The portfolio is up 2.67% year to date.

Well, that’s odd! The Slow & Steady passive portfolio is up year-to-date, by 2.7%. It’s up over the past twelve months by 6.4%. I’ll take that.

It feels unreal to be talking about those kinds of returns as a global recession sweeps our economic shoreline like a tsunami. Can our chums in the world’s central banks hold back the waters long enough for most of us to scramble to higher ground?

For now, let’s just double-take at the numbers that few would have predicted three months ago. Quarterly returns brought to you by Miracle-o-vision:

The annualised return of the portfolio is 8.99%.

The Slow and Steady portfolio is Monevator’s model passive investing portfolio. It was set up at the start of 2011 with £3,000. An extra £976 is invested every quarter into a diversified set of index funds, tilted towards equities. You can read the origin story and catch up on all the previous passive portfolio posts.

Too good to be true?

The fate of our portfolio is largely driven by its two biggest holdings: Developed World equities and UK government bonds (or gilts).

Developed World equities are the one risky asset class we own that’s nudged back into positive territory year-to-date.

Our gilts remain substantially up.

Our other equity holdings were all spiraling down 20-30% last quarter but they’ve catapulted back to recover much of their loss, too.

Global Small Cap has bounced (like a dead cat?) up 30% while UK equities are the laggard, ‘only’ putting on 16%.

This is the kind of volatility we can all live with.

I’m not sorry we sold more than £3,000 of our bonds last quarter and ploughed the proceeds back into equities in a timely rebalancing move.

Return of the math

One thing that’s long fascinated me is how large your returns must be in order to recover from a steep fall versus a mere dip.

For example:

  • 10% / 90% x 100 = 11% gain needed to recover from a 10% loss.
  • 50% / 50% x 100 = 100% gain needed to recover from a 50% loss.

The Slow & Steady portfolio lost around 11% last quarter so we only needed just over 12% to tunnel back up to the surface.

The speed of a morale-boosting turnaround like that makes it a lot easier to remain calm if the coronavirus crisis has a few more downward legs in it yet.

The bottom line is that diversification into bonds has proved it’s worth to me in as visceral a way as I could experience.

Another bet that’s paid off so far is backing capital over labour.

After the Global Financial Crisis, it seemed probable to me that my income prospects were permanently impaired. I partially justified diverting a large percentage of my earnings into the capital markets as a way of offsetting a dark future for somebody who’s chance to break into the 1% had likely passed. (Around the moment I was born, I think).

Watching the indiscriminate bazooka-firing from out of the windows of the Federal Reserve et al, it would seem like I picked the right side. For now, anyway.

New transactions

Every quarter we throw £976 to the wolves of Wall Street and hope they eat somebody else. Our fresh meat chunks are split between our seven funds according to our predetermined asset allocation.

We rebalance using Larry Swedroe’s 5/25 rule but that hasn’t been activated this quarter.

These are our trades:

UK equity

Vanguard FTSE UK All-Share Index Trust – OCF 0.06%

Fund identifier: GB00B3X7QG63

New purchase: £48.80

Buy 0.269 units @ £181.39

Target allocation: 5%

Developed world ex-UK equities

Vanguard FTSE Developed World ex-UK Equity Index Fund – OCF 0.14%

Fund identifier: GB00B59G4Q73

New purchase: £361.12

Buy 0.916 units @ £394.32

Target allocation: 37%

Global small cap equities

Vanguard Global Small-Cap Index Fund – OCF 0.29%

Fund identifier: IE00B3X1NT05

New purchase: £58.56

Buy 0.205 units @ £285.12

Target allocation: 6%

Emerging market equities

iShares Emerging Markets Equity Index Fund D – OCF 0.17%

Fund identifier: GB00B84DY642

New purchase: £87.84

Buy 52.884 units @ £1.66

Target allocation: 9%

Global property

iShares Global Property Securities Equity Index Fund D – OCF 0.17%

Fund identifier: GB00B5BFJG71

New purchase: £48.80

Buy 24.987 units @ £1.95

Target allocation: 5%

UK gilts

Vanguard UK Government Bond Index – OCF 0.12%

Fund identifier: IE00B1S75374

New purchase: £302.56

Buy 1.558 units @ £194.24

Target allocation: 31%

Global inflation-linked bonds

Royal London Short Duration Global Index-Linked Fund – OCF 0.27%

Fund identifier: GB00BD050F05

New purchase: £68.32

Buy 63.73 units @ £1.07

Target allocation: 7%

New investment = £976

Trading cost = £0

Platform fee = 0.25% per annum.

This model portfolio is notionally held with Cavendish Online. Take a look at our online broker table for other good platform options. Consider a flat-fee broker if your ISA portfolio is worth substantially more than £25,000.

Average portfolio OCF = 0.15%

If all this seems too much like hard work then you can buy a diversified portfolio using an all-in-one fund such as Vanguard’s LifeStrategy series.

Take it steady,

The Accumulator

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