Getting Minted

Three years ago on 30 November 2019, things were different. In the UK we were amid a general election campaign. A choice between getting Brexit done and levelling up or embarking on the Corbyn experiment – or so we were told. We had not yet heard of Covid-19 or learned of its impact on lives, economies and investment portfolios. I sold some shares to raise cash levels just ahead of the election. As things turned out I didn’t need to do that for the election, but it was useful to have more cash during the Covid stock market meltdown. We have now endured the Covid pandemic, and the lockdown of the economy, followed by a cost-of-living crisis exacerbated by the Russian invasion of Ukraine. I thought this would be a useful juncture to review our financial position. How had all these events impacted on us in pounds, pence, and percentages?

Benchmarks

I have chosen to compare our results against the UK price inflation measures of CPI and RPI. These are running at annual rates of 10.66% and 14.00% at present and have risen by 16.77% and 23.13% in total over the three years. As a UK based investor, I continue to use the FTSE All share total return index and a unit trust (M&G Index Tracker Fund Sterling A Acc) that aims to track that index for comparison.

	RPI Inflation	CPI Inflation	FTSE AS TR	UK Tracker UT
30/11/2019	291.00	108.50	7,585.91	143.83
30/11/2022	358.30	126.70	8,512.84	158.50
Change	67.30	18.20	926.93	14.67
Change %	23.13	16.77	12.22	10.20

Review Summary

I have looked at the key measures of household expenditure, portfolio annual income, portfolio capital value, and my calculation of investment return.

	Expenditure	Income	Capital	Inv return
30/11/2019	4.13	5.59	117.42	100.00
30/11/2022	4.42	7.02	134.28	113.13
Change	0.29	1.43	16.85	13.13
Change %	6.95	25.64	14.35	13.13

Capital

Starting from an index value of 100.00 on 31 December 2013, my capital had increased to 117.42 by November 2019, and to 134.28 by November 2022. The contributors to this increase of 14.35% are shown in the graph above. Most of the growth results from inherited funds (11.88%). Investment income exceeded expenditure and capital losses combined and contributed the remainder.

Investment return

I used these items to calculate my investment return.

Opening	100.00
Inherited	11.88
Capital growth	-4.25
Investment Income	17.46
Expenditure	-10.72
Closing	114.37

Money added in (inherited funds received) exceeded money taken out (for expenditure). Investment returns comprised investment income and capital losses.

Money in/(out)	1.16
Investment return	13.20
Inv return calculation	13.13

The calculation I use is = (Closing -Money in/2)/ (Opening +Money in/2) x100-100. =(114.37-1.16/2)/(100+1.16/2)*100-100

I am pleased to see that my investment return of 13.13% exceeds my benchmark returns of 12.22 and 10.20. My investment return is likely to be below that of global markets and it may be that I should review my choice of benchmarks.

Investment changes

I stayed invested throughout the difficulties of the last three years. I sold shares to raise cash every few months. I sold and bought to use my annual ISA allowance. I switched holdings occasionally. Looking at the investment portfolio now and three years ago about 80% is now held in investments that were held three years ago. 20% is in new holdings. Some lower yielding UK equity income trusts were sold. Trusts in the property, UK equity income, UK small company, and Asia Pacific small company sectors were purchased. On average these purchases are higher yielding than those sold. This has boosted portfolio income.

Income

Annual dividend income as a percentage of the opening portfolio value on 31 December 2013 of 3.37%, had increased to 5.59% by November 2019, and to 7.02% by November 2022. The 25.64% increase in portfolio income over the four years was the result of the addition of inherited funds, the reinvestment of dividends received, increases in dividends paid, and portfolio switches and sales. About half of the increase (+14.37%) can be seen as a result of the increase in the portfolio capital, mainly from inherited funds and is a non-repeatable one-off. The other half of the increase (+11.27%) can be seen as a result of the portfolio income yield percentage being higher. This higher income yield on the portfolio suggests to me that the capital value could increase if dividends are not cut. I am pleased to see that this income growth of 25.64 has exceeded the inflation benchmarks of 23.13 and 16.77. Going forward I think my income growth will likely fall behind inflation if high inflation is prolonged. I am not too keen to chase any more yield from my portfolio.

