I'm closing the month a few days early before some festive travel. I'll do some more detailed analysis of 2013 in January, along with planning for the new year. Wishing you all a Merry Christmas and a Happy New Year!
December saw my net worth increase by 0.6%, with good savings offset by weaker investment performance.
The value of my investment portfolio was down over 1% following decreases in many equities markets along with some adverse fx movements. Purchases were limited to standing monthly purchases of the HK and China indices. Dividends were healthy, as they have been for the past 4 months. The critical mass of regular dividend paying ETFs is starting to contribute a reliable (albeit small at this stage) income stream.
My pension fund unit values fell around 1% during the month in line with global equities.
Property rental income was back to normal with no further expenses.
Cash balances increased with minimal investments and a good savings rate. I'm expecting most of my Christmas costs to come through in January.
Year to date net worth growth: 39.5%
Year to date savings rate: 69%
Sunday 22 December 2013
Tuesday 10 December 2013
Adverse fx movements, or are they..
Over the past 6 weeks or so i've noticed the unit value of a number of my ETFs declining, without seeing the same degree of falls in the underlying equities markets. This has been particularly apparent in asia pacific and emerging markets ETFs, which have dropped more materially.
However, a lot of the fall seems to be due to foreign exchange movements rather than underlying equities performance, with a double whammy of a number of currencies weakening against the USD, and GBP (many of my ETF investments are UK listed and GBP denominated) rising against USD. So for example, when i view the performance of my asia pacific property & high dividend ETFs in GBP, the value is down quite a lot recently.
This isn't a big concern for me for a few reasons:
- firstly i plan to hold long term so try not to focus too much on day to day price movements as long as the fundamentals remain solid
- although the investment values in GBP are falling, the value of the investments in their underlying currency are actually holding up well
- i am looking to reduce GBP exposure over time, so the fx movements will actually be favourable for investing in other currencies should i choose to sell GBP and buy USD, HKD or AUD for example.
The caveat to all this is the magnitude of the movements. Whilst i am comfortable with the size of the recent trend i would be concerned if this was the tip of a longer term and larger shift in the markets that could materially alter the overall value of my assets.
The other big unknown looking into 2014 is what impact QE tapering will have on global fx and equities markets and when we'll start to see this feeding through.
I'll pay closer attention to fx movements over the coming weeks and may look to re-balance if opportunities arise.
However, a lot of the fall seems to be due to foreign exchange movements rather than underlying equities performance, with a double whammy of a number of currencies weakening against the USD, and GBP (many of my ETF investments are UK listed and GBP denominated) rising against USD. So for example, when i view the performance of my asia pacific property & high dividend ETFs in GBP, the value is down quite a lot recently.
This isn't a big concern for me for a few reasons:
- firstly i plan to hold long term so try not to focus too much on day to day price movements as long as the fundamentals remain solid
- although the investment values in GBP are falling, the value of the investments in their underlying currency are actually holding up well
- i am looking to reduce GBP exposure over time, so the fx movements will actually be favourable for investing in other currencies should i choose to sell GBP and buy USD, HKD or AUD for example.
The caveat to all this is the magnitude of the movements. Whilst i am comfortable with the size of the recent trend i would be concerned if this was the tip of a longer term and larger shift in the markets that could materially alter the overall value of my assets.
The other big unknown looking into 2014 is what impact QE tapering will have on global fx and equities markets and when we'll start to see this feeding through.
I'll pay closer attention to fx movements over the coming weeks and may look to re-balance if opportunities arise.
Saturday 30 November 2013
November 2013 Review
November saw my net worth increase by 0.9%, with a lower than average savings rate and weaker investment performance.
The value of my investment portfolio was down around 1% following a very strong October, with emerging markets and metals falling. New purchases for the month included more units of the Emerging Markets High Dividend ETF (SEDY.L) and a small amount of gold.
My pension fund unit values were fairly flat for the month.
Property rental income was lower following a few repairs needed at the start of a new tenancy.
Cash balances were fairly flat with new investments offsetting monthly savings. Income was a little lower than average and expenses were higher, including my annual gym membership paid in one go.
Year to date net worth growth: 38.6%
Year to date savings rate: 70%
The value of my investment portfolio was down around 1% following a very strong October, with emerging markets and metals falling. New purchases for the month included more units of the Emerging Markets High Dividend ETF (SEDY.L) and a small amount of gold.
My pension fund unit values were fairly flat for the month.
Property rental income was lower following a few repairs needed at the start of a new tenancy.
Cash balances were fairly flat with new investments offsetting monthly savings. Income was a little lower than average and expenses were higher, including my annual gym membership paid in one go.
Year to date net worth growth: 38.6%
Year to date savings rate: 70%
Thursday 28 November 2013
SEDY.L Purchased
I've recently added to my existing investment in the ishares Emerging Markets high dividend ETF listed in the UK.
Whilst this has been a reliable dividend payer over the last year (yielding over 4%), it has been depreciating in value mainly as a result of adverse foreign exchange movements along with weakness in some of the underlying equities markets. The decline had accelerated in the past few weeks, which tempted me to add some additional units at a price lower than my initial investment.
The geographical mix is quite broad, including Taiwan, China, Brazil, South Africa, Turkey & Malaysia with just over 100 individual stocks held.
I do expect to continue seeing some volatility in price, but i'm happy to take a long term view with this investment and continue to take the dividends in the meantime.
The new units were purchased for around GBP16.86, and this is now the second largest holding in my investment portfolio.
Whilst this has been a reliable dividend payer over the last year (yielding over 4%), it has been depreciating in value mainly as a result of adverse foreign exchange movements along with weakness in some of the underlying equities markets. The decline had accelerated in the past few weeks, which tempted me to add some additional units at a price lower than my initial investment.
The geographical mix is quite broad, including Taiwan, China, Brazil, South Africa, Turkey & Malaysia with just over 100 individual stocks held.
I do expect to continue seeing some volatility in price, but i'm happy to take a long term view with this investment and continue to take the dividends in the meantime.
The new units were purchased for around GBP16.86, and this is now the second largest holding in my investment portfolio.
Monday 25 November 2013
Gold Purchased
Today i made a small purchase of Gold (paper rather than physical).
This is the first gold purchase for over a year, during which my existing holdings have declined over 20% in value. I hadn't considered adding to this investment until the recent downward leg towards $1200 an ounce.
Whether it is true or not $1200 is often quoted as the break even point for current production, leading many commentators / analysts to view it as a potential floor at which supply will cease to increase. Whilst i'm not sure about this theory (demand could still evaporate!), i decided to average down the purchase cost of my investment with a small additional purchase.
My holdings of metals are still a small proportion of my investments (and a tiny proportion of total assets) and i intend to keep it this way. The purchase roughly equates to the loss in value of the original holdings.
