Posted on 23 January 2018 by Douglas Chadwick
This is a similar situation to the funds in my own portfolios. The 70% that take the strain in the boring 'Slow Ahead' and the slightly more exciting 'Steady as She Goes' Groups receive a lot less attention than they should. They go about their business quietly and with lower volatility.
Whereas the other 30% - in the more exciting and engaging 'Full Steam Ahead' areas of Technology, Emerging Markets, Asia and China - get my full attention and are never far from my mind.
One of my New Year's investing resolutions was to turn this around and direct more attention to these low lying areas. At my age I am not looking to make decisions that might put at risk my family`s inheritance. At least that is the directive I have been given by my daughters! A global return of 10% to 12% should meet these requirements. Simple arithmetic says that 70% earning 10% p.a. would yield 7%p.a. and 30% earning 15% p.a. would yield 4.5%p.a. making a grand total of 11.5% p.a. This result doubles the pot every six years, and would certainly satisfy even my most vocal supporters.
This result would be less than I would normally expect to attain, but it would be achieved with far less worry and aggravation. Why chase the 30% to make big returns, whilst leaving the 70% to make low returns of around 5% to 6% as I have done recently?
There was a time, soon after the last financial crisis and at the height of QE, when getting 10% out of funds in the 'Slow Ahead' Group was straight-forward. Those of you who've been on board with us from the beginning might remember favourites like the 'Old Mutual Corporate Bond' - it went up by 36% in 2009 and 16% in 2010. It only went up by 4% in 2011, the year of the UK Gilts and Index-Linked Gilts, but then went up by 18% in 2012.
I've never felt particularly comfortable with the funds in the 'Slow Ahead' Group - it seems strange to me that people are investing in 'fixed interest' investments to get capital gains - and yet the numbers have been strong enough to convince me. Like the Saltydog demonstration portfolios, the majority of my 'safer' money has also been in the 'Slow Ahead' Group - that is no longer the case.
Look below, at the sector annual returns data for 2017, and it is not difficult to see that last year the sectors in the 'Slow Ahead' Group were not the most rewarding place to be - with annual returns varying between 2% and 6%. However, placing the bulk of a portfolio into the top sectors of the 'Steady as She Goes' Group, which has relatively low volatility, and the balance into the 'Full Steam Ahead' Groups would have made the overall target a shoe-in!
Of course it would still have to be managed to keep the funds in the sectors carrying the momentum of the moment. It is most unlikely that one sector will continue its forward run for a complete year so it will mean changing horses throughout the race, but that is what makes it interesting. Watching the numbers and then taking the appropriate action is my message of the year to myself.
I do realise however that there will be times when abrupt financial market movements and politicians' utterances will mean moving your investments quickly into cash, the only safe haven in those circumstances. Today we live in unsettling times, but for the moment we still move forward.
Remember there is nothing wrong with optimism, as long as you don't get your hopes up.
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