DIY vs Funds - The Costs

As a Do-It-Yourself Investor, I always believed costs would always be lower than going to the professional wealth managers - the 'men-in-suits'.

Recently I came across a study that tried to calculate how big the savings of DIY Investing might be - and the results are quite shocking....

In For A Penny (Portfolio Buy)

Source

I won't try to deny it - 2015 has not been a good one for the DIY Income Investor portfolio, which is currently down about 6% since January.

However, one thing I have learned about investing is that sometimes there are bad years. So, while I'm ready to modify my investment approach, I'm not going to panic. I'm going to carry on using high yield as an indicator of potential value (as well as income). And the latest purchase is about as high a yield as you can find.

Healthy Shares? (Portfolio Buy)

As a DIY Income Investor, I am interested in shares that pay a nice dividend. These 'high' yielders will (hopefully) give my cash a home that will provide a nice cash flow and minimise the risk of losing capital. And even better, I like it if the company management is explicit about its commitment to maintaining - and increasing - the dividend.

Unfortunately, you don't find a lot of that about - but such opportunities do exist...

Final Destination

Source

Every now and then you need to take a step back and look at the big picture. Of course, this applies to everything in life, not just investing - but if you have a family, how you manage your money in the longer term does cover a lot of other considerations.

We all need to think carefully about why we are nvesting and what our objectives are. Here's how mine developed.

When It's Time to Sell (Portfolio Sale)

October 2015 has been quite volatile so far. The beginning of the month saw a rapid recovery in the value of the DIY Income Investor portfolio, but it was followed quickly by more jitters, Currently the portfolio is showing a 3.3% gain over the first three weeks of the month but it is still showing a slight loss on 2015 as a whole. It's probably mainly due to China.

But there has been an interesting development in the portfolio - resulting in a sale.

Sell Grafenia! (Portfolio Sale)

What well-informed readers this blog has! No sooner had I bought Grafenia in February 2015 than 'Anonymous' piped up to tell me it was a mistake.

Today saw a 25% drop in the share price - and he told me (I'm assuming it is a he, and one-and-the-same) that I could get out 'clean', taking into account the dividends (follow the link above to see the comments). He was and is right. I'm out.

But what lessons are there here?

Over 1 Million Page Views!

 

According to Blogger stats, this little site has received over one million page views.

Thanks for visiting!

The DIY Income Investor

Not As Bad As It Seems?

For this DIY Income Investor it's been a horrible couple of months - my family portfolio is down nearly 5% on the year. So I have taken my own advice - I've left my investments to look after themselves and got on with other activities.

It is hard for anyone invested in the stock market not to be spooked by the sudden downturn but it is rarely correct to sell up when prices are diving. As long as you have targeted reasonably sustainable yields, you should be able to weather a short-to-medium period of depressed prices by just sitting tight.

But all is not 'doom and gloom' - there might be some light appearing at the end of the tunnel.

Doom and Gloom

Source

We are going through difficult world financial times, which the London Stock Exchange is reflecting in its loss of all 2015 FTSE100 gains.

If you are a Buffettarian, you will know that the best time to buy is when all others are fearful. And the signs could not be worse...

Cycles (Portfolio Buy)

Source

The DIY Income Investor portfolio is languishing somewhat this year, barely maintaining its total value. The migration into diversified income-oriented Exchange Traded Funds (ETFs) over the last couple of years was meant to provide stability - but coupled with reasonable gains, not stagnation...

Economies - and therefore financial markets - work in cycles of confident exuberance followed by panicky fear; and unfortunately these cycles can span several years. So, it's difficult to tell whether one particular investment strategy will work in the medium to long term. For the time being, I'm going back to basics that have worked over the last 10 or so years: purchasing more focused investment instruments.

Buying and Holding - and a Recovery (Portfolio Sale)

Source

For a DIY Income Investor - indeed for all stock market investors - one of the hardest things to do, apart from selling losers, is to do nothing. When the prices of your holdings are wilting, there is an inbuilt, instinctive reaction to run away - the 'flight' instinct. This is when unseasoned investors panic and sell out - turning a paper loss into a real cash loss.

However, as an income-oriented investor you have a great behavioural support - the income.

African Gold! (Portfolio Buy)

Having become a bit disillusioned with the performance of my 'high yield' Exchange Traded Funds (ETFs) in the DIY Income Investor portfolio, I've decided - for the moment - to go back to doing what I seem to have done best: buying individual high-yield securities.