This is the first gold purchase for over a year, during which my existing holdings have declined over 20% in value. I hadn't considered adding to this investment until the recent downward leg towards $1200 an ounce.
Whether it is true or not $1200 is often quoted as the break even point for current production, leading many commentators / analysts to view it as a potential floor at which supply will cease to increase. Whilst i'm not sure about this theory (demand could still evaporate!), i decided to average down the purchase cost of my investment with a small additional purchase.
My holdings of metals are still a small proportion of my investments (and a tiny proportion of total assets) and i intend to keep it this way. The purchase roughly equates to the loss in value of the original holdings.
Friday 22 November 2013
Gym membership renewed
Back in January i set out some financial and non-financial objectives for the year. On the non-financial side these were (a) get fitter, and (b) achieve a better work balance.
Whilst (b) is still a work in progress (i'll cover this separately!), (a) has shown some recent signs of improvement. I've had a gym membership here for a few years now, but seem to go through phases of regular and not so regular exercise.
I'd say in this regard it has been a year of two halves. The year didn't start well, with excessive workload breaking up my usual regime of trying to get to the gym at lunchtimes. However, the last few months have been a lot better, with 3 to 4 visits a week and fitness improvements starting to become more noticeable.
This made the decision to renew my membership earlier this month quite straightforward. Whilst the cost went marginally up, i did negotiate a little discount and with my renewed motivation, regular attendance and health benefits, this feels like a good investment.
Whilst (b) is still a work in progress (i'll cover this separately!), (a) has shown some recent signs of improvement. I've had a gym membership here for a few years now, but seem to go through phases of regular and not so regular exercise.
I'd say in this regard it has been a year of two halves. The year didn't start well, with excessive workload breaking up my usual regime of trying to get to the gym at lunchtimes. However, the last few months have been a lot better, with 3 to 4 visits a week and fitness improvements starting to become more noticeable.
This made the decision to renew my membership earlier this month quite straightforward. Whilst the cost went marginally up, i did negotiate a little discount and with my renewed motivation, regular attendance and health benefits, this feels like a good investment.
Saturday 9 November 2013
Beginners advice - part 3
Ok, hopefully by now you have some high level financial goals in mind, along with an understanding of your current financial position. Now its time to pull these together & evaluate where you are in the context of where you'd like to get to:
Step 5) Evaluate your current position
Contrary to what financial advisers will tell you, i really don't think you need to be (or pay for) a financial adviser to do this. The following points are some things that may be worth considering in assessing how you are doing, turning basic financial information into something a bit more meaningful:
Net Worth:
This is generally defined as assets minus liabilities, ie how much you are worth at any point in time. This can also be projected forward by adding on the difference between your income & expenses.
Lets say your assets are 2000 and your liabilities are 500. This would result in a net worth of 1500. Now lets say monthly income less average expenses results in savings of 100. Over a year you'd save around 1200, suggesting your net worth in a year's time may be around 2700.
This is particularly useful to understand if one of your goals is to save a certain amount over a set period of time.
Savings rate:
There are different ways of defining this, but my preferred approach is to think about how much you save each month (after putting aside a tax accrual) as a proportion of total income. This will become a useful tool to measure the pace at which you expect to grow net worth, and can also be used in setting personal targets to achieve certain goals.
Asset Allocation:
This is the proportion of your assets held in each asset category. This can be as detailed as you like, but i tend to focus on 4 broad categories, being Cash (bank accounts), Pension schemes, Property and other Investments (eg shares).
This is important to understand as it determines the relative riskiness or volatility of your wealth - we'll come back to this point at a later stage. It can also be used to assess the level of income/growth your assets may generate through interest, dividends, capital growth or rent.
Cash buffer:
Take the value of all your readily available cash balances and divide it by your typical monthly expenses. This will give an idea of how many months worth of cash are available for emergencies, for example if you lose your job or get hit with any large unexpected expenses. I consider this an important metric in understanding short term financial security, and it may be one of your goals to maintain a cash buffer of a certain size, depending on your individual appetite for risk.
There are many other things you could look at, but i consider these to be a good starting point in evaluating your current financial position. They can also be used as metrics or KPIs to assess progress towards goals or for setting specific targets.
Now we have all this information it is possible to start monitoring and making some decisions...
Step 5) Evaluate your current position
Contrary to what financial advisers will tell you, i really don't think you need to be (or pay for) a financial adviser to do this. The following points are some things that may be worth considering in assessing how you are doing, turning basic financial information into something a bit more meaningful:
Net Worth:
This is generally defined as assets minus liabilities, ie how much you are worth at any point in time. This can also be projected forward by adding on the difference between your income & expenses.
Lets say your assets are 2000 and your liabilities are 500. This would result in a net worth of 1500. Now lets say monthly income less average expenses results in savings of 100. Over a year you'd save around 1200, suggesting your net worth in a year's time may be around 2700.
This is particularly useful to understand if one of your goals is to save a certain amount over a set period of time.
Savings rate:
There are different ways of defining this, but my preferred approach is to think about how much you save each month (after putting aside a tax accrual) as a proportion of total income. This will become a useful tool to measure the pace at which you expect to grow net worth, and can also be used in setting personal targets to achieve certain goals.
Asset Allocation:
This is the proportion of your assets held in each asset category. This can be as detailed as you like, but i tend to focus on 4 broad categories, being Cash (bank accounts), Pension schemes, Property and other Investments (eg shares).
This is important to understand as it determines the relative riskiness or volatility of your wealth - we'll come back to this point at a later stage. It can also be used to assess the level of income/growth your assets may generate through interest, dividends, capital growth or rent.
Cash buffer:
Take the value of all your readily available cash balances and divide it by your typical monthly expenses. This will give an idea of how many months worth of cash are available for emergencies, for example if you lose your job or get hit with any large unexpected expenses. I consider this an important metric in understanding short term financial security, and it may be one of your goals to maintain a cash buffer of a certain size, depending on your individual appetite for risk.
There are many other things you could look at, but i consider these to be a good starting point in evaluating your current financial position. They can also be used as metrics or KPIs to assess progress towards goals or for setting specific targets.
Now we have all this information it is possible to start monitoring and making some decisions...
Friday 1 November 2013
Beginners advice - part 2
In my first post on this topic, i covered the basic foundations of managing personal finances which are to understand your assets, liabilities, income & expenses.
Before diving into any further detail with this information i think it would be a good idea to step back and think about your financial goals:
Step 4) Consider your goals
These will be different for every individual, and may be vague (eg financial security), specific (saving up $xxx for a property deposit), long term (retirement planning) or shorter term (eg planning for travel). It could even be as simple as just gaining confidence in how to understand and manage your finances more effectively.
My goals probably cover all these. For example, in the longer term i'd like to get myself into a position where i can have a comfortable (and hopefully early!) retirement. In the medium term i'd like to have financial security and to be able to provide for a family. In the short term i'd like to make sure i can live comfortably and happily but without going too crazy and jeopardising the success of these longer term goals.
