Don’t panic, May-June 2022

Source: Pixabay

My portfolio capital and my portfolio income continued to be stable and relatively unchanged in the year 2022 to date and in the month of May. Things have, however, changed a bit since then as regards capital values.

May

The FTSE All Share Total Return index, my chosen benchmark, was up by +2.33% in the month, and up by +1.50% for the year so far. My investment return for the month was a gain of +0.22%, and a gain of +1.43% for the year so far. My individual holdings recorded share price movements for the year so far ranging from a loss of -29.75% by a UK small company investment trust, to a gain of +14.01% by a commercial property REIT, with an unweighted average result of a loss of -3.88%.

Capital

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Starting from an index value of 100.00 at 31 December 2013, my capital is now 140.58, as shown in the graph above. This is another slight fall from March’s new peak. There has been an increase of +0.28% in the year to date. Investment return of a capital loss of -1.04% and dividend income of +2.47%, totalled an investment return of +1.43%. Draw down expenditure deducted -1.15% during the year so far.

Income

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Annual dividend income as a percentage of the opening portfolio value on 31 December 2013 has increased from 3.37% to reach 6.79% at this month end, as shown in the graph above. This is a new peak. My current portfolio dividend income yield is 4.83%, i.e., 6.79 divided by 140.58.

Investment changes

Following a burst of activity in the first week of April as I raised cash for regular spending and for reinvesting in my ISA, and realised some capital gains, things have gone quiet again. The only activity during the month of May was that some dividends were received and re-invested in my tax-sheltered accounts and some dividends were received and paid out from my dealing account. These dividends amounted to about 1% of my capital and this was my second highest monthly pay-out of dividends. This reinvestment has pushed portfolio income to a new peak. This gives me a little scope to reposition the portfolio towards lower dividend holdings or else to raise a little more cash without reducing my portfolio income too much.

Portfolio

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

 Yield %Capital %Income %
UK3.9938.0531.43
Asia Pacific5.0224.7625.75
Global4.0518.9315.87
Property7.068.7612.80
Bonds8.348.1314.04
Cash0.381.360.11
4.83100.00100.00

The portfolio is now much more diversified than it used to be. The traditional UK equity income “dividend heroes,” actual and aspiring, make up only 28% of the portfolio now. Asia Pacific equity income is 21%, and global equity income is 19%. High yielding bonds and property accounts for 17%, and low yielding growth holdings, in UK and the Asia Pacific, amount to 14%. (Should I now add more to these growth holdings or should I build back up my UK equity income holdings?)

I also analyse the portfolio by the income or growth category of each holding as follows:

 Yield %Sectors included
High Incomeabove 5%Bonds, Property, Asia Pacific
Income4% to 5%UK, Global, Asia Pacific
Income & Growth3% to 4%Global, Asia Pacific
Growthbelow 3%UK, Asia Pacific

My recent switches mean that I no longer have any UK holdings in the high-income category.

 Yield %Capital %Income %
High Income7.7624.2238.93
Income4.5446.9144.11
Income & Growth3.8613.7110.96
Growth2.0613.815.89
Cash0.381.360.11
4.83100.00100.00

Cash

My annual drawdown spending is now around 3.39% of my portfolio value, based on the last two years spending and the opening and closing values for that period. That’s an increase from last month but still consistent with recent months. My cash holdings are now sufficient to cover about five months of spending. In addition, dividends being paid out in cash each year from my dealing account are sufficient to cover about four months of spending. I will need to sell some shares to raise cash again but not for several months.

Expenditure

Draw down spending was 63.41% of my portfolio income in the last twelve months which is higher than the figure of 59.44% for the previous twelve months. Portfolio income rose by 0.21% and expenditure rose by 6.90%.

May was our highest spending month since December 2020. We had additional to normal spending on home improvements, a new laptop computer, a summer holiday booking, and some capital gains tax. We also had our biggest ever monthly spend on energy. It was about double what we paid just about one year ago.

