It’s all red on the screen again. Now one jittery near-death experience could be called careless, but two is a conspiracy. This ship is going down 🙂 There are only two stocks in my ISA which are in the black, MRCH because I bought it damn cheap last year and it’s still got about 7% to fall before it’s below the waterline, and TSCO who are about to fall into negative territory for me.
I still have some space in my ISA, but would have to break into a savings account to load it up. And since I’ve already bought last week (most of which has bombed slightly) I might as well wait until I get paid before hitting the market again, as I want to spread myself out to after October with purchases.
However, what I do want to do this time is attend to the diversification/asset allocation
I’m heavy in finacials and pharma, which isn’t surprising as I have gone for the two representative companies from each of those sectors which is my target – with the other sectors I’ve either only got one company or nothing at all.
I could do with upscaling utilities. An oil company or two wouldn’t go amiss, I will start with RDSB but not just yet. Something like ULVR would be nice, but they’re too dear at the mo and the yield isn’t up to much either. Utilities such as the HY favourites SSE could join NG. The contents of the two ITs give me some exposure to the sectors I’m missing, and fortunately both are weak in financials.
Something else that is puzzling is what the hell has happened to emerging markets? I used to have a Brazilian ETF but sold it a while ago, it’s now down 16% on what I sold it for. L&G Global emerging markets fund which I’m buying in small bits over the months is down 13% since last month. Emerging markets are meant to the the new dawn, a bulwark against the torrent of bad debt swilling out of the burned-out West. At the moment these guys are drowning even faster that the rest of my ISA, which tends to be heavy on FTSE100 firms.
So here’s to the bloodbath continuing, at least till I have some more money to lob into the great sucking force swilling around the plughole. It is always hard. at times like that to remember that the sturm und drang does eventually quieten down. Those emerging markets boys had better get their act together though, I think it’s going to be a long hard slog for the West to crawl out from the wreckage…
April 6 is the new financial year in the UK for some curious reason, as it seems the fiscal year ends on the more rational March 31. I’ve maxed my ISA for now, so the change of year means I get to have another bash at building tax-free assets that won’t be counted as income in future. It’s also a chance to have a general reshuffle. Every so often I have to get to lift the drains up and hose out the accumulated fat and grease of the finances to see if it accords with my values and beliefs. That’s not the same as getting the right answer, because my crystal ball is as cloudy as anyone else’s. but at least it will be my own mistakes 😉
I don’t bugger about with formal rebalancing of my ISA, because I’m just not that kind of guy, and also because I am still in full ISA purchase mode what I do this year could shift my asset allocation by about 40%. So I rebalance by going to buy what I don’t already have a lot of. Which probably means mining, pharma, some REITs and some financials, but I have to research this.
What I need is a jolly good stock market crash this year, so I can buy cheaper. There are distant sounds of thunder – some of the eurozone rumblings and of course all that oil war adventure is probably good for some of this. Some part of me suspects that this distant sound of thunder is the beginning of the end, as Peak Oil starts to overcome industrial civilisation as we have currently set it up. Although I wasn’t economically active in 1973 I was sentient, and we’ve been here before, so I may get my jolly good stock market crash this year, possibly on the popular revolution in Saudi Arabia. The challenge, of course, will be whether it (the stock market, rather than Saudi…) gets up off its knees afterwards as it did then. An awful lot of companies’ business cases would look a lot different with oil at $250 a barrel, and not many of them would look better.
I wasn’t used to how National Savings Index linked certificates worked last year. In particular I didn’t realise that these were desert blooms, only available for a short time after the Spring rains. My plan was to buy £500 of these each month to give me a steady index-linked income boost in three year’s time (now two years). That doesn’t fit with the seasonal availability, so I only got £2000 into that before they were summarily canned. Which sort of put the kibosh on that bright idea 😦
However, NS&I may still serve me well. I have an emergency fund of about £7500 in a two year’s back to back Nat West Cash ISA, which, all credit to them, has actually continued to provide a3%-ish interest rate. Now on reflection, there is a lot to be said for shifting this to NS&I certificates, because you can
get the money out at short notice, although at an interest penalty
but it’s a little bit of bother, so you have to think about it
and thr RPI indexing means an emergency fund of £10k today will be able to fix the same amount of emergency in five years hence
oh yes, and did I say it’s tax-free, so what the heck is the point of sterilising some of my ISA allowance looking after cash?
