This is an update on my portfolio for the month of September. We had some exceptional costs in the month and I am now concerned about future price inflation.
The FTSE All Share Total Return index, my chosen benchmark, is down by -0.96% in the month, and is up by +13.56% for the year to date. My investment return for the month was a loss of -1.98%, and a gain of +9.21% for the year to date. My individual holdings recorded share price movements for the year so far ranging from a loss of -9.19% to a gain of +32.30% with an unweighted average result of a gain of +8.77%. The underperformance arises mostly from lower returns on my Asia Pacific and global holdings and some of my UK holdings.
Starting from an index value of 100.00 at 31 December 2013, my capital is now 135.43, as shown in the graph above. This is a fall from last month’s peak to the lowest position since March 2021. It is still up by +6.61% since the end of the 2020 year. Investment returns, growth and income, were +9.10%, and draw down expenditure deducted -2.49% for the nine months of the year to date.
Annual dividend income as a percentage of the opening portfolio value on 31 December 2013 has increased from 3.37% to reach 6.67% at this month end, as shown in the graph above. Portfolio income has increased by 3.03% in the year to date. This is a fall from last month’s peak. This fall is a result of investment changes I made in September. I chose to reduce my income a little in order to make changes.
Early in September I reduced an “income & growth” holding in order to raise cash levels. This represents about three months expenditure. I also reduced a “high income” holding in order to add to a “growth” holding. I have now built up a position of 4.14% of the portfolio in smaller company investment trusts that target capital growth as part of the 11.70% of the portfolio that I classify as growth. I expect to next review the portfolio at the end of November and may raise cash or switch towards growth or do both again in early December. In the meantime, about 80% of dividends received are being immediately re-invested in more of the same shares in order to grow my income.
The table below shows the composition of my portfolio at the end of the month. This has been analysed by the sector of each holding.
|Yield %||Capital %||Income %|
I have also analysed by the income or growth category of each holding.
|High Income||above 5%||UK, Property, Bonds, Asia Pacific|
|Income||4% to 5%||UK, Global, Asia Pacific|
|Income & Growth||3% to 4%||Asia Pacific, Global|
|Growth||below 3%||UK, Asia Pacific|
|Yield %||Capital %||Income %|
|Income & Growth||3.78||13.46||10.33|
My annual drawdown spending is now around 3.33% of my portfolio value, based on the last two years spending and the opening and closing values for that period. My cash holdings are sufficient to cover about six months of spending. In addition to this, about 20% of my dividends are being paid out in cash each year and that is sufficient to cover about four months of spending. The dividends being paid out are from, non-tax sheltered, dealing accounts.
Expenditure was heavier in September because our seventeen-year-old car, with over 103,000 miles on the clock, needed some expensive repairs to get through the MOT test. Expenditure has been higher in the last twelve months. This is partly because we had two holiday breaks this summer, and we replaced a gas cooker and a washer dryer. Fortunately, portfolio income for the last twelve months rose by 9.64% which was nearly as much as the expenditure increase of 9.98%. The increase in income is driven by continued dividend reinvestment and also from inheriting extra capital in April last year.
Draw down expenditure was 64.90% of my portfolio income for the last twelve months. This compares to draw down spending being 64.7% of my portfolio income in the previous twelve months.
This higher spending recently arises mostly from choices we made or from exceptional items rather than from high general price inflation. There is continued talk of higher inflation and the retail price index (RPI) has increased to an annual rate of 4.81% as at August 2021. I now expect this to show up in our future expenditure. Last month I switched energy provider in order to get a twelve-month fixed rate that was a 26% increase, rather than suffer a 46% increase. Since then both providers have gone bust so our account is being transferred to one of the bigger providers and I expect us to be paying a lot more. I am concerned now that groceries will also cost a lot more and that council tax may rise significantly next April.
Price inflation is now at the highest level I have experienced since beginning draw-down at the end of 2013. At the same time dividend growth is stalled. I can only get meaningful income growth by re-investing dividends in more shares. Fortunately, I am only spending 65.95% of my current portfolio so I have scope to re-invest. Depending on how things develop I may, however, have to stall on my gradual shift towards growth holdings.