RPI and CPI inflation reached annual rates of 11.13% and 8.99% at the end of April. My impression is that this has not yet impacted on our grocery spend. With about 60% of our spending being on discretionary or luxury items I still believe we can make some choices to avoid the full impact of such double-digit inflation on our total spend.

Two weeks of June

At the time of writing this, my portfolio has dropped by about 3.5% in June. That is a reduction of over -3% in the 2022 year to date. That drop in June will include a little June spending but is mostly the result of the market downturn in recent days. I estimate that the year-to-date total return on my growth holdings is a loss of around -20%. I expect that a loss of around -20% is the total result for other investors targeting only growth. (Should I switch to add to my growth holdings at these reduced prices or should I hold fire for now because they will continue to fall?) Most of my other portfolio segments are showing around a -1% loss, except global income which I estimate is in positive territory at +6%.

Conclusion

Based on recent months this mid-month turbulence may have subsided by the end of June, but alternatively it could worsen. I will likely sit tight with my current portfolio and consider my next moves at my leisure. My portfolio income is at a new peak and dividends continue to be maintained or increased slightly. I have experienced no dividend cuts since one commercial property holding cut its dividend in 2020. In addition, I am effectively able to reinvest over one-third of my portfolio income in more dividend paying shares. I can therefore afford to sit tight and see how this market storm plays out.

Budgeting for the cost-of-living crisis

Source: Pixabay

I’ve recorded my spending since I started at university as a student over forty years ago. I used notebooks and cashbooks back then, but I now have just over twenty-five years of computerised records. This has required a bit of work to maintain to say the least, but it is a useful source of data. In order to manage your spending, you need to understand where the money goes. With much talk of a cost-of-living crisis and annual inflation seemingly headed to 10% I’ve been looking at our family spending.

In preparing my tax return for the year ended 5 April 2022 I produced an income and expenditure report. There are 75 income transactions, and 1,113 expenditure transactions. I analysed the spending as follows:

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Essential spending

I then analysed essential spending as follows:

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Groceries, tax and utilities are the biggest three items and amount to three-quarters of essential spending.

We aim to do one weekly shop online to cover our grocery needs for a family of four. We use one of the top four supermarkets and pay for a delivery plan. We mostly avoid premium brands and buy supermarket own brands. We sense check all items costing over £2 when we receive the delivery. We try and avoid any top up shopping and mostly manage to do that. We have a reward card but we don’t chase coupons or offers. Aside from that I’m not sure what else we can do to reduce grocery costs. We don’t yet see any large rise in our grocery costs this year.

Tax is mostly Council tax and that has risen by 4.11% this year which is now below inflation. We did challenge the valuation band for our house many years ago, as suggested by the Money Saving Expert website, but were unsuccessful. Our house was sold around the time of the valuation in 1991 and that supported it staying in the higher band.

Utilities are mostly electricity and gas. After several years of switching energy providers, and maybe saving 25% on our bills, I now feel we are prisoners of the forces at work in the international energy market. The last two such providers went bust last year and we are now on the capped tariff of one of the larger providers and expecting to pay about double what we used to pay until the next price rise. It may rise next in October to be three times what we paid one year ago. It may even exceed 10% of our total spending. It shouldn’t exceed 10% of our income so we won’t be regarded as in energy poverty! Currently, our direct debit varies each month dependent on the meter readings we send. April energy cost twice that of last April. Other utilities are phones, internet, and water. We pay £30 per month for the internet and phone line, and £26 per month in total for four mobile phones. I don’t think we can save much here. Our water charges are based on metered usage and despite being a family of four are less than half what our water rates used to be.

Transport costs include for motor car services, motor fuel, and transport fares. This area is difficult to budget for. Last year we had our biggest ever car service bill. The car is over 17 years old with over 100,000 miles on the clock so perhaps we should expect more of the same, or else we will have to buy a new car. Increased petrol prices shouldn’t be too onerous for us as our annual mileage has been rather low in recent years. Transport fares are local journeys at little cost.

