My Passive Investments - December 2018 (-6.82%)

My Passive Investments - December 2018 (-6.82%)

A short term look on long term investing

Disclaimer

Christmas is always a busy time. Present buying, wrapping, family and of course endless board game playing. Whilst I was busy doing all of those things, my investments were busy ticking away. The market took a tumble this month (that ‘drip-feed insurance’ might pay off in the long term after all). A number of key phrases were triggered on the news, namely “correction territory” and “bear market”.

Whilst investors around the world are in panic mode, fearing a plunge, I’m simply sitting back and enjoying the rollercoaster.

Firstly, my investment decisions are exactly that, my own. I based each investment decision on my own research. These are, by no means, investment recommendations. Before making any investment decision, you must do your own research and/or speak to a professional.

 
December Passive Investor Report Pin
 

Firstly, a reminder of WHY I do these reports in the first place

Feel free to skip this bit if you’ve read it before.

To Address Fear Of The Stock Market

This is the most important reason for me. I think my generation is too afraid of the stock market. And I understand why. A lot of us experienced two pretty major stock market crashes in our lifetime. The 2000 dot-com crash and the 2007/08 subprime mortgage crisis. It took years for the market to return to pre-crisis levels. So, naturally, I understand my generation’s hesitance to investing. But, I think this fear is clouding our judgement (I might have just quoted Star Wars). The market continues, over the long term, to beat money in the bank.

I don’t underestimate the value of storing savings outside the market. Especially if those savings are required in the short to medium term. Say the next 5 or so years. An important caveat here is that savings must be stored in a place that maximises return. Inflation must not be underestimated. If inflation is 2% and your savings have earned 1.5%, the real spending power of your money has decreased by 0.5%.

But my real worry is not with short-term savings. My worry is that we are so afraid of the stock market that we are blind to the benefits of long-term investing. I talk more about this in another article

A Check On My Own Behaviour

I want to use these monthly reports as a check on my own investing behaviour. No matter what happens in the market today, tomorrow, or next year, my goal is to continuously invest. That is easy to say in a rising, bull market, so I already have a few systems setup to make sure I don’t let my emotions influence my investment decisions. I set aside a fixed percentage of my savings every month, I invest on the same day every month and I log these investments every single month through these reports. 

Make Some Market Observations

The final reason is to share some of my market observations. Since I invest in Vanguard tracker index funds, the performance and makeup of my investments offers insight into the global stock market. As just one example, the 10 largest companies in the global all cap index fund should be the 10 largest global companies by market cap.

The geographical distribution of my investments keeps me educated on the performance and composition of various markets around the world. The sector data offers insight into the performance of certain markets, like financials and health care, worldwide. Since I have a stake in the market, it drives me to stay informed. 

My Passive investment Strategy

Long term, my aim is to invest a portion of my savings every month. An important note here is that the numbers you will see in this report reflect the gains and losses of my invested capital only. When I invest more, for example, I would not state this as a gain in the value of my portfolio.

Similarly, if I sell a portion of my investments, this would not be stated as a loss in the value of my portfolio. The numbers simply reflect the performance of the underlying investments. Simply put, a loss/gain does not take into account buying/selling assets. 

Vanguard Stocks and Shares ISA

All investments are held in a stocks and shares ISA with Vanguard. You can contribute anything up to the limit of £20,000 for the 2018/19 tax year. This means, when it comes to selling any portion of my investments, any capital gain is tax free. 

December Returns (-6.82%)

Below you can see the monthly return for December. Since I have opted for the single Global all-cap fund (see more on that in last month’s report) the target weight of that fund in my portfolio is 100%. Buying into this index is effectively the same as buying into an already well-diversified portfolio. The global all cap fund includes over 6000 large, mid and small-cap companies in developed and developing countries across the globe.

 
Monthly Returns on Passive Investments - December 2018
 

The complete monthly return for December was negative (-6.82%).  

I invest around the 22nd of the month.

Returns Since Inception

Below are my returns since inception. Inception being the end of May 2018. The total portfolio return is -8.41%.