Expenditure

Annual expenditure as a percentage of the opening portfolio value on 31 December 2013 of 3.24%, had increased to 4.13% by November 2019, and to 4.42% by November 2022. The 6.95% increase in expenditure is well below the inflation benchmarks. The recent higher inflation has impacted mainly on our grocery spending but only over the last three or four months. I expect the higher energy costs to begin to hit only in January 2023. Some other price increases have been balanced by reducing spending. We can choose to accept some price increases (Apple Music) but can choose to cancel some purchases when the price is increased (Investors Chronicle). Most of our spending is luxury or discretionary so we have some choices here.

Conclusion

I was pleased to see that investment returns were at least ahead of the UK index on this three-year view. Income growth that was not a one-off exceeded our expenditure increase although it fell short of the inflation indices. It is useful to conduct this review, so we know where we are financially. Overall things are OK for us.

November was marked by a strong bounce in my portfolio and in its benchmark the FTSE All Share total return index. That index is now at an all-time peak for a month end according to my records. This despite the Ukraine war and other recent events. Is the market anticipating better times ahead perhaps?

November

The FTSE All Share Total Return index rose by +7.14% in the month and has now risen by +1.78% for the year to date. My investment return for the month was a gain of +8.22%. Cumulatively I have a loss of -1.39% for the year so far.

My individual holdings recorded an unweighted average share price movement of a loss of -9.05% for the year so far. My worst performers are in the UK small company (-38.27%), and commercial property ( -36.50%) sectors. These are some of my smaller positions. My best performer, up +15.57%, is in the global equity income sector. Overall, my portfolio choices this year have underperformed my benchmark UK index.

Capital

Starting from an index value of 100.00 on 31 December 2013, my capital is now 134.28, as shown in the graph above. This is a return to where I was in July and August this year before the excitement of September. It is -4.78% down from its all-time peak in March this year, and-4.22% down in the year to date. Investment return of a capital loss of -6.35% and dividend income of +4.98%, results in a loss of -1.37%. Draw down expenditure deducted a further -2.85% during the year so far.

Income

Annual dividend income as a percentage of the opening portfolio value on 31 December 2013 has increased from 3.37% to reach a new peak of 7.02% at this month end, as shown in the graph above. My current portfolio dividend income yield is 5.23%, i.e., 7.02 divided by 1.3428. Annual income rose by +1.62% in the month. That is one of my best months for rising income. Two holdings increased their dividends but that contributed less than one third of the rise. More than two thirds of the rise is from reinvested dividends. That is an example of the importance of reinvestment to growing both your capital and your income.

Investment changes

During the month dividends received in my tax-sheltered accounts were re-invested and dividends received in my trading account were paid out. This was my second-best month for portfolio income received. No other trades were made.

Portfolio

The table below shows the composition of my portfolio at the end of the month.

	Yield %	Capital %	Income %
UK	3.95	34.36	25.93
Asia Pacific	5.50	25.33	26.65
Global	4.13	19.36	15.29
Property	7.98	11.97	18.27
Bonds	8.75	8.11	13.56
Cash	1.82	0.86	0.30
	5.23	100.00	100.00

I also analyse the portfolio by the income or growth category of each holding. The rise in share prices has resulted in some global and Asia Pacific holdings moving from the Income category to the Income & Growth category this month.

	Yield %	Sectors
High Income	above 6%	Property, Bonds, Asia Pacific
Income	4.5% to 6%	UK, Property
Income & Growth	3% to 4.5%	Global, Asia Pacific
Growth	below 3%	UK

Only 11.34% of the portfolio is now classified as growth. Income & Growth, however, includes a small company investment trust that pays higher income from capital. If that were added, then 15.02% would be in “growth” holdings. I will look to further add to my growth holdings in the future but not just yet. In the short term the volatility in the market, as shown by the fall in my UK small company trust, is off-putting.