Household costs include general household expenses, insurances and home repairs. I use a price comparison site each year on the renewal of our buildings, contents and motor insurance. That has kept them reasonable in recent years. Otherwise, this area is difficult to budget for. For instance, we had four home repair jobs last year but next year we might have none.

I think our essential spending is under control, but there is little scope to avoid increases in grocery costs, and next to no scope to avoid increased energy costs. I’m not counting on any government energy cost help reaching us.

Discretionary spending

The biggest discretionary spend is contributing to Junior ISA accounts for our two children. That would be the biggest “saving” we could make if we felt had to reduce or stop those, but it would be costly for the children’s future.

Other items here include home improvements, new electrical goods and new furniture items. Having bought a new cooker, new washing machine, and new bedroom furniture for the children’s rooms last year, maybe we will spend less this year. Alternatively, there could be new one-off projects to do on the house or garden (or a new car).

Charity donations and investment research costs are also included here. These could be reduced but they are not significant.

Overall, this area of discretionary spending is the one where we could make big cut-backs if we need to and mostly without any impact on our current lifestyle.

Luxury spending

The biggest item here is luxury goods such as books, magazines, newspapers, and music CD’s. That could be cut back significantly as there are plenty of past purchases to read or listen to. Subscriptions we have to the Readly app and the Apple One account also provide plenty to read or listen to. I am reluctant to cut back because these are my interests and my indulgences.

The next biggest is dining. That is quite high and it is likely to remain at this level unless we do less. It includes spending at restaurants, at pubs, on takeaways, and at coffee shops. It also includes school dinners that should probably be included in essentials.

Third biggest is holidays. It is lower than before the lockdown so it is likely to rise in the next year as we are able and want to do more.

Fourth biggest is entertainment. This is also lower than before lockdown and likely to rise if we go out more to concerts, theatres and cinemas. Subscriptions such as Netflix are included here but are relatively minor costs compared to a concert ticket or even cinema tickets for the whole family.

Other luxury spending is rather low and could easily rise a bit but it is not significant to our total spending.

Overall luxury spending is a bit down because of the restrictions imposed in the past year and it is likely to rise this year. I am reluctant to try to reduce it because of its contribution to our quality of life. I could, however, change the spending mix a little say by spending less on books and more on holidays.

Investment Income

Our total spending has reduced as a percentage of our available investment income in recent years. That trend could go into reverse. Future changes in that income are impacted by the economic situation of our investments and whether and by how much dividends are increased or reduced. They are also affected by investment choices I make. I have recently held my income steady by switching a small part of my portfolio into growth holdings that pay less income whenever total income rose. I will likely pause this soon to allow the dividend income I receive to increase. Even if dividends aren’t increased, I can still grow income by reinvesting some income in more shares so long as income continues to exceed expenditure.

Conclusion

We will continue our current approach on grocery spending and it will be interesting to observe what inflation rate I can calculate. We will have to endure the energy price rises but will keep an eye on what Money Saving Expert Martin Lewis has to say about any steps we can take. I will look to reduce luxury goods spending including any subscriptions we can give up. We will aim to continue with our other luxury spending such as on holidays and eating out. We will consider carefully any discretionary spending we want to spend on the house. If necessary, we can reduce our Junior ISA contributions, but we may need to, or choose to, accept a higher level of total spending. With that possibility in mind, I will be considering how to again grow the investment income we receive. I feel that despite being in drawdown we will be in a better position than many other families.

Calm, April 2022

Source: Pixabay

My portfolio and perhaps more importantly my portfolio income have both been stable and relatively unchanged in the year 2022 to date and in the month of April. Listening to news headlines about inflation and recession I am wondering whether this is a period of calm before a storm.