This time, I'm back to dividend shares, although these are slightly over-represented in the portfolio (which is intended to be split broadly 50/50 between dividend shares and fixed-income securities of different types).

Do ETFs Behave Differently? (Portfolio Buy)

As usual, a DIY Income Investor portfolio sale - viz. the recent Berkeley Group cash-in - leads to the difficult decision of what to buy now. This is always a challenge because, having been successful at making money (quite a lot in that particular case) you don't really want to blow it on something that will then tank.

This decision is all-the-more difficult because the strategy I have adopted in the last year or so (which involves building up the proportion of ETFs - Exchange Traded Funds) does not seem to be working very well.

Investing by Numbers (Portfolio Sale)

After weeks in the investing doldrums, it's nice to wake up in the morning and see something happening with the DIY Income Investor portfolio: one of the bigger holdings has shot up by around 8%!

The new strategy of buying more Exchange Traded Funds (currently 43% of the  portfolio) is working in one sense: not a lot of attention is required - but not in another: the price trends are slow (and at the moment not all that favourable, it has to be said).

So a bit of positive 'market action' has cheered me up a bit.

Review: Infinis Energy

Not having anything to buy or sell means there is time to look at the current DIY Income Investor portfolio and catch up with some of the developments of the constituent holdings.

Infinis Energy (LSE:INFI) is a new company and describes itself as 'the UK's leading independent generator of renewable power'. It currently has a whacking great forecast yield of over 10%: is this an alarm bell or a contrarian opportunity?

Sitting Tight!

No posts recently - but then there have not been any changes to the DIY Income Investor portfolio. In any case, with summer on the way there are lots of things more interesting than watching the markets (like Bluegrass festivals!).

And isn't that the Holy Grail of DIY investing - a portfolio that ticks over nicely, while you have fun?

There have been some developments, though...

'Backtesting' the DIY World ETF Income Portfolios

Source

Last month I suggested that it would be possible to create a DIY geographically-diversified income-oriented portfolio using just ETFs (Exchange Traded Funds). The idea was to create a long-term DIY portfolio that was easy to administer and which also minimised risk, whilst retaining (what I see as) the benefits of a yield-based income-oriented approach to investment.


One reader asked whether it would be possible to review the past performance of such a portfolio - so here goes...

When It Goes Wrong: Huntsworth

A lot of eggs in a lot of baskets
Source

The DIY Income Investor portfolio has recently hit an all-time valuation - that is very reassuring but the portfolo does contain some problem holdings.

Buying high-yield securities directly (as opposed to a high-yield ETF) exposes you to specific security risks. In a sense, that is what the high yield should tell you: buyer beware!

So what should you do when a security goes bad?

A Simple Decision (Portfolio Buy)

The perennial question: what to buy now?

This time - thanks to the new focus of the DIY Income Investor portfolio on building up the ETF (Exchange Traded Fund) holdings - the decision is relatively simple.  

What a Difference a Week Makes (Portfolio Sale)

Source

I've been AWOL and AFK* for a week - cut off from civilisation in deepest Oxfordshire; no news or share-price up-dates.

Firing up the spreadsheet on Monday morning - a little apprehensively - I was very pleased to see that the DIY Income Investor portfolio has hit another all-time high valuation. It could have gone the other way, of course.

With the portfolio increasingly on ETF autopilot, there should be less and less to do. However this week it did seem necessary to sell something - and it was an ETF. Here's why...

9%

Source

Another milestone: the 2014/5 financial year comes to a close. The DIY Income Investor portfolio closes the year (one day to go) with a total return - capital gains plus rolled-up income - of just over 9%.

My view is that this seems a fairly pedestrian performance compared with previous years. Yes, it's better than cash (even the 6%-plus return you can get from Ratesetter) but nothing extraordinary. So, the question is: how good or bad is this result? And could I have done better?

Alea Jacta Est! (Portfolio Buy/Sale)

Source

So said Julius Caesar (reportedly) when he marched his troops across the Rubicon river on to Rome. The die is cast - a decision has been made and it's too late to change.

A couple of times in my life I have taken a fairly large financial gamble. Being naturally cautious, it is usually not a 'bet the farm' type of gamble - but rather one that could gain or lose a substantial amount of money.

So it is today...

