This year is also the time. Today I’m going to look at how my entire portfolio worked last year. Stay tuned for Annual Portfolio Review 2020.
Some scene setting points to start:
- I’m running a large and diverse mulchAssets portfolio.
- I have been decumulating for several years and have dependents, so I can’t take high levels of risk.
- I’m more interested in a stable long term Compound interest Rather than turning off the lights during a good year for world stocks.
Our net worth increased by 9.2% in 2020. This is the 36th year of a 37-year investment.
- Listed portfolios increased by 10% and once unlisted portfolios (real estate and DB Pension) also showed decent profits.
As always, this result isn’t Twitter legendary, but I’m happy.
- FTSE-All Share fell by more than a third in April, but at that point I was down less than 12%.
The all-share has recovered to -13.2%, which is an increase of 22.5%.
My benchmark returned 3.5%, which is 5.7% higher.
- Inflation is 0.7%, my theoretical target SWR is 3.3% and the total target is 4% (easily defeated).
In reality, my actual withdrawal rate is about 0.7%, so my personal goal is 1.4% (which is also easily broken).
This year is the third best year ever on a currency basis (the pound has increased) as the portfolio is much larger than before.
- My net worth has increased by about 12 years worth of living expenses.
I now have a net worth of 138 years of living expenses.
- The average lifespan of me and my partner is 27 years This gives you a 5.1x “mortality rate”.
It increased by 9.2% and increased by 9.9% based on the one-year reduction in life expectancy (9.2% plus 0.7% for one-year withdrawals).
In 2006, instead of using the British currency, the baseline was 100, resulting in a portfolio value of 371 (up from 340 last year).
- The total growth rate for 14 years is 271%, that is, the combined annual rate is 9.8%.
This is acceptable given the financial crisis of 2007 and the 13-year downturn. Interest Fee.
The graph below divides growth into annual chunks.
Use a composite benchmark consisting of four items.
- It aims to be the average of UK retail investors seeking financial independence.
It has four components.
- UK Stocks – 20%
- International Stocks – 35%
- UK Residential Real Estate – 25%, and
- Cash / Bonds – 20%
Weighting begins with assigning target percentages to assets and cash.
- Then divide the rest into UK and international stocks.
Please note that i use DB Pensions and cash (I think it’s overvalued) rather than proper bonds.
Over 14 years, the benchmark has risen 85.5%, or 4.9% annually.
- Therefore, my portfolio averages above 4.9% pa (nominally – see also the more detailed analysis below).
The yearly breakdown of portfolio and benchmark performance is as follows:
Unlike many bloggers and Twitterati, I use a “total assets” approach to my portfolio.
- This is primarily to keep the stock allocation high enough as we grow older.
I use 5 high levels Assets Class (target is in parentheses):
- Stock 40.9% (45%)
- Equity Alto 32.6% (30%)
- Bond / Cash 9.5% (10%)
- connect Alternative 13.3% (10%)
- True Alts 3.6% (5%).
The second graph shows how these assets have grown over the last 14 years.
- The split between UK and international stocks is now obsolete, but otherwise quite accurate.
The third graph shows the same data as percentages rather than absolute numbers.
I have 6 portfolios listed:
- Core passive portfolio
- Active UK equity portfolio split into AIM and major markets
- Theme portfolio (ESG, technology, biotechnology)
- Factor Fund (Smart Beta) Portfolio
- VCT portfolio,
- And trend following (Momentum)portfolio
There are also three “portfolio” that are not listed.
- Property including the house where I live
- DB pension
The table below maps the portfolio to a high level Assets Previously seen assignments:
The red section is a stress test showing the impact of a 40% crash on the global stock market.
- The running cost of the portfolio is also noteworthy. It has now dropped to 0.37%.
We’ve added some bar chart indicators this year, but I’m not sure they will make things clearer.
Apart from 28% of assets, another 49% is in SIPP and ISA (split into 30% / 19%).
- This accounts for 77% of the total.
The rest DB Pension (13%), cash (7%), VCT and taxable accounts.
The following two graphs show how these account types have changed over the years, from an absolute and relative perspective.
The long-term annual revenue of 9.8% pa is flattered by the following three (overlapping):
- New money
- Positive performance of the benchmark portfolio
Let’s look at new money first.
The graph below shows the net additional contributions (from income and inheritance) or withdrawals (from pensions) to the portfolio by year.
The graph also shows the cumulative total for the entire period (red line), which is increased to reflect inflation (blue line) and benchmark growth (green line).
- The new money will have a value of 371 for the entire portfolio, 35.9.
- After inflation, this will rise to 43.5
- After benchmark growth, it will rise to 62.6
Alpha vs inflation
The graph below shows inflation over the last 14 years.
- Total inflation was 36.0%, or 2.2% annually.
The second chart shows the portfolio for new money and inflation.
- Green areas are initial portfolio and inflation
- Blue areas are new money and inflation added
- The red area is the added value (alpha) from the investment options.
Of the 371 current portfolio values:
- 136 is the basic portfolio plus inflation
- 43 is new money and inflation
- 192 is alpha
Alpha vs Benchmark
The following graph shows benchmark growth over the years.
The benchmark is up 85.5%, or 4.9% annually.
The final chart is a portfolio and benchmarks for new money.
- Green areas are initial portfolio and benchmark growth
- Blue area is new money added and benchmark growth
- The red area is the value added (alpha) from investment options away from the benchmark portfolio.
Of the 341 current portfolio values:
- 185 is the growth of the basic portfolio and benchmarks
- 63 is new money and benchmark growth
- 123 is alpha
This year I chewed a bullet and put together a complete table of counterparties.
The counterparties that are looking to increase their exposure in 2021 are:
amount of sales
We couldn’t add a sales analysis this year, but we estimate that we trade about 25% to 30% of our listed portfolio (12% to 15% of our total net worth) each year.
- This corresponds to an average holding period of 3 to 8 years, depending on how things are viewed.
Of course, this is average and includes not only the positions I hold for 30 years, but also other positions that are only open for days or weeks.
The snowball chart has also been updated Posted in February of last year..
This is our cumulative revenue.
And here is the 10-year rolling average chart.
This is a net worth snowman.
This is the exponential version.
And here is the breakdown by asset.
This is a graph of net worth compared to cumulative carrier revenue.
And this is the annual portfolio fluctuation as a percentage of salary.
Conclusions and prospects
That’s all for today.
- This year was also a good financial year, even if it was one of the worst years I had to live (so far) in many other ways.
Until next time.
Annual Portfolio Review 2020-7 Circle
https://the7circles.uk/annual-portfolio-review-2020/ Annual Portfolio Review 2020-7 Circle