Tuesday, December 24, 2024

The Slow and Steady passive portfolio update: Q3 2024

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The Slow & Steady portfolio has hit an new all-time high! Yes, our model passive portfolio has finally surpassed its previous peak, reached on New Year’s Eve 2021. Almost two years later we’ve put 2022’s bond crash behind us – in nominal terms anyway – as the portfolio grew for the fourth quarter in succession.

And for once that growth wasn’t driven by our US-dominated Developed world fund. Here are the numbers, in Allswell-o-vision™:

The Slow & Steady is Monevator’s model passive investing portfolio. It was set up at the start of 2011 with £3,000. An extra £1,264 is invested every quarter into a diversified set of index funds, tilted towards equities. You can read the origin story and find all the previous passive portfolio posts in the Monevator vaults. Last quarter’s instalment can be found here.

The big winner this quarter was global property. It soared over 10% in the three months – having spent much of the year sinking into the mud like a cheap tower block.

In fact even after its recent spurt, global property has managed less than 5% growth year-to-date. That lags the double-digit returns from Emerging Markets, UK equities, and the Developed World.

I need to do a deeper dive into the diversification potential of a REITs index tracker (which is what any passive property fund is) because I am far from convinced that owning this type of real estate makes much difference at the portfolio level.

Bond of bothers

What news of the irradiated bond asset classes?

The recovery looks healthy on the longer one-year view – in terms of what you can hope for from bonds, anyway – but 2024 itself has been a poor year so far.

Here’s how this year’s bond weakness pings out in red in the fund view in Morningstar’s Portfolio Manager:

I’ve circled the two bond funds’ one-year performances in green, and their year-to-date returns in red.

Note the table shows nominal returns. Both funds are actually down in real terms this year, once you factor in August’s 3.1% CPIH inflation figure.

I’ve also circled the 10-year annualised returns in cyan – because we’re all about the long-term here at Monevator!

You can see the long-term growth engine of our portfolio has been its Developed World fund. Indeed if we unpack the Matryoshka dolls of causation, then really it’s the US S&P 500 – and inside that a handful of tech firms.

See our last update for a chart showing how well we could have done if we’d gone all-in on tech when we launched our model portfolio in 2011.

Which we might have done if we could predict the future. Which we can’t.

(And incidentally neither can you).

Choose wisely

A portfolio choice can only be meaningfully compared with an alternative you might have reasonably made ex-ante.

The Slow & Steady was conceived as a DIY passive portfolio. Our choices were aligned with best practice on managing your own investments.

The model portfolio’s ‘competitor’ then is not a wise-after-the-fact YOLO punt on a tech ETF, but rather something like a Vanguard’s LifeStrategy multi-asset fund. An off-the-peg investing ready meal that enables you to invest in a nutritious portfolio with minimal work. (Sounds awful, I know.)

So has all my DIY dosey-doe added one scintilla of value compared to picking this magi-mix investing alternative?

I think you can see where this is going…

Chart attack

Firstly, because I’ve taken the trouble to painstakingly unitise the portfolio for this comparison, I’ll treat you to the exclusive unveiling of the Slow & Steady’s performance chart. (A happy byproduct of the exercise):

Our model portfolio was launched to world acclaim global indifference on 31 December 2010.

From there, the little portfolio that sorta could has grown 161%. You can see that its value has just reached a new high as it hits the wall on the right.

This 161% gain amounts to a time-weighted return of 7.24% annualised since purchase. (A time-weighted return strips out the impact of cashflows upon a portfolio, and is how comparisons between investments are usually made.)

Meanwhile, the portfolio’s money-weighted annualised return is 6.97%. (The money-weighted return is more realistic in my view. That’s because the periods when you have more invested make a greater contribution than if, say, your portfolio doubled when you put in your first fifty quid.)

Oh really? Note you can subtract approximately 3% to reflect average inflation to get the real return. A 4% annualised real return is what you might expect a 60/40 portfolio to deliver, based on long-term historical datasets.

More ups and downs

As average as all that sounds, the numbers show the Slow & Steady hasn’t so much as taken a bear market beating during its adventures to-date.

That’s encouraging!

Our worst slide was -15% during 2022’s bond crash. Covid amounted to a -11% plunge before we were rescued by the authorities’ big bazookas.

In comparison to the worst investing can throw at us, the portfolio’s performance looks more like riding a vintage merry-go-round horse than a rollercoaster.

I’ve even made the journey look choppier by using a linear chart above. A linear investing chart exaggerates the scale of later events relative to earlier ones.

Here’s a more realistic logarithmic view:

Essentially, the portfolio has gently wafted higher over the course of its 14-years, with just the occasional stomach-tickling lurch due to turbulence.

I think my first chart feels like the voice of anxiety in our heads yelling: “AAAARGH! Everything is incredibly important and sometimes quite scary because it’s happening to me right NOW!”

While the second chart is closer to objective investing reality, as experienced by a 60/40 passive investor in recent times.

Multi-asset face-off

Now, about that Slow & Steady vs LifeStrategy Thrilla in Vanilla I’ve been dawdling towards.

Here’s Morningstar’s chart for the LifeStrategy 80 and LifeStrategy 60 funds. It’s set to the longest comparison period I can make with my Slow & Steady returns:

LifeStrategy funds only launched in the UK on 23 June 2011.