The World ETF Income Portfolio

As regular readers will be aware, the DIY Income Investor portfolio is steadily increasing its share of income-producing Exchange Traded Funds (ETFs). ETFs provide ready-made, low-cost and diversified funds but are more targeted than simple market tracker funds - and therefore (in my view) more powerful financial tools.

A reader asked whether it might be possible to identify an ETF-only portfolio. This might be attractive for a new investor or someone who does not want to be too involved in the investment process. This seemed like an interesting challenge; so, here goes...

Know Your Strategy! (Portfolio Buy)

Source

My long-term strategy for the DIY Income Investor portfolio is to develop an investing style that doesn't require much skill or input. The objective is to pass on investment nest eggs that more-or-less manage themselves.

So, 'DIY' taken almost to an extreme - Do Very Little Yourself!

Sell Your Winners! (Portfolio Sale)

Now, what does this button do..?
Source

I've just sold a holding in my DIY Income Investor portfolio and realised a 29% capital gain over less than one year - enough to pay for a family summer holiday. 'Not bad' you might say - but was I 'right' to sell?

The typical advice given to new investors is 'hold your winners and sell your losers'; but presumably that can't be the whole story (or you would never realise your capital gains). I'm afraid that my own approach does not really follow this advice - although it doesn't ignore it completely.

Me, Britain and Dividends (Portfolio Buy)

Following my long-term strategy of 'automating' the DIY Income Investor portfolio I have been buying some more ETF (Exchange Traded Fund) shares.

Housekeeping (Portfolio Sale)

Even the simplest portfolio needs some attention. I have tried to automate the operation of the DIY Income Investor portfolio as much as I can - but the human touch is still needed.

I try to keep up-to-date on a more-or-less monthly cycle (I revise the portfolio totals each month). But with 30-odd different investment securities to keep tabs on, important developments can sometimes pass me by.

And so a bit of remedial action was required...

The Swan Portfolio (Portfolio Sales and Buys)

The DIY Income Investor portfolio continues to recover from the recent market jitters and is currently only about 1% below its all-time peak value. The average yield - as well as I can measure it - is around 6.1%. And the sun is shining (for the time being).

The portfolio is apparently sailing calmly towards its ultimate destination, which is (potentially) a nirvana-like state of automated tax-free cash generation. But, like the proverbial serene swan, the webbed feet are paddling like crazy underneath the water - because I still like a bit of a flutter.

Portfolio Performance Vs The 'White List'

Which is better?
Source

It's not always easy to gauge how well the DIY Income Investor portfolio is doing. Usually I compare my performance against benchmark indices. Occasionally I can find some performance stats from other investors that have similar portfolios - but unfortunately, not too many people have tried my 50/50 shares/bonds income portfolio approach.

The latest comparison I have found seems to be encouraging...

Euro If You Want To! (Portfolio Buy)

You row if you want to!
Source

 

 

After a bit of profit-taking, selling a directly-held holding in a dividend share, it was time to get back to main strategy: ramping up the ETFs (Exchange Traded Funds).

I'm not sure I'm going to get much richer investing in ETFs - but that's not the objective. Most investors who have been reasonably successful - and have accumulated a sizeable nest-egg - are probably more interested in retaining what they have, rather than trying to accumulate a lot more.

It also makes the portfolio easier to manage. The only trouble is that ETFs are a bit boring...

Breaking the Rules (Portfolio Sale)

As an investor (and if you are reading this, you probably are) - no matter what type of investor you are - you should have developed an investing strategy. 

But sometimes you might need to break the rules...

This strategy will include three main parts:

• your basic concept of how the market works (for you particular investment style)
• your investment 'architecture': the mechanics of buying, holding and selling securities, whilst minimising tax exposure
• your 'rules' for buying and selling: because, fundamentally, we are all monkey-brains.

As regular readers will know, my DIY Income Investor basic investment concept is in two parts:

• I want to hold assets that generate income (mainly because I want to be able to hold securities 'for as long as it takes' for them to recover. The income also provides a mechanism for 'refreshing' the portfolio)
• markets over-react to bad news. 

I would therefore describe myself as a specialised income-oriented value investor.

The easiest way to find securities (shares and fixed-income) that the market is worried about is to look at yields: high yields tell you what the market is selling. (Of course this approach excludes a whole section of the stock market that doesn't pay its owners an income - in fact most shares. To cover that part of the market you have to be a fully-fledged value investor.) However, yield can be a dangerous signal: whilst high yield can really be a signal of imminent disaster; it can also be a signpost to super capital gains.

