Portfolio



As a way of documenting the DIY Income Investor approach I am posting information about my portfolio of savings and investments. I will be giving details of any new investment decisions plus updates on performance so that you can see how the strategy works out over time.

These are real holdings and purchases/sales - this is not a 'fantasy' portfolio.

My overall financial strategy is based on holding three main groups of assets:
  • property: only our family house - buy-to-let seems like a lot of work/risk to me...
  • pension funds: company employee pensions of different types plus Self-Invested PersonalPensions (SIPPs) for family members
  • financial assets: cash, shares and fixed-income investments

Although this blog concentrates on the management of financial assets, the other two (property and pensions) are clearly as important.

My financial assets are composed of four main types, in broadly equal proportions:
  • cash, including current accounts and peer-to-peer lending (there are no longer any attractive 'bonds' or savings accounts from High Street banks)
  • directly-held high-yield dividend shares
  • directly-held fixed-income securities of different types
  • Exchange Traded Funds specialising in dividend shares or fixed-income securities around the world 

All my investment purchases are on the London Stock Exchange, using Self-Select Stocks & Shares ISAs and SIPPs. I use two different ISA providers: iDealing.com and TD Direct. My Sipps are with YouInvest (formerly Sippdeal).

Savings accounts are set up in the most tax-effective way, by sharing assets with my spouse to make the most of our tax allowances.

Be aware that this is a 'mature' portfolio - it is not suitable for a beginner, who will need to work their way up the levels of the Income Pyramid.

Level 1: the solid (frugal) foundation

No debt or mortgage (and I'm continually looking for ways to reduce our family's expenditure)

Level 2: 'Easy Access' bank accounts 

Note that these accounts come and go - these are not necessarily the current 'best buys'
  • Lloyds TSB Club Account,  a current (checking) account that pays tiered rates of interest up to 3% (on sums between £3,000 and £5,000 - don't keep any more money in there, as you will then receive a negligible rate of interest for the balance above £5,000); the main condition of the account is that you need to pay in at least £1,500 per month and have two direct debits


  • RateSetter: rates are available for short-term, 1-year and 5-year lending. Interest, capital repayments (and occasional early repayments) mean that there is potentially a regular income stream (or opportunities to re-lend at current rates).
Level 4: Collective Investments (e.g. Exchange Traded Funds, REITs, VCTs etc.)

Level 5: UK Government bonds (gilts)
  • No current holdings (given the current low yields)

Level 6: high-yield dividend shares (all quoted on the London Stock Exchange)



Some dividend shares in my portfolio have yields or track record that I am not happy with and are on my 'potential sell' list (i.e. 'if and when' the price recovers!):
  • Countrywide (CWD)
  • Interserve (IRV) 
  • Carillion (CLLN)

Level 7: corporate debt/bonds/prefs/PIBS

Here I give the current income yield:

Again, one of the holdings is 'mis-behaving':
  • Manchested Building Society 8% PIBS (MBSR): yield potentially nil (following financial difficulties)

Portfolio Returns

Overall current (Jan. 2018) stock market portfolio income yield is 5.6%.

The portfolio had the following quite variable performance, in 'total returns' (i.e. capital and income), making allowance for new cash invested:
  • FY 2007/08: -10% (ouch!)
  • CY 2008:      -36% (panic...)
  • FY 2008/09: -23.3% (double ouch!) 
  • CY 2009:       35.9% (oh yeah!)
  • FY 2009/10:  57.2% (phew!!)
  • CY 2010:         3.3%
  • FY 2010/11:    5.7% (?!)
  • CY 2011:        -2.5%
  • FY 2011/12:    5.9% (?!)
  • CY 2012:       33% (wow!)
  • FY 2012/13:  29%
  • CY 2013:       20.4%
  • FY 2013/14:  19.5%
  • CY 2014:       11.4%
  • FY 2014/15:    8.7%
  • CY 2015:       -3.3% (!)
  • FY 2015/16:   2.7% (?) 
  • CY 2016:       30.4% (hooray!)
  • FY 2016/17    25.5%
  • CY 2017          5.8% (hmm...)

Look at the possible benchmarks.

Portfolio Strategy

The 2007/8/9 stock market downturn hit dividend shares particularly hard. However, I held on and most of the portfolio I then owned has recovered.

To reduce volatility. I subsequently redeployed capital to fixed-income securities, which was timely, as this asset class boomed as a result of QE. I have taken profits in many of these but topped up with other high-yield fixed-income to maintain a broadly 50%/50% balance.

I have also built up the ETF portion of the portfolio to diversify geographically and currency-wise, using ETFs that target both dividend shares and fixed-income worldwide:
  • ETFs currently make up nearly half of the portfolio, spread fairly equally between high-yield dividend shares and fixed-income. 
  • Directly-held dividend shares account for around two-fifths of the portfolio 
  • Directly-held fixed-interest securities add up to around one-eighth 
  • The rest is cash in investing accounts (typically accounting for less than 5% - there's usually something interesting to invest in!).

Most cash savings are held separately and are currently yielding over 5% overall.

All securities held are quoted on the LSE, which is quite international in nature; at least one-third of the portfolio is specifically diversified outside the UK.

I plan to continue to move available cash savings to tax-free investments annually by taking advantage of the UK ISA and SIPP limits for my spouse, myself and kids.


Risk

There are three main types of risks to be aware of:
  • inflation
  • interest rates
  • market or specific security risk

Inflation risk is most relevant to fixed-income savings and securities: inflation can eat away the value of both your income and your capital. What is more, inflation expectations can significantly affect asset prices.

A change in base interest rates can affect the price of both fixed-income securities and dividend shares, particularly those of regulated utilities (which have some of the flavour of fixed-income).

On 'market' or 'specific security' risk the market will help you if you are a DIY Income Investor (it is more difficult if you are a 'value' investor) - be aware: the riskiest investments are usually those with the highest yields.

To manage risk I diversify my investments, aiming to hold no more than 5% of the portfolio in any single security (e.g. using ETFs) and diversifying market sectors (for dividend shares) and geographical areas.


Sold!

For a 'buy and hold' investor, the following list looks much to long! However, I don't think there is much wrong with taking advantage of short-term price rises. And sometimes, you just need to sell - for example, when the future prospects don't look good.



Not Bought

Here are some investments possibilities that I have looked at in the past - but not bought, or I have subsequently sold them: they are all quoted on the London Stock Exchange:




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.





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