April

The FTSE All Share Total Return index, my chosen benchmark, was down by -1.30% in the month, a reversal of March’s positive result, and down by -0.82% for the year so far. My investment return for the month was a gain of +0.03%, and a gain of +1.21% for the year so far. My individual holdings recorded share price movements for the year so far ranging from a loss of -25.43% to a gain of +12.94% with an unweighted average result of a loss of -1.88%. My worst performer is the UK small company investment trust I have been adding to during the last year. My best performer is the commercial property REIT I switched into last year.

Capital

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Starting from an index value of 100.00 at 31 December 2013, my capital is now 140.81, as shown in the graph above. This is a slight fall from last month’s new peak. There has been an increase of +0.44% in the year to date. Investment return of a capital loss of -0.23% and dividend income of +1.45%, totalled an investment return of +1.21%. Draw down expenditure deducted -0.77% during the year so far.

Income

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Annual dividend income as a percentage of the opening portfolio value on 31 December 2013 has increased from 3.37% to reach 6.77% at this month end, as shown in the graph above. This is also a slight fall from last month’s new peak. My current portfolio dividend income yield is 4.80%, i.e., 6.77 divided by 140.81.

Investment changes

I sold shares in my dealing account on April 1st and bought them back in my ISA on April 6th. That sale has used up my CGT allowance for the tax year just ended and I have a small amount of tax to pay. It has also used up my ISA allowance in the tax year just started. I also sold shares from my dealing account on April 6th to raise cash for future spending. Cash has therefore risen from 0.76% to 1.42% of my portfolio. Later in the month some dividends were received and re-invested during the month in my tax-sheltered accounts.

Portfolio

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

 Yield %Capital %Income %
UK3.9738.9532.16
Asia Pacific4.9824.4325.34
Global4.1918.0915.77
Property6.878.9612.80
Bonds8.168.1513.83
Cash0.301.420.09
4.80100.00100.00

This version has been analysed by the income or growth category of each holding.

 Yield %Capital %Income %
High Income7.5425.1839.50
Income4.5546.3343.83
Income & Growth3.9113.5011.00
Growth1.9813.575.58
Cash0.301.420.09
4.80100.00100.00

Cash

My annual drawdown spending is now around 3.28% of my portfolio value, based on the last two years spending and the opening and closing values for that period. That’s a reduction from last month when this figure was distorted by the pandemic low point for my portfolio. Having raised some cash from share sales my cash holdings are now sufficient to cover about six months of spending. In addition, dividends being paid out in cash each year from my dealing account are sufficient to cover about four months of spending.

Expenditure

Draw down spending was 60.69% of my portfolio income in the last twelve months which is close to the figure of 60.12% for the previous twelve months. Portfolio income rose by 2.89% and expenditure rose by 3.87%.

Discretionary spending choices are still the main determinant of our spending rather than price inflation. RPI and CPI inflation reached annual rates of 8.96% and 7.04% at the end of March. I’m expecting to pay at least 50% more for energy in the next twelve months, and the bill for April usage, payable in May, is about double what we paid just about one year ago. I am comforted by the reality that more than half of our total spending is discretionary so we have some room for manoeuvre as prices rise.

Conclusion

There are some storms in the world today. This can be seen in a war in Ukraine, rising inflation, warnings of a recession, and a downturn in global markets that are dominated by US technology companies. So far this year my situation remains stable and calm and I’m looking to stay calm myself even if that situation changes. A major war in Europe is a new development but I have lived and invested through past periods of inflation and recession, albeit not while being in drawdown. I remain content to maintain my current investments and my current strategy amidst these concerns. I think these will work for me in the medium to long term. I’m currently not convinced by any alternative approaches.

Edging up to new peaks, March 2022

Source: Pixabay

Since I wrote two weeks ago my investment returns have edged upwards so I’m slightly up on the year despite the events of the year. Capital values show a tiny reduction but my portfolio income continues to exceed my expenditure allowing total assets to increase.