As for my investment 'architecture', I can sum it up as online (i.e. web-based), using tax-shielded investment accounts (ISAs and SIPPs in the UK). Plus keeping it as simple as possible - with the longer-term objective of handing over the portfolio to someone else; hence increasing the proportion of income-producing ETFs, that I hope will make the portfolio easier to manage.

But let's come to the 'rules'. Most readers will be aware that for buying, I look at yield but also at a range of other factors, including cash flow, debt, P/E ratio, business model etc. - much like an ordinary value investor.

For selling I use a ratio - let's call it the DIYII Ratio:

Capital Gain/Loss / Current Annual Income

I aim to sell only in three situations:

• when I have made a capital gain and this ratio reaches 5 (i.e. I have earned capital gains equivalent to 5 years-worth of current income (based on fixed-income coupon or actual/forecast dividends). This rule helps me try not to sell too soon.
• when I have made a capital loss and this ratio reaches -10. I really don't like selling a loser, because my experience is that most losers eventually recover. But not always, so sometimes I need to clear out a poorly chosen purchase.
• when there is some dramatic news that means that the security is no longer worth holding.

Most of the time, the portfolio ticks along nicely - throwing off cash for reinvestment.

But, as you have probably gathered, I am bored at the moment. I have been watching my largest single holding,  City of London Investment Group (CLIG) rising and falling - and showing, by far, the largest capital gain in the portfolio. I first bought this in 2013 and that tranche (the potential 'hand grenade' I called it) was showing capital gains of over 40%.

To many investors, that might seem like a fairly modest gain - but I can assure that in my particular corner of the stock market I very rarely achieve that. However, what was problematic (with reference to my 'sell' rule) was that the DIYII Ratio had not yet reached that target of 5 - mainly because the yield remains stubbornly high.

But, I'm afraid I made an executive decision and broke the rule, realising a 42% capital gain since August 2013 - on top of the 7-8% dividend yield. I still have a lot of CLIG left but feel some relief that I am not so exposed to a potential sudden downturn.

Having just had a mad fling at an AIM share, I must revert to the main strategy and invest the proceeds in a diversified income-producing ETF.

[Sale price: £3.3025]

I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.

AIMing to Please (Portfolio Buy)

Source

I am generally sitting on the market sidelines at the moment, watching cash trickle in. As I had a bit of loose change available in one of my ISA accounts, I decided, in a moment of boredom, to have a little flutter on AIM (the London-based Alternative Investment Market for smaller companies).

I don't usually bother with small companies, as they can be flaky and unpredictable. Also AIM shares have not been eligible for ISA investors until recently. I look on this purchase as a 'bit of fun' to relieve the boredom of owning an increasing proportion of income-producing ETFs.

AFK! Ninja Turtle?

Now it's the Greek election!

It seems like every week there is a new political or economic news item that rocks the stock market. Since the New Year the DIY Income Investor portfolio has wilted a bit and then started to recover. But the markets keep being hit by uncertainty and bad news: oil price, copper price, Ukraine, Charlie Hebdo, Eurozone QE, Ukraine, Russia, etc.

My reaction in the face of all this termoil is to do nothing - or rather do something else: hence I've crawled back into my investing 'income shell' and have been Away From Keyboard.

Look East, Young Man! (Portfolio Buy)

Following my recent review of income-oriented ETFs, it seems only fitting that I should buy one.

With such a wide choice, how do I decide what to buy? It turns out that it was quite straightforward...

Review of London's High-Yield ETFs

I'm always on the hunt for interesting Exchange Traded Funds (ETFs). Not just any, of course, but specifically high-yield (either based on dividends or debt/fixed-income) and preferably those leading to a geographically diversified portfolio. For a DIY Income Investor, the right choice of ETFs can be a big help. They can provide cost-effective diversification (and thus a measure of safety), simplify the running of your portfolio plus give easy access to dividend shares from around the world, in various currencies.
So here is an updated list...

2014 - A Tough Year!

Source

The quiet closing days of 2014 offer the chance, again, to take stock of how the DIY Income Investor portfolio has performed over the year - and to assess whether any change of direction is needed.

The numbers are now in (more or less) and overall, during 2014, I have managed to produce an increase in total portfolio value (i.e. total return, as all income is reinvested) of around 11.4%.

This doesn't feel particularly outstanding compared to the results in the past couple of years - but then again, how has everyone else done?