Which beats the cash ISA option, which dies a little bit by about 2% a year. There’s also an opportunity here – I believe I can transfer the Cash ISA into my shares ISA ands still load up with this year’s ISA allowance, ie I could get £17700 into my shares ISA earning an income for me rather than £10200 into it this year. Of course the downside of that is I have to save the £7500 to go into NS&I in the next month, plus save up £10200 over this next year plus increase my pre-tax savings in AVCs to keep that greedy tyke Osborne out of my pay packet.
That’s a very serious big ask and I may not make it, though my outgoings and non-financial investment costs have dropped. But it’s a potential opportunity.
As to the asset allocation, for myISA I have shifted it to this
which, compared with December has changed to more accurately reflect my views on what an ISA should do for me. Which is buy me an income that isn’t considered an income for tax purposes. I’ve dropped all holdings of precious metals in my ISA because I have come to the conclusion that an ISA is not the place for precious metals. This isn’t because I have decided holding precious metals isn’t for me, I simply need to get my policy on that right, so at the moment I am exposed to currency debasement big time, apart from my non-financial investments.
Overall my total share allocation including pension AVCs and stuff outside my ISA is more balanced. The obvious holes as mining stocks, AsiaPac and the US, all of which confuse me.
The US is home to an enterepreneurial bunch of go-getting people who aren’t known for taking no as an answer, and I am sure this will work to their advantage in future. However, they have some deep systemic problems arising from being a reserve currency, which has permitted some extreme excesses which are denied everyone else. I’d prefer not to be caught in the crossfire of unwinding those debts. The US is also hellishly exposed to Peak Oil, in a way which is so much more extreme than anywhere else.I can imagine a Europe without liquid transport fuels. I struggle to imagine a US without gasoline, with perhaps the exception of New York and some of the East Coast. And the low taxation of oil makes the US economy far more sensitive to increasing crude oil costs.
I am sure Americans may be resourceful enough to sort it, but they really do have to get off their butts and engage, simply repeating that “the American Way of Life is Not Negotiable” is not what I would consider a rational response. I am not sure that the military option is such a great answer either. There seems to be some doubt about whether it increased oil production in Iraq some say yes, but it is not a universally held view. So at the moment I don’t do America, other than as part of my FTSE100 holdings.
Mining, yes, shame that is riding high at the moment 😦 A missed opportunity from last year.
AsiaPac – with the current state of the pound that all looks jolly expensive. I don’t do China, because I don’t understand it, and the demographics suck. I could combine mining with an Aussie tracker ETF, since mining seems to be a lot of what Australia is about.
I am tempted by India, which has strong demographics and a go-getting entrepreneurial class, though some very serious strategic problems. It is hard to gauge performance where the currency has such a shocking inflation rate of around 10%. db-xtrackers do a GPB denominated ETF but this is a synthetic tracker using derivatives and swaps, which introduces a lot of hidden extra counterparty risks.
Fortunately there’s no great hurry, apart from targeting that NS&I investment in April, and I have a war chest saved which can sort that for me, I will hit NS&I up to aim to hold a total RPI-indexed emergency fund of about 10k, so I can think about how to tackle the ISA over time.
They’re all good, I assume, but as soon as you’ve chosen one of the nine you are no longer a passive investor. You are projecting your own hopes and fears for the future upon the empty screen of your ISA; you are choosing and making an opinion. Okay, it’s better than following share tips in the Torygraph – you at least choose a consistent direction for your course, rather than selecting a new direction every day. But you have chosen a direction.
I’m opinionated enough to be prepared to declare my asset allocation is a function of my hopes, fears and expectations, my imperfect comprehension of the economy as a whole, of how I view my imperfect state of knowledge, and what I consider the downside risks to be.
