You have to laugh. At least, as an investor, you have to. A full year of Brexit and Trump which, in the minds of many economists and intelligentsia, should have trashed the Western economy, and what do the markets do? They thrive like never before. We have the UK FTSE 250 up by 14% and the US by 20%. I wonder what would have happened if we’d voted for Hillary and Remain?
Still, the dogs will have their day at some point, and it’s all bound to come tumbling down in a market “correction”. Reading the papers this week, most City commentators – no doubt sipping their second Bolly of the morning – don’t see this as happening in 2018. All systems are go, the world is looking good, Big Tech has more growth in there yet and China, well, who really cares? They weren’t great in 2017 and look what we did!
All this makes me scratch my head in frustration. I like to think that at least I know that I know nothing when it comes to investing, so I’ll stick to my largely passive, Index based strategy. But which Index? Should I stay in the UK? (I’m actually out of the US, because I sold up in anticipation of Trumpian havoc, underlining the fact that I know nothing.) Should I rebalance into Emerging Markets? China? The Pacific Rim? Latin America? Am I too late for Japan?
At the moment, I’m spread across many of these markets, but not in a big way. These days, almost the majority of my investments sit in dividend paying international funds such as the Fidelity Global Dividend and the L&G International Index. My intention is to stick with them and not tinker around, but is that a wise move?
One of the things that surprised me when I reviewed my allocations was that 15% of my portfolio is in an Investec Global Gold fund, which I started back in mid 2015. I must have been twitchy as an investor at that time too, hedging my shares against the lure of the precious metal. Let’s face it though, as an investor I’m ALWAYS twitchy, always thinking that every silver lining has a cloud. At the end of a year where my investing and pension portfolios are both returning more than 15% growth, my overall thought seems to be “We’re doomed!” The party has to end at some point and how should I best guard against a crushing hangover?
Another irritation from the year is the investing equivalent of penis envy. Is my growth as big as the next bloke’s? Of the financial commentators I do read, I like the straightforward and easy to understand style of Ian Cowie in The Sunday Times. He has a portfolio of single shares that he calls his “Forever Fund” and, seemingly, it’s up 24% this year. That knocks my performance – restricted by conservative pitches into gold and bloody bonds – into a cocked hat. While I know I’m not comparing apples with apples, it doesn’t seem to help. He’s done better than me and, if my portfolio had grown by 24% I’d have made…..oh, I can’t even bare to calculate it.
So, as I say, in the face of this imminent financial catastrophe that, in my head, is coming, I have to laugh. Sometimes I feel I should be a lot more irrational, convert everything into cash and stuff it under a digital mattress. Unfortunately the suspicion that one day I will be uncovered as Unlucky Alf would then mean that inflation would take off to 10% and I’d be ruined that way. There doesn’t seem to be much alternative than to keep reading the tea leaves as best I can, taking an interest in the financial pages (and blogs of course) and tell myself that, whatever happens, “I’m in it for the long term”. I know, “in the long term” that we’re all dead, but I think I’m happy with that because, coincidentally, that will be the day it seems I will stop worrying about my financial performance.
sex health money death 
The lesson I took from the Ian Cowie article was that (I think) he freely admitted that his impressive investment return was roughly equivalent to the performance of a global index of shares. It would have been very refreshing if he’d have said “you can get about the same return I did with much less work by just buying a global index tracker”.
Who knows by this time next year your investments in gold and bonds may look very sensible.
Love your blog by the way.
LikeLike
Thanks Jimbo, I thought exactly the same thing! Still, stock pickers love to pick stocks, so let them get on with it…
LikeLike
@UA Hear hear old chap.
I have been pretty chuffed with my performance this year. It’s around 13%. But like you, Ian Cowie has drawn my attention to the fun the overseas types are having (22-24%) and then he stirs the pot by revealing that he himself has managed, in the privacy of his own home, an even better performance. Good for them all.
I’m left muttering that it’s not size that matters, it’s how Sharpe it is.
Whatevs. And well done.
LikeLike
Cheers FvL, I like to continually remind myself that prior to turning 30, ALL my investments would have sat in a savings account. Twenty odd years later, l’m also rather chuffed that I’ve progressed from that point.
LikeLiked by 1 person
Hey UA
Sounds like you have some investing demons to conquer in 2018?
Not knowing your 15% in gold? That’s a little crazy right?
Great FS clip.. on the subject of 90s comedy, I’ve been enjoying the return to Royston Vasey as well.
LikeLiked by 1 person
Ehrm, yes, bit of an oversight on the gold allocation, although in my defence I’m not taking into account my pension in that calculation (the pension are where the bonds come in too.) My son used to have kittens over Papa Lazarou….they don’t make ’em like that any more, do they?
LikeLike
Check out portfoliocharts.com for a perspective on Gold. For me I diversified my overallocation in Emerging Markets into a Hedged Gold Fund in 2017. And my allocation is 15% of my SIPPs and ISA’s.
LikeLike
Can’t help but feel this is the calm before the storm. I’m sat with a mix of trackers and some physical gold with a hesitant penchant to just adopt the Permanent Portfolio and forget it; but when you read about the gains people have made with 80% or even 100% equities it’s hard not to feel a little bit envious. Unfortunately, I don’t think I could stomach a 50% drop or whatever it turns out to be, so I think I’ll make do with lower returns and a decent night’s sleep.
LikeLike
Hi NMT, I used to be 100% equities and still feel I kind of wimped out with gold and bonds. These days I worry slightly less, but envy slightly more….
LikeLike
Remember that a lot of that gain is because your money is 20% smaller than it used to be…
LikeLike
Yeah, but soon I will have a blue passport.
LikeLiked by 2 people
Is your aim to maximise return or minimise loss? How much of a loss can you handle? Etc. Once you have a grip on these basic investing questions, and have set your asset allocation accordingly (which I reckon you must have; you’ve been around the block!) then it should just be a case of just riding out whatever the market throws at you. Don’t sweat it.
LikeLike
Hi Scott, I remember reading somewhere that the first rule of investing is “Know Yourself”. And, once you’ve worked that out, you can tackle the easier questions like “What is the Meaning of Life?” 🙂
LikeLike
Don’t look at losses from the peak, but from when you put the money in, as that’s your real return. Better to have 120% of what you need in equity and ride the tiger, than 100% in cash and watch it slip to 95%
Remember the selection effect, people only trumpet their successes, no-one waves a small willy
LikeLike
Happy new year, Jim/Unlucky Alf!
I’d like to believe that my portfolio is sufficiently diversified but I’m over 85% in equities and it’s all yet to be tested by a big market correction. I hope I shall keep calm and carry on investing….
LikeLike
As Scott said, its down to your own personal risk profile.
I could have made a better % return over the year but I am not 100% equity, so happy to take that balance between risk and reward.
The main this is where will 2018 go and will my ‘FI fund’ equity balance ride out the potential market storms, only time will tell.
LikeLike
When it comes to tracking performance I’m trying to take the approach of, well as long as it’s beating inflation, then I’m winning, I’m not particularly fussed about what the other guy is doing. I realise this is easier said than done but it is a mind set I’m trying to adopt. So long as you’re happy with your lot, then why do you need to think about what could have been?
Great blog by the way!
LikeLike
Cheers Scott, thanks for the positive feedback. Managing aspirations and expectations is pretty key in the long run. I quietly hope to return somewhere around five or six percent, providing inflation stays around two or three.
LikeLike