Our investment landscape
When I read other financial blogs one of the things that I find interesting is how that person has invested their money and where, therefore I thought it might be helpful if I do the same so listed below are the “hills and valleys” of our investment landscape.
Over the years I have tried quite a few investing styles and early on I was purely after high growth, however, more recently I have scaled back on this and now have a more balanced approach. Throughout a large part of our investment journey, “Trackers” have played an important role in our investment strategy. Outside of our pensions, all of our shares, funds etc. are invested within mine and my wife’s ISA wrappers.
Our total ISA allocation is broken down as follows
Trackers are the centrepiece of our ISA investment portfolio. These are a diversified range of trackers covering the global markets. They are mainly from L&G, Vanguard and Blackrock due to their low charges. Since Vanguard Lifestrategy came onto the scene a few years ago any new money that we allocate to the Tracker funds goes into the Lifestrategy 80:20.
I had been investing in dividend paying stocks for quite some time, however, I saw the dividends as a nice bonus and it was the growth that I was interested in. It is only really in the past few years that I became interested in dividend growth stocks for the income they produce. I hold quite a few of the dividend stalwarts such as Imperial Brand, National Grid, BHP & Vodafone as well as others such as Brown N Group, Paypoint, Restaurant Group & XP Power.
This strategy consists of 8 tracker funds spread across all the key geographic asset classes plus bonds, commodities and gold. Each month I sell the previous months allocation and buy the new top 4. The allocation is not equal weight but determined by covariance (measure of the strength of the correlation between two or more sets of random variates). I have been using this strategy for 4 years and it performs very well. In a bull market (rising) it tends to fall behind the main indexes, however, where it really comes into play is in a bear (falling) market or periods of correction. At these times it gets you heavily into bonds and gold which usually cushion the falls.
I started this strategy with a specific sum of money and have not added anymore over the years. It has now grown to make up 17.29% of my overall ISA allocation.
Small Cap Stocks
These are the remnants from my growth chasing days. They still however, are a very important part of our overall strategy and will remain so for the foreseeable future. Doing the research on new stocks as well as maintaining the current ones is very time consuming which means I keep this to 5-6 shares at any one time. Some of the shares we hold are Conviviality, Supergroup and Majestic Wines. If you look at the charts for any of these you will see it is a roller coaster of a ride, however, the rewards can be high.
We still hold onto an Artemis Global Income fund that has served us well over the years. However, our main reason for holding funds is the ease in which I can diversify into areas such as India, Africa, Brazil etc. These are markets with great potential for growth and are worth considering. I keep the percentages invested in these individual funds low. These tend to be shorter term holds and I feel more comfortable holding these in funds as opposed to ETF’s.
The whole picture
Although our ISA allocations are incredibly important they are not the whole picture. The chart below shows all our investment areas.
When I talk about property I am referring to rental property and property investments. It does not include our main house where we live. Although our main home can be looked at as an investment, its primary function is a place for us to live. As we will always need somewhere to live I never consider our home in any financial calculations, although at some point in the future we could always downscale to release some capital. I look at this as a potential bonus and not something to rely on.
This is the backbone of our investment strategy. We have both paid the maximum into our respective pensions throughout our working lives to get the maximum employer matches. We both have defined benefit (final salary) pensions which were stopped a few years ago and now both have defined contribution pensions.
Between us we have 7 pensions. We have looked at combining some of them but have decided to leave them as they are. They are conservatively invested largely in global trackers with a 60:40 equity bond split.
If you currently don’t take advantage of your option to maximise your pension contributions then I would seriously suggest that you may want to reconsider, as you are leaving free money on the table.
When I look at our asset allocations, I look at the whole picture and take into account our pensions and property. As our pensions are our largest investment and have a 40% allocation to bonds our ISA’s are largely invested in equities, although our momentum trackers have had us heavily in bonds and gold for most of 2016 with a recent shift to equities as the markets begin to climb.
What I really like about our pensions is that the majority of the money paid in has been from our employers and the taxman. It really is money for nothing. The obvious downside is you are restricted to getting your hands on it until you are 55 (and rising). This is where the ISA comes in as it will bridge the gap should we decide to finish work early.
Our main incomes are from our respective jobs, rental property and dividends (dividends are left in the ISA and reinvested). Our priority after maxing out our pension match is to max out each ISA, whatever is left is what we live on.
I am not suggesting what we are doing is perfect but it’s working for us. We feel we have a balance that is right for us and are comfortable with it. I am sure we could improve in some areas and would welcome any comments or suggestions.
Please be aware that I am not recommending any of the above investments to you, I just wanted to give you a brief summary of my thoughts around investing in the hope that it might be useful.