An important point to recognise is that these goals will and do change through life, so whilst it is worth stepping back and giving them some initial thought, the process shouldn't be too rigid.
Once you have an idea of your goals, you can start viewing them together with your current position (assets & liabilities) and your outlook (derived from your income & expenses) to shape the current & future financial decisions needed to achieve these goals.
We'll save more on that for next time...
Before diving into any further detail with this information i think it would be a good idea to step back and think about your financial goals:
Step 4) Consider your goals
These will be different for every individual, and may be vague (eg financial security), specific (saving up $xxx for a property deposit), long term (retirement planning) or shorter term (eg planning for travel). It could even be as simple as just gaining confidence in how to understand and manage your finances more effectively.
My goals probably cover all these. For example, in the longer term i'd like to get myself into a position where i can have a comfortable (and hopefully early!) retirement. In the medium term i'd like to have financial security and to be able to provide for a family. In the short term i'd like to make sure i can live comfortably and happily but without going too crazy and jeopardising the success of these longer term goals.
An important point to recognise is that these goals will and do change through life, so whilst it is worth stepping back and giving them some initial thought, the process shouldn't be too rigid.
Once you have an idea of your goals, you can start viewing them together with your current position (assets & liabilities) and your outlook (derived from your income & expenses) to shape the current & future financial decisions needed to achieve these goals.
We'll save more on that for next time...
Thursday 31 October 2013
October 2013 Review
October saw my net worth increase by 3%, with increases in investments, pensions, property & positive (although lower than average) savings.
The value of my investment portfolio was up over 3% with strong increases in developed market equities in particular. New purchases for the month include more units of a Global High Dividend ETF (VHYL.L) and a new HK listed RMB Bond ETF (3139.HK). Both new investments have been increasing since purchase.
My pension fund unit values increased by over 2% as global equities markets generally had a good month.
My property was occupied with the new higher rent coming in on schedule from the new tenant. I also increased the value i hold the property at in my records following continued increases in the local market. This is the second increase this year, but the value i'm using is still at the conservative end of the local range. I'm expecting a number of maintenance costs to come through in November to resolve a few issues highlighted by the new tenant, which will make a big dent in next month's rental income.
Cash balances reduced due to a couple of new investments in the month. Income was good but expenses were higher than average following a holiday and a few treats in the month. My expenses are running quite a bit above my original plan now, but i'll do some more work to understand the reasons before taking any action.
Year to date net worth growth: 37.8%
Year to date savings rate: 71%
The value of my investment portfolio was up over 3% with strong increases in developed market equities in particular. New purchases for the month include more units of a Global High Dividend ETF (VHYL.L) and a new HK listed RMB Bond ETF (3139.HK). Both new investments have been increasing since purchase.
My pension fund unit values increased by over 2% as global equities markets generally had a good month.
My property was occupied with the new higher rent coming in on schedule from the new tenant. I also increased the value i hold the property at in my records following continued increases in the local market. This is the second increase this year, but the value i'm using is still at the conservative end of the local range. I'm expecting a number of maintenance costs to come through in November to resolve a few issues highlighted by the new tenant, which will make a big dent in next month's rental income.
Cash balances reduced due to a couple of new investments in the month. Income was good but expenses were higher than average following a holiday and a few treats in the month. My expenses are running quite a bit above my original plan now, but i'll do some more work to understand the reasons before taking any action.
Year to date net worth growth: 37.8%
Year to date savings rate: 71%
Wednesday 30 October 2013
Asset allocation update
One of my first posts back in November 2012 contained a breakdown of my asset allocation between property, pension funds, cash and directly held investments. As we're about a year on from this i thought i'd share an update.
Property 40% (was 52% in Nov 2012)
Whilst the value of my property has actually increased over the last year, its proportion of my overall asset base has decreased mainly as a result of good income, a strong savings rate and a few one off gains. Going forward this will probably continue to decline unless i make any new property purchases.
Pensions 15% (was 15%)
The value of my pension funds have grown steadily and in line with my overall net worth growth, due to regular monthly contributions by myself and my employer. This proportion is likely to stay fairly stable going forward unless there are any major market rallies or falls.
Direct Investments 10% (was 4%)
I've significantly increased the size of my investment portfolio over the last year, primarily in high dividend ETFs. I'm expecting to continue to steadily grow this proportion going forward.
Cash 35% (was 29%)
Despite growing my investment portfolio throughout the year, cash balances have continued to rise due to high income and savings. Whilst i'd like to manage this percentage down, it is likely to be a slow and steady change unless any individually large investment opportunities (eg property) arise.
Property 40% (was 52% in Nov 2012)
Whilst the value of my property has actually increased over the last year, its proportion of my overall asset base has decreased mainly as a result of good income, a strong savings rate and a few one off gains. Going forward this will probably continue to decline unless i make any new property purchases.
Pensions 15% (was 15%)
The value of my pension funds have grown steadily and in line with my overall net worth growth, due to regular monthly contributions by myself and my employer. This proportion is likely to stay fairly stable going forward unless there are any major market rallies or falls.
Direct Investments 10% (was 4%)
I've significantly increased the size of my investment portfolio over the last year, primarily in high dividend ETFs. I'm expecting to continue to steadily grow this proportion going forward.
Cash 35% (was 29%)
Despite growing my investment portfolio throughout the year, cash balances have continued to rise due to high income and savings. Whilst i'd like to manage this percentage down, it is likely to be a slow and steady change unless any individually large investment opportunities (eg property) arise.
Beginners advice - part 1
A friend of mine recently mentioned they were not very familiar with the world of managing personal finances & investments. It got me thinking as to what i would recommend as a few simple steps for someone looking to start out from the beginning in building their knowledge & skills in this area.
This is what i've come up with so far, and i'll look to develop this over a series of posts:
Step 1) Understand your starting point.
I think an important first step is to assess your current financial position. This can be done by having one central record (be it an excel spreadsheet, online tool, or paper & pen!) that logs & tracks the value of all assets & liabilities. Assets should include all bank accounts, investments, pension schemes, property. It can also include personal possessions, but i would only recommend including the latter if they add up to a big number and could/would be easily sold. Liabilities should include any debt such as loans, mortgages & credit cards. If based in HK you can also go a step further and estimate how much salaries tax you are likely to owe and include this as a liability.
Step 2) Understand your income & expenses
For most people on a regular salary, it is relatively easy to understand income as it is usually consistent & predictable. Expenses tend to be harder as they are often less consistent & depend on a lot of different factors (eg one-off treats, holidays). It may be easiest to focus first on necessary expenses (such as rent & bills) and then look back over a few months to work out an average for discretionary expenses.
