2014 turned out to be very disappointing for my Stockmarket Investments - luckily I did well on some other Assets so I am not too upset - it just highlights the importance of Diversification. After such a stunning 2013, I entered 2014 feeling like I could do no wrong and the cash would come flowing in. This certainly was the case up until the end of March, and then all my gains evaporated (I was up 8% at that point on the year) and they never really recovered.
I will cover the performance of all my Portfolios (for details on them, please go to the ‘Trades / Portfolios’ tab of my Website) and a consolidated view. I will address what I did badly and where improvements can be made in a future Blog which should appear within the week.
This is where the bulk of my Stocks sit - it is really the ‘growth’ engine (or should be) and for that reason, it is the most important. Other Portfolios are more for Diversification and practical Income purposes.
This Portfolio was almost exactly flat on the year. Unbelievable that after 12 months of messing about, my most important Portfolio was just £114 down on where it started - and as a Percentage it barely even registers. Feels a bit like World War 1, where the First and Last unfortunate UK soldiers to die were within 100 yards or something after 4 years of horror……..ok, maybe that is rather dramatic !!
I must also point out that I have a tiny little ‘portfolio’ in a TDDirect Account which does not have much money in it and only about 8 stocks. Anyway, really that Account should be classified along with my Main ISA Trading Account - and this funny little rump added 15% - I think it was helped a lot by EZJ doing well.
Overseas Unit Trusts
These did pretty well - up 9% on the Year. This was a big help for my Overall Result - masked a huge underperformance in my Spreadbet Account which I will cover in a mo. I was unusually active here though - I sold out of Japan entirely in about May time ish I think, and I halved my Threadneedle US Smaller Companies Unit Trust early in 2014 after such an amazing performance in 2013. I also have lots of US exposure through the Health Fund and the Technology stuff.
This performance clearly demonstrates the value of a Geographically Diverse Portfolio - it really did its job and saved my bacon !!
I don’t anticipate any changes to this Portfolio for 2015 - although I have been toying with consolidating the Tech Funds into just the one - i.e. Sell the ‘Henderson Global Growth’ one and put the money into the cleaner ‘Henderson Technology Fund.’ Probably too much hassle !!
This was my real problem in 2014 - it had a big impact on my Overall Returns - probably as much as a 3% drag. On the Starting Capital for the Year, I finished down 19% - but remember this is a Geared Portfolio - so the Result on the actual Exposure that the Spreadbet Portfolio represents was down about 6%.
It is not obvious to me why this occurred. The way I tend to ‘do’ Spreadbets is that I create a ‘mirror’ Portfolio using Gearing that is very similar to my Main Trading ISA - but there are some differences. I intend to cover this ‘mirroring’ approach in a future Blog - I have half written it.
Of the 6% drop, about 1% was down to the disastrous (but lucky escape) experience I had with a FTSE100 Short back in October - if you click on the ‘Trades’ Category in on my Blog page, you will find a couple of Blogs about this fiasco.
I hold a couple of stocks as Spreadbets that I do not hold as normal Shares - STAN is one that comes to mind. This stock has been a pig and that probably hit the returns a bit.
Due to Interest Charges (igIndex charge something like LIBOR plus 2% a year) a ‘mirrored’ Spreadbet Portfolio will always under perform a Portfolio of normal Stocks - but not by a huge amount. Anyway, this might have explained another couple of percentage points of the underperformance. The underlying logic is that Dividends received on the Stocks cover the Interest Charges.
I try to ‘finesse’ my timing on Spreadbets - often I buy the Normal Shares first in my Main Trading ISA and then I buy a Spreadbet in the same Stock if it starts to move up. This might mean that I am getting in better on my Normal Shares - although that does not necessarily follow. I have thought a lot about being more ‘mechanical and robotic’ and just buying a Spreadbet position at exactly the same time as buying a Share position - it might be a superior Approach.
I am a bit frustrated by how to measure this. In fact, it is far too much like hard work to do it properly - and, as geeky as I am, I really cannot be arsed to do it.
The problem is that I have been dripping chunks of cash in all through the year - so a true and sensible Percentage Return is very hard to calculate - I am sure all readers appreciate this problem from their own frustrating experiences !!