March

The FTSE All Share Total Return index, my chosen benchmark, was up by +1.30% in the month, and up by +0.49% for the year so far. My investment return for the month was a gain of +2.51%, and a gain of +1.19% for the year so far. My individual holdings recorded share price movements for the year so far ranging from a loss of -22.02% to a gain of +8.48% with an unweighted average result of a loss of -1.29%. My worst performers were my growth holdings and the worst of them is a UK small company investment trust. My best performers were income holdings in the UK, global, and Asia Pacific sectors.

Capital

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Starting from an index value of 100.00 at 31 December 2013, my capital is now 141.01, as shown in the graph above. This is a new peak. There has been an increase of +0.59% in the year to date. Investment return of a capital loss of -0.04% and dividend income of +1.23%, totalled an investment return of +1.19%. Draw down expenditure deducted -0.60% during the year so far.

Income

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Annual dividend income as a percentage of the opening portfolio value on 31 December 2013 has increased from 3.37% to reach 6.78% at this month end, as shown in the graph above. This is another new peak. My current portfolio dividend income yield is 4.81%, i.e., 6.78 divided by 141.01.

Investment changes

Some dividends were received and re-invested during the month in my tax-sheltered accounts. I also made another small switch reducing a UK equity income investment trust and adding to a UK small company investment trust. My growth holdings are now 13.75% of my portfolio. This should hopefully bear fruit when growth stocks are next able to enjoy a resurgence. At the moment I seem to be reducing my positions in some of this year’s winners and adding to my positions in this year’s losers. These changes are, however, very small and very gradual, so will have very little impact either way in the short term.

Portfolio

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

 Yield %Capital %Income %
UK3.9439.9232.72
Asia Pacific4.9424.6025.26
Global4.1417.9915.51
Property7.018.6912.67
Bonds8.258.0513.81
Cash0.270.760.04
4.81100.00100.00

This version has been analysed by the income or growth category of each holding.

 Yield %Capital %Income %
High Income7.6624.6739.31
Income4.5147.2644.33
Income & Growth3.8113.5610.74
Growth1.9513.755.58
Cash0.270.760.04
4.81100.00100.00

Cash

My annual drawdown spending is now around 3.61% of my portfolio value, based on the last two years spending and the opening and closing values for that period. That’s an uplift from 3.26% last month because two years ago my portfolio was close to its pandemic low point and not because of higher spending. My cash holdings are sufficient to cover about three months of spending. In addition, dividends being paid out in cash each year from my dealing account are sufficient to cover about four months of spending. I will sell shares from my dealing account to raise cash to spend in the next week but in the new tax year. On April 1st I sold shares to raise cash to fund the next tax year’s ISA and that has used up my CGT allowance for the tax year just ending.

Expenditure

Draw down spending was 62.29% of my portfolio income in the last twelve months which was an increase from 57.36% for the previous twelve months. Portfolio income rose by only 1.85% but expenditure rose by 10.61%. As mentioned before the higher spending is mostly down to discretionary spending choices rather than price inflation, despite RPI and CPI inflation reaching annual rates of 8.18% and 6.14% at the end of February. This may be about to change.

After my previous two energy suppliers both went bust last September I was placed with another supplier. Six months on I have finally had both refunds from the old suppliers and a catchup bill from the new one. I took my meter readings on 31 March and reported on them to coincide with the newly raised price cap. I’m expecting to pay at least 50% more for energy in the next twelve months. Council Tax has increased by 4.1%. We still await an inflation impact on our grocery bills. Groceries, Council Tax and energy are our biggest essential costs, but more than half of our total spending is discretionary so we have some room for manoeuvre as prices rise.

Conclusion

So, despite the news, despite the war in Ukraine, despite increased inflation and the cost-of-living crisis, my capital and my portfolio income rose to new peaks. Now, I know that my capital value is inherently volatile and subject to the moods of the markets so maybe luck is on my side for now. I also have planned for my portfolio income to be a growing one whether from dividend increases or from re-invested income so that increase is more predictable. Overall though I am encouraged to pay even less attention to doom and gloom headlines, and to stay calm and carry on being invested in accordance with my existing strategy.