This only shows my ISA asset allocation – I hold more than my ISA in pension AVCs but I don’t have the sophistication to be able to factor them in. So how does my asset allocation reflect my views?
Well, I am distrustful of the UK government, which I believe will debase the currency, shafting savers and hastening in serious amounts of inflation. So the gold and silver holdings (these are ETFs) should be no great surprise. They let me think about things without having to worry about the likes of Mervyn King silently stealing the shirt from my back devaluing the £. Devaluation was bad when I first came across it as a child when Harold Wilson did it in 1967 and no things aren’t different now, it’s still bad. I hadn’t intended to be so overweight in gold and silver, but they both appreciated seriously over the period I’ve been holding them. Or should I say the £ has gone down the toilet while they stayed the same?
The fixed interest and the dividend targeted holdings (investment trusts focusing largely on UK FTSE 100/250 constituents) are a logical consequence of my need for income in the space between two years from now and five years from now, after which the income will compensate me for drawing my pension early.
The emerging markets (=IBZL in my case) is part of the zeitgeist and my expectation that countries with a young workforce and oil reserves will have a better future than the bombed-out and indebted West. Next year I will add to that. I don’t do China – I don’t understand it and don’t trust it, but I will do India, a bit of Australia for their natural resources, possibly Canada for resources, and more of the same UK based IT wise.
I’ll probably give gold and silver a rest unless the Euro or the $ go belly-up, the former for daft attempts to synchronise Greek wastrels with doughty Germans without a Central Bank of Europe and a Central Tax Office of Europe, the latter for the mind-blowing whirlwind that will follow the loss of reserve currency status if the Chinese and the oil producers get their way. I don’t actually want such a high weighting on that, so I will dilute it by focusing on other classes with next year’s ISA allowance.
What’s wrong with my asset allocation, well, no exposure to other emerging markets. In an ISA you can only do so much in a year otherwise you end up with a zillion fragmented holdings, so I will take some of that on next year. No bonds – I don’t understand bonds, I don’t like them, and my pension to be provides much of the function bonds would in a retirement portfolio so I can afford to indulge my prejudices and ignore this asset class. I may consider commercial property via REITs though it’s another asset class that I don’t understand so I may go with Warren Buffett on that one too – don’t invest in what you don’t understand…
Considering my overall net worth (updated 23 Dec because I got the original chart wrong re gold)
the picture is more balanced, though it is overweighted in cash for someone who spends time moaning about profligate government inflation stoking. Howeer, most of it is in a cash ISA and some of the rest is in NS&I index-linked certificates. Some of this is simply the standard personal finance emergency fund at work, but I target much more than the three months running costs standard recommendation. I will run, not walk, to the dooors of NS&I if they offer more RPI linked savings certificates in future.
This doesn’t reflect the value of my house or the nominal value of any of my non-financial investments, because then ‘other’ would eat up most of the clock and compress the categories into a wedge and make it hard to read.
So there it is – an unashamedly opinionated and un-passive investment asset allocation. In the end money is only crystallised power, and I can’t relate to an investment approach that tries to be unemotional, it doesn’t work for me. If I want to project force, then I must couple my values and beliefs to it. That doesn’t mean I have to chop and change on a daily basis – though my views to the future change over time, they don’t swing that dramatically day to day.
Obviously I must accept the imperfect nature of knowledge, and my own awareness and limited skill. It is why I invest in the stock market even though I believe there will be crash mk2 in the years to come, which could wipe me out totally in financial terms. That is why I invest as if the glass is half full, and at the same time as if it is half empty. It’s not just asset classes where you need diversity – it is also in world-views.
Although passive investing doesn’t sing to me, there is one behaviour that goes along with that which I have adopted. It is the Warren Buffett doctrine – buy and then hold. You have to screen for a reasonable price if you do that – the old drip-feeding idea also doesn’t really cut it for me. I want to buy cheap, and then hold, which means I have to sit and simply accumulate cash if I can’t find a suitable opportunity. However, the stock market of the last few years happens to suit my buying phase, particularly where I am chasing income.