Step 3) Pull this all together
Once you build an understanding of your typical income & expenses, the next logical step is to bring these together in a simple budget or plan. This will give an idea of how much (hopefully!) spare cash you have left over each month and how regular or consistent this is likely to be.
These first 3 steps give a solid platform to then start planning ahead, understanding your goals & objectives, and managing your finances. More to follow....
This is what i've come up with so far, and i'll look to develop this over a series of posts:
Step 1) Understand your starting point.
I think an important first step is to assess your current financial position. This can be done by having one central record (be it an excel spreadsheet, online tool, or paper & pen!) that logs & tracks the value of all assets & liabilities. Assets should include all bank accounts, investments, pension schemes, property. It can also include personal possessions, but i would only recommend including the latter if they add up to a big number and could/would be easily sold. Liabilities should include any debt such as loans, mortgages & credit cards. If based in HK you can also go a step further and estimate how much salaries tax you are likely to owe and include this as a liability.
Step 2) Understand your income & expenses
For most people on a regular salary, it is relatively easy to understand income as it is usually consistent & predictable. Expenses tend to be harder as they are often less consistent & depend on a lot of different factors (eg one-off treats, holidays). It may be easiest to focus first on necessary expenses (such as rent & bills) and then look back over a few months to work out an average for discretionary expenses.
Step 3) Pull this all together
Once you build an understanding of your typical income & expenses, the next logical step is to bring these together in a simple budget or plan. This will give an idea of how much (hopefully!) spare cash you have left over each month and how regular or consistent this is likely to be.
These first 3 steps give a solid platform to then start planning ahead, understanding your goals & objectives, and managing your finances. More to follow....
Tuesday 22 October 2013
Developments in the HK Exchange Traded Fund market
Following my recent discovery of a newly listed RMB Bond ETF (3139.HK), i decided to see if i could find any other new additions to the market.
As background, whilst the USA (and to a lesser extent the UK) have a wide range of exchange traded funds offering low cost pre-packaged investment portfolios (generally tracking an index), Hong Kong has traditionally had much less choice. Apart from the excellent 'Tracker Fund of Kong Kong' (2800.HK) which offers an ultra low cost (0.15%) dividend paying tracker of the HSI index, and a handful of China & Asia focused ETFs, there has been limited other options to gain wider global / asset class diversity at a similar low cost.
I was therefore particularly pleased to discover another newcomer to the market, being the Vanguard FTSE Asia ex Japan ETF (2805.HK). Launched in May 2013, this ETF offers wider emerging Asia exposure, with a weighting biased towards China, South Korea, HK, Taiwan & India.
Whilst i haven't dived straight in for a purchase at this stage (still mulling over country risks, current valuations & lower yields), i am pleased to see this mainly because of its issuer, Vanguard.
Vanguard have a strong reputation in the USA for providing low cost investment options in particular for privately managed pension schemes. The total expense ratios (TER) or costs to the investor tend to be much lower than most UK & HK listed ETFs i've seen, which i suspect is a consequence of a more mature & competitive ETF market in the USA.
Vanguard have recently launched a basic range of ETFs in the UK, including my personal favourite Global High Dividend ETF (VHYL.L), which looks to have shaken up the market by offering lower cost products compared to some of the more established players. More recently i've noticed Ishares UK have reduced a number of the TERs on their much larger UK range - this may well be in response to the new competition.
It is for this reason i'm pleased to see Vanguard launch their first HK listed ETF. Whilst this appears to be an initial market tester, it looks to have had reasonable take up since launch. With a TER of 0.38%, it also looks to be cheaper than other multi-country emerging markets ETFs (the similar ishares hk emerging asia ETF 2802.HK has a TER of 0.59%).
I'll be keeping a close eye on the major HK ETF issuer websites going forward. It may even be worth purchasing this new ETF just to encourage them to stick with & help to further develop the HK market!
As background, whilst the USA (and to a lesser extent the UK) have a wide range of exchange traded funds offering low cost pre-packaged investment portfolios (generally tracking an index), Hong Kong has traditionally had much less choice. Apart from the excellent 'Tracker Fund of Kong Kong' (2800.HK) which offers an ultra low cost (0.15%) dividend paying tracker of the HSI index, and a handful of China & Asia focused ETFs, there has been limited other options to gain wider global / asset class diversity at a similar low cost.
I was therefore particularly pleased to discover another newcomer to the market, being the Vanguard FTSE Asia ex Japan ETF (2805.HK). Launched in May 2013, this ETF offers wider emerging Asia exposure, with a weighting biased towards China, South Korea, HK, Taiwan & India.
Whilst i haven't dived straight in for a purchase at this stage (still mulling over country risks, current valuations & lower yields), i am pleased to see this mainly because of its issuer, Vanguard.
Vanguard have a strong reputation in the USA for providing low cost investment options in particular for privately managed pension schemes. The total expense ratios (TER) or costs to the investor tend to be much lower than most UK & HK listed ETFs i've seen, which i suspect is a consequence of a more mature & competitive ETF market in the USA.
Vanguard have recently launched a basic range of ETFs in the UK, including my personal favourite Global High Dividend ETF (VHYL.L), which looks to have shaken up the market by offering lower cost products compared to some of the more established players. More recently i've noticed Ishares UK have reduced a number of the TERs on their much larger UK range - this may well be in response to the new competition.
It is for this reason i'm pleased to see Vanguard launch their first HK listed ETF. Whilst this appears to be an initial market tester, it looks to have had reasonable take up since launch. With a TER of 0.38%, it also looks to be cheaper than other multi-country emerging markets ETFs (the similar ishares hk emerging asia ETF 2802.HK has a TER of 0.59%).
I'll be keeping a close eye on the major HK ETF issuer websites going forward. It may even be worth purchasing this new ETF just to encourage them to stick with & help to further develop the HK market!
Thursday 17 October 2013
Managing assets in multiple currencies
One of the challenges many expats face in managing personal finances is having assets denominated in different currencies. This adds both complexity to monitoring, and risk to managing the assets.
If we take monitoring first, i'll summarise some of the challenges i've encountered and my approach to dealing with these.
The first choice i faced was which currency to monitor assets in, ie. whether to translate everything to a preferred/primary currency, monitor everything in its own currency, or monitor all assets in multiple currencies (or a combination of these). My approach is to track each asset in its underlying currency, and then translate the total to my primary currency, but also to then track this total in the other major currencies used. I track the total in multiple currencies mainly because i'm not sure yet where i'll be based later in life.
A second issue encountered was which fx rates to use, and how frequently to update these. This is perhaps a sign of my limitations in microsoft excel, but i have found changing fx rates adds a lot of complexity to the monitoring of assets in multiple currencies, with current income being effected, along with the need to re-translate the existing asset base. My preferred approach is therefore to minimise changes in fx rates by taking a 'benchmark' or recent historical average rate, and sticking with this as long as possible ignoring short term fluctuations. I then only change fx rates when they break out of a recent range and move away from my benchmark rates. Whilst this doesn't remove the complexities, it does reduce the frequency of facing these complexities! In order to minimise error, i've tried to build in checks to make sure everything still adds up after a change, and to also include fields to isolate the impact of fx changes, which helps in understanding & managing the risk.
