Page 19 - DIY Investor Magazine February 2018

However, this portfolio adds to my overall diversification (a rare ‘free lunch’) which makes me keen to keep it going and it adds some ‘manager diversification’ in case I screw up as the fund manager of my own share dealing accounts.
Income Portfolio
I have been particularly fixated on how my income portfolio has been performing after posting what I hope is the definitive blog of income investing in 2017; this is unusual because I normally completely ignore the thing!
My target for this portfolio is to achieve 7% a year
CAGR - and at the same time be a low risk, low effort alternative to a zero interest bank account, that I can use to throw off cash for living expenses.
My Income Portfolio returned 5.6% which is below my target but better than cash and in view of the fact that big megacap divvy stocks did poorly in 2017, not a bad result.
Dividends generated by the portfolio amounted to 6.2% on the starting value on January 1st 2017 - above the Total Return figure of 5.6%, so the capital value of the portfolio fell but the dividends more than made amends. The drip, drip of reinvested dividends has had a very positive effect on this portfolio and in three years it is up 27%; dividends just drop in at a constant flow over the year, which is ideal for people who use such dividend payments for their living expenses - as I may do in the future at some point.
Many of the payments seem inconsequential but it is amazing how they all add up; I tend to let the dividends build up to around £2,500 and then buy more of something I already have or perhaps I will buy a new stock - I fancy some Primary Health Properties (PHP), but don’t make lots of silly little buys, which just make my broker very happy but don‘t help me much.)
Spreadbetting Account
The use of leverage which a Spreadbet (or CFD) Account enables means that there is a ‘return on exposure’ number and also a ‘return on capital’ number which can make reporting this account more complex; I think the latter is more relevant, although it is vital
to understand your exposure when using leveraged products.
‘MY SPREADBET PORTFOLIO SHOULD DELIVER AROUND 50% RETURN
Against the starting capital in my Spreadbetting Account on 1st January 2017, I achieved a return of 21%, which is sort of OK but I am not overly happy about it; over the year I took a fair bit of cash out of the account which is one of the big benefits when it goes your way, but over time you need to watch how your long exposure grows as it is something that can get out of hand quite quickly and leave you more committed to the markets than you thought.
I think my spreadbet portfolio should deliver around 50% return on starting capital each year if I were to do things properly and to effectively ‘mirror’ the positions in my Trading ISA, but the underperformance of the big stocks hit my returns, and I screwed up a long trade
on the DAX cost me about 4% or so on my return on exposure - probably about 11% against the starting capital.
This balls up had a large negative impact on my returns and I must not repeat such a mistake again; the key is to have very well timed entries and tight stoplosses; I would now like more exposure to housebuilders as their share prices historically rise in Q1.
Prudential With Profits Bond
And now we get to the unsung hero of my overall portfolio (OK, I do ’sing’ about this one quite a bit and certainly this year it has had me in full voice with a very strong return) - this is up 7% on the Year which is really top notch especially when you consider the lack of effort (I do nothing to it all year - just pick up an envelope off my doormat around April and rip it open to see how it has done over the year before) and with a very low risk level it is pretty impressive; I have about 15% of all my wealth in it and it really is a ‘core holding’.
It’s a funny old beast. These are the things that get linked to ‘endowment policies’ and therefore have a bad name; however, mine is a standalone thing that I have had for about 18 years and it is pretty steady and solid. It came under some slight pressure during the credit crunch but nothing compared to what other asset classes suffered, and it has some tax advantages. - a ‘buy and forget’ type of investment, and I recommend it to anyone.
19 DIY Investor Magazine | Jan 2018