	Yield %	Capital %	Income %
High Income	9.04	23.53	40.66
Income	4.88	26.95	25.15
Income & Growth	4.15	37.31	29.62
Growth	1.97	11.34	4.27
Cash	1.82	0.86	0.30
	5.23	100.00	100.00

Cash

My annual drawdown spending is now around 3.52% of my portfolio value, based on the last two years spending and the opening and closing values for that period. Cash holdings cover about three months of spending. Dividends being paid out in cash each year from my dealing account are sufficient to cover about three months of spending each year. I will soon, maybe this month, need to sell some shares to raise cash again. That will slightly reduce portfolio income.

Expenditure

Draw down spending was 63.17% of my portfolio income in the last twelve months which is less than the figure of 65.74% for the previous twelve months. Portfolio income rose by 0.89% as more dividend income was received. Expenditure fell by -3.06% mainly because last year included higher tax costs than this year.

RPI and CPI inflation reached annual rates of 14.17% and 11.09% at the end of October. For us this mainly impacts on our weekly grocery bills which in recent weeks are up by about 10% to 15% compared to one year ago. The current year is only 3.41% higher than last year because these rises are quite recent. We have now had a bigger bill for energy for November usage that is payable in December. We pay for energy on a month-by-month based on our actual meter readings rather than on an annual average so our monthly costs will be higher through the winter months. The current year is still lower than last year because we were overcharged last year and were refunded this year. Following the budget, we expect council tax to rise by around 5% next April. Those are our top three essential spending items. More than half of our spending is on luxury or discretionary items which we can reduce if we need to.

Conclusion

This month of November saw the changing tides of the investment markets sweep away the bad month of September leaving UK markets broadly unchanged for the year. My portfolio, now with less in the UK, was not too far behind. Assuming that my portfolio does not suffer dividend cuts then the capital values look too low so I’m hopeful that they will rise in the not-too-distant future. This may occur if it looks like we will only have a shallow recession.

October saw the implosion of the Truss-Kwarteng economic policy in the UK. Markets continued to drift mostly downwards in the first half of the month. I was, however, inspired to make some portfolio changes that further reduced my holdings in UK equities.

October

The FTSE All Share Total Return index, my chosen benchmark, rose by +3.11% in the month, but has now fallen by -5.00% for the ten months of the year to date. My investment return for the month was a loss of -0.13%. Cumulatively I have a loss of -8.77% for the year so far.

My individual holdings recorded an unweighted average share price movement of a loss of -15.15% for the year so far. My worst two performers continue to be a UK small company investment trust (-45.15%), and a commercial property REIT ( -28.86%). My best performer continues to be a global equity income trust that is up by +5.54%. That is my only holding where the share price has risen in the year to date.

Capital

Starting from an index value of 100.00 on 31 December 2013, my capital is now 124.52, as shown in the graph above. This is a return to where I was in January 2021. It is -11.18% down in the year to date. Investment return of a capital loss of -12.56% and dividend income of +3.90%, results in a loss of -8.66%. Draw down expenditure deducted a further -2.52% during the year so far.

Income

Annual dividend income as a percentage of the opening portfolio value on 31 December 2013 has increased from 3.37% to reach 6.91% at this month end, as shown in the graph above. This is a small rise to a new peak. My current portfolio dividend income yield is 5.55%, i.e., 6.91 divided by 124.52.