 
Returns Since Inception December Investments 2018
 

I am in the process of drip-feeding an equally divided lump sum into the market over the course of a year. December was month 8 of 12. I decided to drip-feed my lump sum as insurance against a market decline. I will only benefit from this 'insurance', over investing all at once, if the returns remain negative at the 12 month mark.

My decision to drip-feed was based on 3 major reasons.

  1. We’ve Been In A Long Market Bull Run

  2. High Shiller P/E Ratio (CAPE)

  3. High Market Cap to GDP Ratio (The Buffett Indicator)

I talk about these factors in more detail in October’s report.

SECTOR BREAKDOWN

The figure below displays how my portfolio is broken down, by market sector.

Financials remained the same from last month, in the top position (21.8%). Technology decreased from 14.8% to 14.5%. Industrials increased slightly from 13.5% to 13.6%.

Consumer services increased slightly from 11.3% to 11.5%. Health care increased from 11.1% to 11.4%. Consumer Goods decreased slightly from 10.9% to 10.8%.

Oil and Gas decreased from 6.3% to 6%. Basic Materials fells slightly from 4.6% to 4.5%. Utilities stayed the same at 2.1%. Other sectors also stayed the same at 2.6%.

December 2018 Sector Breakdown of Passive Investments

Since some sectors are hard to differentiate, here’s a small guide below:

Technology and IT: Technology (broad) can include delivery of transportation of energy. IT relates to the delivery of information (eg. a smartphone/tablet).

Consumer Goods vs Services vs Discretionary: Consumer goods are products bought by the average consumer. These products are the end result of a production or manufacturing process (eg. food)

A consumer service (a.k.a customer service) is a process which ensures consumer satisfaction (eg. phone/email interactions).

The consumer discretionary sector refers to desirable but non-essential goods like luxury items, entertainment and leisure.

GEOGRAPHY

How are my investments broken down geographically? Since I hold a global all cap index fund you can use this as a gauge of stock market performance across the world. Figures are rounded for simplicity so might not total 100% exactly.

North America accounts for 58.4% (up 0.2% from last month). Europe accounts for 12.9% (down 0.4% from last month). The Asia/Pacific region (which includes China) accounts for 11.9% (up 0.3%). Japan accounts for 8% (down 0.1% from November).

The UK accounts for 5.4% (down 0.1%). The Middle East/Africa Region accounts for 1.6% (up 0.1%). Investments in Central/South America account for 1.3% of my portfolio (the same as last month). Eastern Europe accounts for 0.5% (also the same as last month).

December 2018 Geographical Regions of Passive Investments

Individual Investments

This section looks at the biggest individual investments in my portfolio overall.

This month Microsoft and Apple are in joint 1st at 1.7% (Apple is down from 2.1% and MS is up from 1.6% in December). Amazon is up slightly at 1.4% (an increase of 0.1%). Alphabet, Google’s parent company, remains the same as last month (1.3%). J&J has increased from 0.7% to 0.8% this month and has moved up in position.

Berkshire Hathaway remains the same at 0.8% but moves down in position. JPM Chase remains at 0.7% but moves down in position. Facebook and Exxon mobil remain the same at 0.7% (position unchanged). Pfizer, the American pharmaceutical giant is new to the top 10 list (0.5%), knocking off Royal Dutch Shell.

 
Top Companies - December Investments
 

My top 10 investments account for 10.3% of my entire portfolio (down from 10.4% in November).

DIVIDENDS

The Vanguard Global All-Cap Index Fund is an accumulating fund. This means the dividend income is automatically reinvested back into the fund. I don’t have to process that dividend reinvestment myself. I am huge advocate of dividend reinvestment for long term wealth-building. 

Goals For January

I will continue to invest my equally divided lump sum into the global all-cap index fund.

That concludes the December 2018 update. Happy new year everyone! On to 2019.

If you liked this post, hit the like button down below. Also, in the comment section down below, let me know if there’s anything you want me to include in next month’s report. I’d love to hear about your investing experiences as well. I read and reply to every comment.

References

Vanguard FTSE Global All-Cap Index Fund (Accumulation)