Russia invaded Ukraine on Thursday 24 February. This followed several weeks when it was apparent that Russia had mobilised an army on its borders with Ukraine. In my view this is a significant historic event and is a humanitarian disaster, but I’m going to concentrate on the personal financial and portfolio impact of it in this post.
The Guardian reported a “rollercoaster day for shares after Russia hit with sanctions over Ukraine” and added that “the FTSE 100 index of Britain’s top 100 companies dropped 2% before finishing the day back where it started at 7,458 points.”
As at the end of February the investment return on my portfolio was -1.28% for the year so far. As at 18 March my investment returns look about the same. Those results mask a lot of volatile share price movements on a day-to-day basis. Share prices have moved by more than 2% up or down on individual days. I have to say that I try not to pay too much attention to daily market moves and that looks to have been the right thing to do. One holding, that I categorise as a growth trust, was 18% down for the year on 8 March but has now recovered to be 9% down as it was at the end of February and as it was on 23 February (see growth trust graph). Another holding, that I categorise as an income trust, was 14% down for the year on 7 March but is now only 3% down. It was 1% down on 28 February and 2% down on 23 February (see income trust graph). Of course, these share prices may move down again in the next few days.
The FTSE All Share Total Return index, my chosen benchmark, was down by -0.47% for the month, and down by -0.80% for the year so far. My investment return for the month was a loss of -1.23%, and a loss of -1.28% for the year so far. My individual holdings recorded share price movements for the year so far ranging from a loss of -20.31% to a gain of +2.60% with an unweighted average result of a loss of -3.44%. My worst performers were my growth holdings especially those that I have recently been adding to. My recent moves have thus worsened my results for the year so far. My better performers were some of my income holdings that will have high exposure to value stocks.
Starting from an index value of 100.00 at 31 December 2013, my capital is now 137.89, as shown in the graph above. There has been a reduction of -1.64% since December’s peak of 140.19. Investment return of a capital loss of -2.31% and dividend income of +1.03%, totalled a loss of -1.28%. Draw down expenditure deducted -0.36% during the year so far.
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 a new peak. It has been in a range between 6.65% and 6.77% since last March as I have tilted the portfolio away from income growth and towards capital growth. My current portfolio dividend income yield is 4.91%, i.e., 6.77 divided by 137.89.
Some dividends were received and re-invested during the month in my tax-sheltered accounts. Dividends in my dealing account were paid out to my bank. I also made two small switches reducing some global and UK equity income holdings and adding to some Asia Pacific and UK small company holdings. My growth holdings are now 13.14% of my portfolio compared to 7.81% twelve months ago. This is the after nine such small investment switches made since March last year.
The table below shows the composition of my portfolio at the end of the month. This has been analysed by the income or growth category of each holding.
|Yield %||Capital %||Income %|
|Income & Growth||3.99||13.24||10.76|
My annual drawdown spending is now around 3.26% 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 four 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 shares from my dealing account to raise cash in the next few weeks. My intention is to raise cash to spend and cash to fund the next tax year’s ISA just before the end of the current tax year. Given the volatility in share prices I may suffer lower prices on the day or days I sell.
Draw down spending was 61.78% of my portfolio income in the last twelve months which was an increase from 56.59% for the previous twelve months. Portfolio income rose by only 0.04% but expenditure rose by 9.22%. This increased spending resulted from some discretionary spending choices on electrical goods, furniture, and dining out (post lockdown), and exceptional costs on car repairs. There have been no impacts yet from the expected rises in energy costs, grocery bills and council taxes despite RPI and CPI inflation reaching annual rates of 7.84% and 5.41% at the end of January.
Having had both of my previous utility suppliers go bust last September just after I switched has meant that I waited five months for a refund for overpayments from last summer, whilst my new supplier has not yet charged me. We have not paid for any gas or electricity since December but I am expecting a large bill to appear as well as the expected big rise in prices. The new Council Tax year starts soon and it looks like there will be a 4.1% increase. Our grocery costs have actually fallen, probably because we bought more during lockdown in the previous year. The cost-of-living crisis has yet to hit us but as and when it does, we will be not too badly placed. Probably less than half of our spending can be classed as essential so we have discretionary and luxury spending that we are prepared to reduce if we need to.
So far, the impact of this war on my personal finances and portfolio has been to increase share price volatility and to increase uncertainty about the future. That hasn’t led to any significant loss of capital. This all feels fairly minor and trivial when looking at the major tragedy unfolding elsewhere in Europe, in Ukraine.