In terms of fx risk management, whilst i don't have a clearly defined strategy, my approach over the last couple of years has been to translate as much as possible into my original home currency. This is partly as i have so far assumed there is a good chance i'll live there again in the future, and partly because my original home currency has been closer towards its historic weak point against other major currencies, making it cheap & attractive to buy. I have also found a greater choice & easier access to assets in this currency to invest in, to manage my finances.
However, recently i have begun thinking that there is less certainty where i will be based in the long term. It would therefore be prudent to have a greater balance to the currency mix of my assets, giving greater flexibility for the future and helping to hedge fx risk through diversification. This is likely to result in a gradual re-balancing of my currency exposure going forward, which may also have knock on implications for my overall asset allocation.
If there are any significant fx movements going forward, i may look to opportunistically take advantage of these, but this is only likely to be between currencies that i currently have or am likely to use. I'm not particularly interested in speculating in a wider range of currencies, and my focus is more on risk management rather than seeing currencies themselves as an investment tool.
If we take monitoring first, i'll summarise some of the challenges i've encountered and my approach to dealing with these.
The first choice i faced was which currency to monitor assets in, ie. whether to translate everything to a preferred/primary currency, monitor everything in its own currency, or monitor all assets in multiple currencies (or a combination of these). My approach is to track each asset in its underlying currency, and then translate the total to my primary currency, but also to then track this total in the other major currencies used. I track the total in multiple currencies mainly because i'm not sure yet where i'll be based later in life.
A second issue encountered was which fx rates to use, and how frequently to update these. This is perhaps a sign of my limitations in microsoft excel, but i have found changing fx rates adds a lot of complexity to the monitoring of assets in multiple currencies, with current income being effected, along with the need to re-translate the existing asset base. My preferred approach is therefore to minimise changes in fx rates by taking a 'benchmark' or recent historical average rate, and sticking with this as long as possible ignoring short term fluctuations. I then only change fx rates when they break out of a recent range and move away from my benchmark rates. Whilst this doesn't remove the complexities, it does reduce the frequency of facing these complexities! In order to minimise error, i've tried to build in checks to make sure everything still adds up after a change, and to also include fields to isolate the impact of fx changes, which helps in understanding & managing the risk.
In terms of fx risk management, whilst i don't have a clearly defined strategy, my approach over the last couple of years has been to translate as much as possible into my original home currency. This is partly as i have so far assumed there is a good chance i'll live there again in the future, and partly because my original home currency has been closer towards its historic weak point against other major currencies, making it cheap & attractive to buy. I have also found a greater choice & easier access to assets in this currency to invest in, to manage my finances.
However, recently i have begun thinking that there is less certainty where i will be based in the long term. It would therefore be prudent to have a greater balance to the currency mix of my assets, giving greater flexibility for the future and helping to hedge fx risk through diversification. This is likely to result in a gradual re-balancing of my currency exposure going forward, which may also have knock on implications for my overall asset allocation.
If there are any significant fx movements going forward, i may look to opportunistically take advantage of these, but this is only likely to be between currencies that i currently have or am likely to use. I'm not particularly interested in speculating in a wider range of currencies, and my focus is more on risk management rather than seeing currencies themselves as an investment tool.
Tuesday 15 October 2013
3139.HK Purchased
I've recently stumbled across this newly launched HK listed ETF from ishares. It invests in RMB denominated bonds, which are mostly issued by either the China Government or other affiliated issuers, along with a few corporate debt issuances.
There are currently around 80 components with an average life of around 3 years and a current yield to maturity of around 4.3%.
I like this ETF for a few reasons. Firstly, it offers a good yield, which is above most RMB savings account rates. It should also be relatively safe, with diversification across a number of issuances and predominantly being sovereign risk.
Two areas of uncertainty are (a) whether RMB will continue to appreciate against the USD (& HKD), and (b) how the unit values may be impacted by changes in interest rates.
Regarding the former, my personal view is that whilst there may be temporary moves up and down, over the long term i expect RMB to continue to appreciate as the chinese economy continues to grow at a healthy rate.
Regarding interest rate movements, part of the attraction of this ETF is that i don't think it will necessarily follow the widely expected decline in values anticipated in USD bonds. Given USD interest rates are effectively zero, they can only really go up, which should in theory reduce bond valuations. However, RMB interest rates are at more normalised levels, and may well go down if growth rates slow, increasing bond valuations.
Overall i'm comfortable with the risks and see this as a good addition to my income focused investment portfolio.
The unit purchase price was around HKD43.5
There are currently around 80 components with an average life of around 3 years and a current yield to maturity of around 4.3%.
I like this ETF for a few reasons. Firstly, it offers a good yield, which is above most RMB savings account rates. It should also be relatively safe, with diversification across a number of issuances and predominantly being sovereign risk.
Two areas of uncertainty are (a) whether RMB will continue to appreciate against the USD (& HKD), and (b) how the unit values may be impacted by changes in interest rates.
Regarding the former, my personal view is that whilst there may be temporary moves up and down, over the long term i expect RMB to continue to appreciate as the chinese economy continues to grow at a healthy rate.
Regarding interest rate movements, part of the attraction of this ETF is that i don't think it will necessarily follow the widely expected decline in values anticipated in USD bonds. Given USD interest rates are effectively zero, they can only really go up, which should in theory reduce bond valuations. However, RMB interest rates are at more normalised levels, and may well go down if growth rates slow, increasing bond valuations.
Overall i'm comfortable with the risks and see this as a good addition to my income focused investment portfolio.
The unit purchase price was around HKD43.5
Sunday 13 October 2013
The HKD peg
I have a general interest in economics and financial markets, so every now & then i'll share my views on a few topics, starting with the Hong Kong Dollar currency peg.
Hong Kong has had a long history of pegging its currency. In the early 20th century it was pegged to Silver, following this it was pegged to GBP. After this, there was around a decade of free floating in the 1970s, and for the past 30 years it has been pegged to the USD.
In general i think the current peg has served HK well, bringing relative economic stability through a wide range of local & global events. Using USD as a peg also makes a lot of sense for an economy so focused on international trade, given the dominance of USD in trade settlement. I also think the HK Monetary Authority has done a good job in maintaining the peg, based on the USD backing of the currency and through passive intervention under the currency board mechanism. This strong monetary & economic management is vital in giving confidence to the financial markets & mitigating speculative pressures on the currency.
There are a couple of scenarios we have seen recently in HK that a pegged system does find challenging.
