Getting Minted

January

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.

Capital

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.

Income

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.

Investment changes

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.

Portfolio

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

	Yield %	Capital %	Income %
UK	3.83	33.77	25.30
Asia Pacific	5.28	26.04	26.90
Global	4.14	18.95	15.34
Property	7.67	12.37	18.55
Bonds	8.78	7.86	13.51
Cash	2.04	1.01	0.40
	5.11	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, Property
Income & Growth	3% to 4.5%	Global, Asia Pacific
Growth	below 3%	UK

	Yield %	Capital %	Income %
High Income	8.77	23.77	40.76
Income	4.71	26.76	24.66
Income & Growth	4.09	37.43	29.92
Growth	1.97	11.03	4.25
Cash	2.04	1.01	0.40
	5.11	100.00	100.00

Cash

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.

Expenditure

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	100.00	103.43	3.43
Essential	25.57	25.71	0.54
Luxury	16.32	18.70	14.60
Discretionary	22.19	21.51	-3.06
Expenditure	64.08	65.92	2.87
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.

Conclusion

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.

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.