Investment changes

When you have no control or influence over political and economic events you can at least choose your own response to them. In the time between the Chancellor’s sacking and the Prime Minister’s resignation my response to the events then unfolding was to reduce my home bias. The UK stock market represents about 4% of the world stock market so if you live in the UK and hold more than that in your portfolio then you are said to have a home country bias. I used to hold over 80% of my portfolio in the UK stock market but have reduced that over the past eight years such that it was about 38% in September. One of my UK equity income investment trust holdings has continued to disappoint. It’s share price was -21.43% down in the nine months to the end of September. I sold a position in it in a tax-sheltered account that represented about 4.5% of my portfolio. I used that partly to top up a commercial property holding but mostly to add a new property holding that has investments in the UK and in Europe. This could be risky with interest rates rising. These property holdings are out of favour now, but I am hopeful for their prospects. In the meantime, I am collecting nearly an 8% dividend yield on my property holdings. I still have a position of nearly 4% in that same UK equity income investment trust in my trading account. I will sell that over the next few months to build up my cash position and maybe to fund next year’s ISA. I won’t incur any Capital Gains Tax on disposing of it given its recent performance. The losses will help reduce any Capital Gains Tax liabilities on any other trading account disposals I do. My UK equity position is now down to 34% and could soon fall to 30%.

Also, during the month dividends received in my tax-sheltered accounts were re-invested and dividends received in my trading account were paid out.

Portfolio

The table below shows the composition of my portfolio at the end of the month. I now have more exposure to property and less exposure to UK equities.

	Yield %	Capital %	Income %
UK	4.23	34.39	26.21
Asia Pacific	6.08	24.04	26.32
Global	4.47	19.17	15.45
Property	7.89	12.88	18.31
Bonds	8.75	8.58	13.52
Cash	1.08	0.94	0.18
	5.55	100.00	100.00

I also analyse the portfolio by the income or growth category of each holding.

	Yield %	Sectors
High Income	above 6%	Property, Bonds, Asia Pacific
Income	4.5% to 6%	UK, Asia Pacific, Global, Property
Income & Growth	3% to 4.5%	Global, Asia Pacific
Growth	below 3%	UK

Nearly 84% of my capital is now yielding 4.4% or higher and that gives me over 93% of my portfolio income.

	Yield %	Capital %	Income %
High Income	9.31	24.19	40.58
Income	4.93	52.91	46.96
Income & Growth	4.11	10.75	7.95
Growth	2.14	11.21	4.33
Cash	1.08	0.94	0.18
	5.55	100.00	100.00

Cash

My annual drawdown spending is now around 3.87% of my portfolio value, based on the last two years spending and the opening and closing values for that period. My cash holdings are now sufficient to cover only about three months of spending. In addition, dividends being paid out in cash each year from my dealing account are sufficient to cover only about three months of spending each year. I will soon need to sell some shares to raise cash again.

Expenditure

Draw down spending was 62.34% of my portfolio income in the last twelve months which is less than the figure of 67.73% for the previous twelve months. Portfolio income rose by 2.95% as more dividend income was received. Expenditure fell by -5.24% mainly because discretionary spending this year was less than last year. Luxury and discretionary spending are about 60% of our spending so the choices we make on this are the dominant factor in determining our total expenditure.

Essential spending was also lower because car service costs and income taxes were lower this year. Groceries are our biggest item but were only up 3% year to year. Energy costs were lower because we were overcharged by the energy suppliers last year as they went bust. Insurance costs were reduced by 27% as we changed insurers, but petrol costs rose by 119%. Neither of these two are a big part of our spending.

RPI and CPI inflation reached annual rates of 12.64% and 10.14% at the end of September. This is now having an impact on our weekly grocery bills which are up by more than 10% compared to one year ago. We are paying for energy on a month-by-month based on our actual meter readings. The heating is on but is set at 18 degrees Celsius. We are still waiting for the first big bill to arrive. The cost of living is certainly no crisis for us at the moment.

Conclusion

I think the events of last month were a useful prompt for me to reduce my bias to the UK and to drop an investment that had disappointed. Rather than increase my international holdings I have chosen to increase my position in property because that seemed to offer better value and perhaps a timely opportunity. I still retain enough exposure to the UK to benefit from any recovery in the UK stock market.