Anyway, all I can say is that in the 2 years that my Income Portfolio has been running, it has returned 6% on the Money that has been put in. However, this sounds like a paltry figure but again it is down to the fact that I have been dripping Cash in over the years. I have put my Maximum ISA Allowance in for both years - so the Cash invested totals £26520.
If you have read about my Income Portfolio on my ‘Trades / Portfolios‘ page, you will understand that the reason I started my Income Portfolio back in early 2013 was to create a ‘Revenue Stream’ that comes from Dividends. What I have found in recent years is that sometimes I feel pressured to sell Stocks because I need Cash for Eating and Beer purposes. The beauty of a Dividend Stream is that I do not need to sell Stocks - the cash just flows in regularly throughout the year.
My intention is to grow the Portfolio by some Capital Gains, Reinvested Dividends for the next 10 years or so, and by putting in my Full ISA allowance each year if I can. This should mean that when I am really old, I will have a huge part of my Living Expenses covered by this Dividend Stream - I hope it works out !! The really mental thing is that despite my Advanced Years, I still have another 18 years to go to qualify for my State Pension !!
Anyway, just for completeness, the Dividends received this year amounted to £723. On the current value of the Portfolio at £28194, this is 2.6% but remember this is not really representative as much of the cash was only recently put in to the Portfolio. My hope is that I can get around 4.5% after tax deductions (that very irritating 10% Gordon Brown tax…grrrr).
Overall Stockmarket Stuff
When you combine all the above Portfolios together, the end result was a 1% gain - pretty flipping paltry !!
The FTSE100 and FTSE All-Share were pretty much flat on the year in Total Return terms (including Dividends) so I just about matched the Markets. I might as well have bought a Tracker Fund and dossed about all year !!
Prudential With Profits Bond
I must just mention this Unsung Hero of my Overall Portfolio (I have not included this in my Stockmarket stuff above), this returned 7% on the Year which is superb and unexpected. I always think it will do 3% to 4% so this is really welcome. I have about 10% off all my Wealth in it, so it had quite a nice impact.
It’s a funny old beast. These are the things that get linked to Endowment Policies and they therefore have a bad name. However, mine is a standalone thing that I have had for about 15 years and it is pretty steady and solid. It came under some slight pressure during the Credit Crunch but it was nothing compared to what other Asset Classes suffered. I have been very pleased with this and it has some Tax Advantages.
Only caveat here is that the 7% growth figure is calculated from the Last Paper Statement I received which was back in April - so it really represents gains from 2013 to a large extent. I am sure if I contacted Prudential they would give me the current figure - but not worth the bother. I always record it this way every year, so it is consistent and understates the true Value now. Ah, good old Conservative Accounting…….
After taking out my Living Expenses for the Year, my Overall Wealth grew by about 11% - not helped much by the Stockmarket stuff (which is supposed to be the Growth Engine !!). The reason for this lovely growth is really an Accounting Anomaly - I sold some stakes in some Houses and I had only been Accounting for these at Cost - so I got a nice one-off boost.
It’s a bit false (feels like I have been selling the Family Silver), but this does show how important it is to have Diversification across Asset Classes - if all my money had been in Stocks, I would be quite unhappy now. As it is, I am pretty relaxed and I have some other Revenue Streams which cover a nice chunk of my Living Expenses so it has been an OK year for me. The big problem I have now is that I do not have any Property Exposure really, I need to make sure I hold plenty of Cash to prevent Stocks becoming too dominant in my overall balance.
I am very surprised to see that I spent 1% less cash on Eating and Beer this year than I did last year. I was expecting Food Inflation to hit me this year and my Rent went up quite a bit, but I guess savings on other things offset these effects. One such reduction was on Car Insurance which dropped by quite a bit and it is big chunk of my Yearly Expenditure.
In total, I spent £18378 this year on Living Expenses. Of this, my Rent was £6432, so, for comparison purposes, my Living Costs excluding Rent were £11946. I live fairly frugally but I could spend less if I wanted to - for instance, I could get rid of one car and that would save me about £1000 I expect. However, I struggle to see how anyone could exist on anything less than £10,000 (excluding Rent and / or Mortgage). I don’t take expensive Holidays or anything like that.
As mentioned above, I will try to address what I can do differently to improve my performance in a separate Blog in coming days.
Happy New Year to all !!