My nearest Slow & Steady datapoint dates from 1 July 2011, so that’s the starting line for this foot race.

But why is this a three-cornered contest, with two Vanguard funds in the chart?

Because the Slow & Steady portfolio was originally an 80/20 portfolio.

To reflect its fictitious owner aging, we rebalanced into a 60/40 over the course of its first ten years. This saw 2% of the equity allocation transmuted into bonds every year for a decade.

Hence we’d expect the Slow & Steady to perform somewhere between the LifeStrategy 80 and 60, which stick rigidly to their asset allocation lanes.

Out-take – I know, if I had any gumption, I’d gather 14-years’ worth of price data for the Vanguard twosome, combine them into a portfolio, and plot an equivalent declining glidepath. Perhaps one wet weekend I will. If I really want to drive Mrs Accumulator into serving those divorce papers.

Show me the money

This is the best comparison I can do for now. And I think it’s very telling:

Portfolio Cumulative (%) Annualised (%)
Vanguard LifeStrategy 80 191.47 8.41
Slow & Steady  158.97 7.45
Vanguard LifeStrategy 60 143.07 6.93

Nominal returns, 1 July 2011 to 27 Sep 2024. 

Over this timeframe, the LifeStrategy 80/20 portfolio has grown 20% larger than the Slow & Steady, which in turn is 11% larger than the LifeStrategy 60/40 portfolio. 

Our plucky DIY champ has split the two Vanguard funds down the middle! Which is as it should be because its asset allocation lay somewhere between the two. 

And while I don’t know how this match-up looks on a risk-adjusted basis, I’m doubtful of snaffling too many crumbs of comfort given the Slow & Steady was (by design) maxed out on UK government bonds just as that asset class suffered its worst year in history

Ultimately – as much as I had fun ensuring the Slow & Steady portfolio was better diversified than its fund-of-funds equivalent – if I’d really had that crystal ball in 2011, I’d have recommended picking the LifeStrategy option unless you really enjoyed being hands on. 

In fact that’s exactly what I suggested to friends and family.

For some peculiar reason they don’t give two-hoots about investing. But they needed to save for retirement all the same. 

So much for taking the scenic route

The main lesson I draw from this investing smackdown is simplicity is under-rated and optimisation over-rated. 

Monevator’s model portfolio is souped-up with small cap equities, global real estate, and inflation-linked bonds that LifeStrategy lacks.

And the Slow & Steady’s OCF of 0.16% compares well with the LifeStrategy’s 0.22% charge. 

But despite all that, the two load-outs are very similar at a broad equity/bond asset allocation level.

And that’s proved decisive in this score draw. 

New transactions

Every quarter we throw £1,264 like autumn leaves into the market winds. Our stake is split between our portfolio’s seven funds, according to our predetermined asset allocation.

We rebalance using Larry Swedroe’s 5/25 rule. That hasn’t been activated this quarter, so the trades play out as follows:

UK equity

Vanguard FTSE UK All-Share Index Trust – OCF 0.06%

Fund identifier: GB00B3X7QG63

New purchase: £63.20

Buy 0.225 units @ £281.34

Target allocation: 5%

Developed world ex-UK equities

Vanguard FTSE Developed World ex-UK Equity Index Fund – OCF 0.14%

Fund identifier: GB00B59G4Q73

New purchase: £467.68

Buy 0.703 units @ £665.56

Target allocation: 37%

Global small cap equities

Vanguard Global Small-Cap Index Fund – OCF 0.29%

Fund identifier: IE00B3X1NT05

New purchase: £63.20

Buy 0.147 units @ £431.23

Target allocation: 5%

Emerging market equities

iShares Emerging Markets Equity Index Fund D – OCF 0.19%

Fund identifier: GB00B84DY642

New purchase: £101.12

Buy 49.095 units @ £2.06

Target allocation: 8%

Global property

iShares Environment & Low Carbon Tilt Real Estate Index Fund – OCF 0.18%

Fund identifier: GB00B5BFJG71

New purchase: £63.20

Buy 26.057 units @ £2.43

Target allocation: 5%

UK gilts

Vanguard UK Government Bond Index – OCF 0.12%

Fund identifier: IE00B1S75374

New purchase: £316

Buy 2.326 units @ £135.86

Target allocation: 25%

Global inflation-linked bonds

Royal London Short Duration Global Index-Linked Fund – OCF 0.27%

Fund identifier: GB00BD050F05

New purchase: £189.60

Buy 174.908 units @ £1.08

Target allocation: 15%

New investment contribution = £1,264

Trading cost = £0

Average portfolio OCF = 0.16%

User manual

Take a look at our broker comparison table for your best investment account options.

InvestEngine is currently cheapest if you’re happy to invest only in ETFs. Or learn more about choosing the cheapest stocks and shares ISA for your circumstances.

If this seems too complicated, check out our best multi-asset fund picks. These include all-in-one diversified portfolios, such as the Vanguard LifeStrategy funds.

Interested in tracking your own portfolio or using the Slow & Steady investment tracking spreadsheet? Our piece on portfolio tracking shows you how.

You might also enjoy a refresher on why we think most people are best choosing passive vs active investing.

Take it steady,

The Accumulator



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