Firstly, when the economic cycles of the 2 economies are out of line, the prevailing monetary policy may not always be best suited to both parties. For example, the last few years have seen the US operate a policy of monetary easing, keeping interest rates low to stimulate growth. However, with the HK economy performing relatively better, the combination of low rates and growth have led to local inflationary pressures which become more difficult to manage without monetary flexibility.
Secondly, a currency board system would typically be self correcting, with a central bank selling the pegged currency as demand for that currency increases, in order to ease pressure on the peg. This should drive down local interest rates, reducing the original demand for the pegged currency and restoring a relative balance in value. However, when all interest rates are already close to zero, unless rates turn negative, it may not be possible to remove demand from the pegged currency in this way, resulting in excess liquidity.
I think we may have seen this in HK, which could to some extent be a contributing factor for the increases in real asset prices such as the local stock market and property, as this surplus liquidity is invested. It is unclear at this stage if, when and to what extent such valuations and fund flows may reverse, although the government's property cooling measures do seem to be slowing the market.
Whilst these consequences may at times be uncomfortable for the local economy, i generally believe the advantages of maintaining the status quo in HK would outweigh any challenges at this stage.
We'll have to see what the longer term future holds, which may to some extent be influenced by the internationalisation of RMB, and its impact on the local and wider economy.
Hong Kong has had a long history of pegging its currency. In the early 20th century it was pegged to Silver, following this it was pegged to GBP. After this, there was around a decade of free floating in the 1970s, and for the past 30 years it has been pegged to the USD.
In general i think the current peg has served HK well, bringing relative economic stability through a wide range of local & global events. Using USD as a peg also makes a lot of sense for an economy so focused on international trade, given the dominance of USD in trade settlement. I also think the HK Monetary Authority has done a good job in maintaining the peg, based on the USD backing of the currency and through passive intervention under the currency board mechanism. This strong monetary & economic management is vital in giving confidence to the financial markets & mitigating speculative pressures on the currency.
There are a couple of scenarios we have seen recently in HK that a pegged system does find challenging.
Firstly, when the economic cycles of the 2 economies are out of line, the prevailing monetary policy may not always be best suited to both parties. For example, the last few years have seen the US operate a policy of monetary easing, keeping interest rates low to stimulate growth. However, with the HK economy performing relatively better, the combination of low rates and growth have led to local inflationary pressures which become more difficult to manage without monetary flexibility.
Secondly, a currency board system would typically be self correcting, with a central bank selling the pegged currency as demand for that currency increases, in order to ease pressure on the peg. This should drive down local interest rates, reducing the original demand for the pegged currency and restoring a relative balance in value. However, when all interest rates are already close to zero, unless rates turn negative, it may not be possible to remove demand from the pegged currency in this way, resulting in excess liquidity.
I think we may have seen this in HK, which could to some extent be a contributing factor for the increases in real asset prices such as the local stock market and property, as this surplus liquidity is invested. It is unclear at this stage if, when and to what extent such valuations and fund flows may reverse, although the government's property cooling measures do seem to be slowing the market.
Whilst these consequences may at times be uncomfortable for the local economy, i generally believe the advantages of maintaining the status quo in HK would outweigh any challenges at this stage.
We'll have to see what the longer term future holds, which may to some extent be influenced by the internationalisation of RMB, and its impact on the local and wider economy.
Saturday 12 October 2013
Investment Portfolio Update - 1 year on
It is around a year since i set up my personal investment portfolio. I've been steadily building it up over the last year, with a combination of initial core holdings, regular purchases & the occasional more opportunistic investment.
Here's the current position:
Overall the core high yield ETFs have performed very well, especially the developed markets (UK, Eurozone & Global High dividend). The emerging market ETFs have seen more volatility, with some also being adversely affected by depreciating currencies.
As expected, Gold & Silver have been very poor, although these were purchased partly to hedge against any potential crises that may have impacted equities performance. These are also a relatively small part of the portfolio at around 8% combined.
Looking forward, i'll probably look to build the portfolio primarily by adding to core holdings either with regular purchases or on market dips if possible. I don't want to add too many new holdings unless they clearly meet my basic investment criteria (adding to diversification, yield and being good value), however, i will keep my options open.
Here's the current position:
| Description | CAGR | % Portfolio | |
| UK listed ETFs | |||
| SEDY | EM High dividend | 3.8% | 8.1% |
| IASP | Asia Pacific property | 6.5% | 8.5% |
| SHYU | High yield corporate debt | 5.2% | 8.5% |
| IUKD | UK High dividend | 26.2% | 9.8% |
| IDVY | Eurozone High dividend | 30.1% | 5.9% |
| IAPD | Asia Pacific High dividend | 1.4% | 7.9% |
| VHYL | Global High Dividend | 25.2% | 15.4% |
| INFR | Global Infrastructure | -4.6% | 7.1% |
| HK listed ETFs | |||
| 2800 | HK Index tracker | 12.6% | 6.8% |
| 3049 | CSI 300 China tracker | -1.0% | 3.6% |
| Other Equities | |||
| AV.B | Aviva Pref Shares | -3.8% | 7.7% |
| AAPL | Apple | 11.3% | 2.5% |
| Metals | |||
| GOLD | Gold (paper) | -25.1% | 6.2% |
| SSLN | Silver (ETF) | -42.4% | 1.9% |
| Total weighted CAGR | 7.8% | 100% |
Overall the core high yield ETFs have performed very well, especially the developed markets (UK, Eurozone & Global High dividend). The emerging market ETFs have seen more volatility, with some also being adversely affected by depreciating currencies.
As expected, Gold & Silver have been very poor, although these were purchased partly to hedge against any potential crises that may have impacted equities performance. These are also a relatively small part of the portfolio at around 8% combined.
Looking forward, i'll probably look to build the portfolio primarily by adding to core holdings either with regular purchases or on market dips if possible. I don't want to add too many new holdings unless they clearly meet my basic investment criteria (adding to diversification, yield and being good value), however, i will keep my options open.
Thursday 3 October 2013
2014 Financial Planning
As we have entered the 4th quarter i've done a quick first draft of my 2014 financial plan.
Whilst i already have a very high level forecast for the next 15 or so years, i always try to refine the closest year to better plan and manage cash flows, expenses and investments. It also helps to set objectives & targets, focusing the mind on short term financial discipline to reach a longer term goal.
I'm expecting to finish 2013 with an approximate annual net worth growth of around 35% and a savings rate around 70%, which is well above what i planned for, but also includes a couple of one-off gains that won't recur. For reference my 2013 plan had net worth growth of 21% and a savings rate of 63%.
For 2014 i'm assuming flat regular income without the one-offs. This is fairly conservative but that's how i prefer to plan. I'm assuming higher expenses based on experience from this year to date, which are running around 10% ahead of plan. This is partly a timing issue of when HK income tax payments are due, but also higher underlying expenses, in particular entertainment, eating out etc which are areas i've decided to allow some more luxury into my lifestyle! There are no large one off expenses expected next year.
