don’t get tempted and keep it simple.
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You have a very complicated portfolio, magnified by the leverage situation, but which you are able to operate pretty successfully.
What happens if you get knocked down by the bus at a similar time to markets taking a huge dump leading to margin calls that cannot be responded to by you (because the bus croaked you).
Is your family left with a monumental mess, hugely magnifying their misery and the financial impact of your demise, or has this all been thought about/planned for in advance?
Good luck, and look out for those buses!
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do keep blogging if you are able, you clearly have a interested readership and your updates tend to be very interesting to read. my observations, fwiw as follows.
– there seems little indication you have much of an edge on the market. 10 years is probably not enough evidence either way to be conclusive (albeit certainly long enough to be fired if you manage money professionally) but should be giving you a steer. feels like indexing in equities would be more productive use of your time.
– it feels like the next decade is going to be real squeeze on people such as yourself taxation wise. A continuation of the last decade. So trying to figure out ways of minimising tax further would I think be a better usage of time than stock picking. I would also spend a bit more time on private investments where you seem as if you might have more of an edge.
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Hi FvL, I will echo the other comments in that I very much enjoy reading your blog and your insights. It has been a great help to me (along our past correspondence). I hope to keep seeing your posts pop up in my feed. I are an ‘instant open’.
FWIW, my portfolio was and is similar to yours and similarly benchmarked. My performance has therefore been very similar. Albeit I have noticed over the past year that mine suffered slightly less than yours – I suspect because of your leverage.
I see no shame in that performance. For one, it’s far better than most retail (and professional) investors manage. It’s also not far off the vanguard benchmark. Thirdly, it’s something that would be challenging to best outside speculation or indulging in some of the more exotic opportunities that our friend Mr ZK dabbles in (though having spoken with many hedge fund managers I’ve yet to develop any ability to determine who are the charlatans and who are prophets).
Finally, if you enjoy the tinkering then keep at it. In pure monetary terms it doesn’t appear to be costing you much (there are certainly many more expensive habits). The time opportunity cost, only you can judge.
P. S. We also use the same underlying boggleheads spreadsheet. I am around 6 months away from my own 10 year anniversary.
P. P. S. You could have used IFERROR(” “)!
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I was wondering if you are thinking of further tax optimisation here… liquidating some personal investments, loaning the funds into your PIC (interest free loan) and investing in there to take advantage of Uk dividends rolling up gross of tax… and using the proceeds to repay your loan over time, moving that from 40%+ to 20% tax (effectively lower as can pull back the loan tax free).
I’m at a similar point where investment income alone is starting to kick out 40% tax liabilities and trying to navigate tax planning (total minefield and finding a good advisor not biased by product sales is tough) – would like to understand your thought processes on this.
Mark – I don’t have any ‘big idea’ on tax optimising. Overall I am not convinced PICs are a big tax win – see recent Finumus/Monevator piece on it in fact – so see my PIC as a hedge rather than a clear way to reduce tax.
I have also been generally prepared to take some CGT on the chin in order to get the portfolio optimised/streamlined. I am less exposed to any future ‘let’s align CGT with income tax’ policy as a result.
If I make significant windfalls in my unsheltered world then yes I would top up the PIC somewhat with the proceeds but in the meantime my cashflow is going on ISAs/debt repayments, not into the PIC.