The discipline project lost some of its discipline over the past few months – only from a posting perspective though!
As noted back in the Month 9 update, I added emerging markets to the portfolio after a sharp sell off. I also noted I was looking at including a value allocation, which also happened in Month 10. Months 11 and 12 were combined in Month 11, as I had the money available to make both contributions. So I went with “the best time to invest is the time when you have the money”.
This resulted in all contributions being allocated to a value ETF in Months 10, while 11 the majority went to value with the rest bringing emerging markets back to 10% of the portfolio.
When Month 12 rolled around, I had some extra money, so made one extra contribution at 66% of the size of a regular month. This brought value close to being inline with MSCI world, MSCI small and the global bond allocation.
Progress after contributions. These are cumulative.
Portfolio End July: -0.44%
Portfolio End August: 1.03%
Portfolio End September: 0.46%
Portfolio End October: -0.14%
Portfolio End November: 5.15%
Portfolio End December: 5.07%
Portfolio End January: 4.95%
Portfolio End February: 3.94%
Portfolio End March: 6.72%
Portfolio End April: 8.04%
Portfolio End May: 8.31%
Portfolio End June: 10.35%
To show how far I’m out with my plebian ‘A to Z’ calculations, at the end of the year I downloaded a Return Spreadsheet from Bogleheads. I plugged in all my contributions, plus end of month balances, and outputted the following
Money Weighted: 22.2%
Time Weighted: 17.1%
How does that line up against, say the market? These are the Financial Year Returns from the market portfolio constructions we have where I work. We use these to measure the performance of our model portfolios.
The portfolio began as a 66.6/33.3 growth to defensive split, in the second half of the year it became closer to 77.5/22.5 growth to defensive, as I included emerging markets and value. So for comparison, I’ve included the three portfolio constructions it has ranged through.
80/20: 23.95%
70/30: 20.68%
60/40: 17.39%
As things go, that’s in the ball park.
Am I happy with the result after the first 12 months? Personally I don’t really care with market measurements, they are only there for reader interest (if anyone is reading). Long term I’m only aiming at 6% before inflation. Maybe the portfolio is more aggressive than it needs to be when looking for a 6% return, but bonds are in the crapper. Returns from that area of the portfolio won’t be high and likely will be a drag if rates increase.
I have enjoyed the regimented aspect. Yes, I strayed a little toward the end to include Value and Emerging markets, and they really should have been included from the beginning, but apart from that I didn’t miss a beat. I even made one extra contribution. The most positive thing? This has kept me away from putting all my savings from the past year into stonks!
As far as returns, yeah great! Anyone should be happy with that. There’s all sorts of huff and puff that “we shouldn’t expect…” and “returns will be harder to come by from here”. I don’t necessarily believe that. Returns will be what they will be. Post WW2 returns were bonkers for a few years, so there’s nothing to say that can’t happen. And yes, they could also be royally bad.
Taking a position either way will only lead to second guessing what to do next and I can’t see the future. This portfolio is meant to deal with all conditions and we know that 66% of the time (monthly) your money is better in invested than not. Those are the best odds of success you’ll get.
Disclaimer: The discipline project is a personal endeavour and should not be constituted as a financial strategy that anyone should follow. It is more a study in repetition and shutting out the noise in pursuing a financial goal, than any focus on portfolio construction. Anyone looking to build a portfolio should seek financial advice to find out which strategy is right for them, if you are seeking financial advice then you should consider one of Australia’s best financial advisors who may be able to help you identify your goals and put in place a reliable strategy to pursue them.