The initial 2014 plan indicates net worth growth of around 15% with a savings rate of around 60%. I think this is fairly realistic, and i would be happy to achieve these figures. Net worth growth as a percentage should continue to decline as the base grows each year, and a key long term financial goal is to maintain a savings rate above 50%. My approach to calculating a savings rate is to include tax in expenses and compare total expenses to gross income. The percentage would be higher if tax was netted against income first.
I'll probably give this some more thought over the next few months and make some refinements, but the first cut looks good so far!
Whilst i already have a very high level forecast for the next 15 or so years, i always try to refine the closest year to better plan and manage cash flows, expenses and investments. It also helps to set objectives & targets, focusing the mind on short term financial discipline to reach a longer term goal.
I'm expecting to finish 2013 with an approximate annual net worth growth of around 35% and a savings rate around 70%, which is well above what i planned for, but also includes a couple of one-off gains that won't recur. For reference my 2013 plan had net worth growth of 21% and a savings rate of 63%.
For 2014 i'm assuming flat regular income without the one-offs. This is fairly conservative but that's how i prefer to plan. I'm assuming higher expenses based on experience from this year to date, which are running around 10% ahead of plan. This is partly a timing issue of when HK income tax payments are due, but also higher underlying expenses, in particular entertainment, eating out etc which are areas i've decided to allow some more luxury into my lifestyle! There are no large one off expenses expected next year.
The initial 2014 plan indicates net worth growth of around 15% with a savings rate of around 60%. I think this is fairly realistic, and i would be happy to achieve these figures. Net worth growth as a percentage should continue to decline as the base grows each year, and a key long term financial goal is to maintain a savings rate above 50%. My approach to calculating a savings rate is to include tax in expenses and compare total expenses to gross income. The percentage would be higher if tax was netted against income first.
I'll probably give this some more thought over the next few months and make some refinements, but the first cut looks good so far!
Tuesday 1 October 2013
New tenant update
My new tenant moved in towards the end of September. As the outgoing tenant asked to leave before the end of the lease, they agreed to pay rent up to the new tenant moving in - in the end there was only a couple of days gap so this wasn't a big issue.
On the plus side, the new tenant is paying around 6% higher rent. On the downside, there were a number of costs associated with the start of a new lease.
One thing noticeable this time is that wear & tear on the furnishings is becoming much more apparent. I think i'll have to budget for some repairs & replacements at the end of this new tenancy in order to maintain a rental income towards the top end of the market range.
On the plus side, the new tenant is paying around 6% higher rent. On the downside, there were a number of costs associated with the start of a new lease.
One thing noticeable this time is that wear & tear on the furnishings is becoming much more apparent. I think i'll have to budget for some repairs & replacements at the end of this new tenancy in order to maintain a rental income towards the top end of the market range.
VHYL.L Purchased (again)
I've taken advantage of a slight market pull back to purchase some additional shares in my new favourite ETF.
This is a relatively new Vanguard ETF listed in the UK investing in global high dividend shares, with a heavy weighting to the USA & Europe. Whilst it technically covers developed & emerging markets, in practice it is very much focused on developed markets.
Many equities have fallen recently with the latest round of US political brinkmanship and more political uncertainty in Italy. This ETF has fallen around 3% in the last month, to a more palatable level for me to buy again.
With a dividend yield of around 4%, around a 1000 components, low management costs and a reasonable PE valuation, this fits my investment strategy particularly well and is now the largest individual holding in my investment portfolio.
I paid around GBP30.95 for the additional shares
This is a relatively new Vanguard ETF listed in the UK investing in global high dividend shares, with a heavy weighting to the USA & Europe. Whilst it technically covers developed & emerging markets, in practice it is very much focused on developed markets.
Many equities have fallen recently with the latest round of US political brinkmanship and more political uncertainty in Italy. This ETF has fallen around 3% in the last month, to a more palatable level for me to buy again.
With a dividend yield of around 4%, around a 1000 components, low management costs and a reasonable PE valuation, this fits my investment strategy particularly well and is now the largest individual holding in my investment portfolio.
I paid around GBP30.95 for the additional shares
Monday 30 September 2013
September 2013 Review
September saw my net worth increase by 1.4%, with a healthy savings rate and stronger pension fund performance.
The value of my investment portfolio was broadly flat. Whilst many unit values increased, there were offsetting foreign exchange movements.
My pension fund unit values increased helped in particular by increases in the HK equities market earlier in the month.
My property saw a change in tenant but luckily no vacant period. There were a number of turnover costs but the new rent is around 6% higher.
Cash balances increased with good income and no significant expenses or investments.
Year to date net worth growth: 33.8%
Year to date savings rate: 73%
The value of my investment portfolio was broadly flat. Whilst many unit values increased, there were offsetting foreign exchange movements.
My pension fund unit values increased helped in particular by increases in the HK equities market earlier in the month.
My property saw a change in tenant but luckily no vacant period. There were a number of turnover costs but the new rent is around 6% higher.
Cash balances increased with good income and no significant expenses or investments.
Year to date net worth growth: 33.8%
Year to date savings rate: 73%
Sunday 22 September 2013
Current investment thoughts
I haven't been particularly active in the markets recently. After the dip around June, equities have been performing better, with the exception of a number of emerging markets where substantial fx movements have affected sentiment.
Since June, my investing activities have been limited to regular pension fund contributions (mainly global equities) and a couple of small regular monthly purchases of the HK & China index trackers. My cash reserves are still high and with savings interest rates still falling i feel like i should be investing more, but i'm finding it difficult to get back into the markets at current valuations. This isn't helped by the reaction of the markets of the Fed's decision to hold off tapering, making some of the recent increases look temporary.
The weaker performers in my portfolio have been fixed income and emerging markets, but as these already make up a big proportion of the overall portfolio i don't really want to grow these more rapidly. Instead, i might look to add some more stable high dividend ETFs to build up a larger long term income stream.
Since June, my investing activities have been limited to regular pension fund contributions (mainly global equities) and a couple of small regular monthly purchases of the HK & China index trackers. My cash reserves are still high and with savings interest rates still falling i feel like i should be investing more, but i'm finding it difficult to get back into the markets at current valuations. This isn't helped by the reaction of the markets of the Fed's decision to hold off tapering, making some of the recent increases look temporary.
The weaker performers in my portfolio have been fixed income and emerging markets, but as these already make up a big proportion of the overall portfolio i don't really want to grow these more rapidly. Instead, i might look to add some more stable high dividend ETFs to build up a larger long term income stream.
Saturday 31 August 2013
August 2013 Review
August saw my net worth increase by 0.5%, with a medium savings rate partly offset by falls in investment and pension values.
The value of my investment portfolio decreased by around 1.5% with falls in many ETFs towards the end of the month. Gold and silver were slightly higher which cushioned the falls.
