It was reported in a monthly market review by J. P. Morgan that “January has shown that after a difficult 2022, and with inflation now falling, both equities and bonds can deliver positive returns for investors.” They added that in the UK ”core inflation remained steady at 6.3% year on year” and “business surveys continued to indicate that a recession is likely.” They noted that “despite the weak [UK] economic data, the FTSE All-Share rose.” I think the market might be anticipating better times ahead.
My benchmark, the FTSE All Share Total Return index rose by +4.50% in the first month of 2023. My investment return for the month was a gain of +2.81%. I’m ahead of last month but behind the index again.
My individual holdings recorded an unweighted average share price movement of a gain of +2.75% for the year so far. They ranged from a loss of -3.77% to a gain of +6.80%. My worst performer was a high yield bond fund. My Asia Pacific Income holdings were all strong performers whereas my UK Equity Income holdings mostly underperformed the UK index. A month is a short time to make this comparison and portfolio dividends are low in January, but this is a continuation of a trend of underperformance.
Starting from an index value of 100.00 on 31 December 2013, my capital is now 137.93, as shown in the graph above. This is -2.18% down from its all-time peak in March 2022. Investment return for the month of a capital gain of +2.59% and dividend income of +0.22%, results in a gain of +2.81%. Draw down expenditure deducted -0.28% this month. Therefore, capital was up 2.53% for the month.
Annual dividend income as a percentage of the opening portfolio value on 31 December 2013 has increased from 3.37% to reach another new peak of 7.05% at this month end, as shown in the graph above. My current portfolio dividend income yield is 5.11%, i.e., 7.05 divided by 1.3793.
Portfolio income rose slightly in the month even though I sold shares early in the month. The shares yielded around 5% from dividends received at the time of sale whereas the proceeds will earn interest of 2.5% in my bank deposit account. Fortunately, some dividend increases were announced, and some dividends received were re-invested. These both raised the current level of portfolio income. More than half of the dividends receivable this February have been increased since last February.
Also, during the month dividends received in my tax-sheltered accounts were re-invested and dividends received in my trading account were paid out.
The table below shows the composition of my portfolio at the end of the month.
|Yield %||Capital %||Income %|
I also analyse the portfolio by the income or growth category of each holding.
|High Income||above 6%||Property, Bonds, Asia Pacific|
|Income||4.5% to 6%||UK, Property|
|Income & Growth||3% to 4.5%||Global, Asia Pacific|
|Yield %||Capital %||Income %|
|Income & Growth||4.09||37.43||29.92|
My annual drawdown spending is now around 3.38% of my portfolio value, based on the last two years spending and the opening and closing values for that period. Cash holdings cover about four 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 expect to raise more cash again in March or April. I’m very gradually selling down my dealing account shares whilst I leave my tax-sheltered accounts to continue to grow.
Draw down spending was 63.73% of my portfolio income in the last twelve months which is less than the figure of 64.08% for the previous twelve months. Portfolio income rose by 3.43% as more dividend income was received. Expenditure rose by 2.87%.
This table compares the last two years.
|Year||12 mths to 31.01.22||12 mths to 31.01.23||Change %|
|Income – Expenditure||35.92||37.51||4.43|
Note: as % of 12 mths to 31.01.22 Income
Total essential spending is only 0.54% higher than last year because our MOT and car service were much reduced, and because council tax is lower as a result of timing differences arising from changing our payment method. These savings have mostly covered increased costs elsewhere. Year on year grocery spending is now about 8% higher. I think that could double by the autumn based on recent bills. The big rise in energy costs has not yet hit. Energy costs are only 5% up. I think that could rise to 70% up by the end of 2023.
Discretionary spending was 3.06% lower because of some choices we made. This spending is likely to rise this year as we are choosing to undertake some home improvements.
Luxury spending was 14.60% higher, mainly because we spent more on holidays, dining out and entertainment.
The first month of the new year has seen my portfolio capital recover to be only 2.18% below it’s all-time peak. Portfolio income reached another new peak. It was, however, disappointing to see my total return trailing the UK index yet again.
2 Replies to “Better times ahead, January 2023”
Re: “I’m very gradually selling down my dealing account shares whilst I leave my tax-sheltered accounts to continue to grow.”
Will the recently announced CGT, etc changes impact your strategy?
Thanks for your question. I intend to make use of the £12,300 tax free amount this year, and the £6,000 next year, and the £3,000 for the year after. So far, the tax rates are unchanged and I would expect to pay the basic rate of 10% of any gains. So next year I could expect to pay an extra £630 in tax, and £930 extra in the year after, if I have gains higher than £12,300 in these years. Given recent investment performance I may have some losses to set against any gains.
I will likely aim to sell out of these non-tax protected investments sooner rather than later because of the trend to higher taxes. My dealing account holdings are in my growth or income and growth categories, so I also have the alternative option of keeping them and continuing to take the income from them if the CGT tax rates are raised significantly. The bigger tax threat to investors is the idea of restricting ISA’s.