My pension fund unit values decreased broadly in line with the major equities indices.
My property remained occupied but the current tenant will be leaving in September. Whilst i don't expect any vacant period, there will be a few turnover costs as a result. However, there may also be higher rent going forward which will be of benefit in the long run.
Cash balances increased but the savings rate was lower than usual, due to some large travel and leisure expenses. Some of these were planned so i'm not overly concerned.
Year to date net worth growth: 32%
Year to date savings rate: 74%
The value of my investment portfolio decreased by around 1.5% with falls in many ETFs towards the end of the month. Gold and silver were slightly higher which cushioned the falls.
My pension fund unit values decreased broadly in line with the major equities indices.
My property remained occupied but the current tenant will be leaving in September. Whilst i don't expect any vacant period, there will be a few turnover costs as a result. However, there may also be higher rent going forward which will be of benefit in the long run.
Cash balances increased but the savings rate was lower than usual, due to some large travel and leisure expenses. Some of these were planned so i'm not overly concerned.
Year to date net worth growth: 32%
Year to date savings rate: 74%
Thursday 29 August 2013
Some tenant turnover
I recently learned that my tenant is looking to vacate my property early to relocate with work.
Fortunately i have a good property agent that has agreed with the leaving tenant they will be liable for rent and bills up to the date a new tenant moves in, thus ensuring no vacancy losses.
I will however have to pay for the usual items with new tenancy agreements, but these should not be material and would have been incurred at the end of the tenancy anyway - ie. more of an acceleration of costs.
The good news is that after re-marketing the property for one day, a new tenant may have already been found that is prepared to pay around 6% higher rent. I'll see how this progresses over the next couple of weeks.
The benefits of a good property agent cannot be underestimated!
Fortunately i have a good property agent that has agreed with the leaving tenant they will be liable for rent and bills up to the date a new tenant moves in, thus ensuring no vacancy losses.
I will however have to pay for the usual items with new tenancy agreements, but these should not be material and would have been incurred at the end of the tenancy anyway - ie. more of an acceleration of costs.
The good news is that after re-marketing the property for one day, a new tenant may have already been found that is prepared to pay around 6% higher rent. I'll see how this progresses over the next couple of weeks.
The benefits of a good property agent cannot be underestimated!
Wednesday 31 July 2013
July 2013 Review
July saw my net worth increase by 3.7%, following a rebound in the performance of my pension funds and investments, along with an increase in the valuation of my property.
The value of my investment portfolio increased by over 3% with most of the ETFs improving after a poor June. Metals & the China ETF continue to lag, and the only investment in the month was a small standing monthly order of the HK index.
My pension fund unit values increased by over 5% largely offsetting the falls in June, helped by a higher UK weighting.
My property remained occupied, although i'm expecting a few small expenses to come through over the next couple of months. I've increased the value i hold my property at by around 4%, the first change in almost a year, following consistently higher local market valuations.
Cash balances increased strongly with good income, average expenses and no major investments. I'm expecting my savings rate to fall as the year goes on as i'm planning a few holidays in the coming months.
Year to date net worth growth: 31.3%
Year to date savings rate: 76%
The value of my investment portfolio increased by over 3% with most of the ETFs improving after a poor June. Metals & the China ETF continue to lag, and the only investment in the month was a small standing monthly order of the HK index.
My pension fund unit values increased by over 5% largely offsetting the falls in June, helped by a higher UK weighting.
My property remained occupied, although i'm expecting a few small expenses to come through over the next couple of months. I've increased the value i hold my property at by around 4%, the first change in almost a year, following consistently higher local market valuations.
Cash balances increased strongly with good income, average expenses and no major investments. I'm expecting my savings rate to fall as the year goes on as i'm planning a few holidays in the coming months.
Year to date net worth growth: 31.3%
Year to date savings rate: 76%
Tuesday 30 July 2013
Cash update
Back in April i provided a summary of my approach to managing cash balances. I view this very much as a continual work in progress and i'm always making small changes as competitive savings rates come and go.
I've made a number of changes in the past couple of weeks, largely in response to a couple of accounts maturing and some other rates being reduced. In summary, these have been to move cash from maturing accounts into new longer tenor fixed term accounts, increasing the average maturity profile of my cash balances.
These can be summarised below:
April 2013:
July 2013:
The net result is an increase in yield from around 2% to 2.3%, with minimal impact on the amount of cash instantly accessible. I've also given more certainty to the yield, locking in fixed rates on the assumption that the Fed, BoE and ECB are unlikely to raise interest rates for another year or so. Whilst this does introduce some opportunity cost or re-investment risk, i'm prepared to take this on to obtain a higher yield in the short term.
I've made a number of changes in the past couple of weeks, largely in response to a couple of accounts maturing and some other rates being reduced. In summary, these have been to move cash from maturing accounts into new longer tenor fixed term accounts, increasing the average maturity profile of my cash balances.
These can be summarised below:
April 2013:
| On demand | <3mths | <1yr | <2yrs | >2yrs | Total | ||
| % of cash | 49% | 19% | 3% | 23% | 6% | 100% | |
| % of assets | 18% | 7% | 1% | 8% | 2% | 36% |
July 2013:
| On demand | <3mths | <1yr | <2yrs | >2yrs | Total | ||
| % of cash | 46% | 3% | 7% | 36% | 8% | 100% | |
| % of assets | 16% | 1% | 2% | 13% | 3% | 35% |
The net result is an increase in yield from around 2% to 2.3%, with minimal impact on the amount of cash instantly accessible. I've also given more certainty to the yield, locking in fixed rates on the assumption that the Fed, BoE and ECB are unlikely to raise interest rates for another year or so. Whilst this does introduce some opportunity cost or re-investment risk, i'm prepared to take this on to obtain a higher yield in the short term.
Tuesday 23 July 2013
Investment portfolio update
Its been a while since i presented the performance of my investment portfolio. As a quick recap, i started building the portfolio around October 2012, in an attempt to reduce my cash assets and increase my passive income. The focus has been high yield and broad diversification.
Here's the current position:
Here's the current position:
| Description |
Total
Return
|
CAGR | % Portfolio | |
| UK listed ETFs | ||||
| SEDY | EM High dividend | 2.7% | 3.4% | 9.1% |
| IASP | Asia Pacific property | 6.1% | 8.1% | 9.4% |
| SHYU | High yield corporate debt | 10.4% | 13.8% | 9.9% |
| IUKD | UK High dividend | 24.9% | 37.0% | 11.0% |
| IDVY | Eurozone High dividend | 16.0% | 26.3% | 6.1% |
| IAPD | Asia Pacific High dividend | 1.3% | 10.7% | 9.0% |
| VHYL | Global High Dividend | 6.8% | 106.8% | 8.7% |
| INFR | Global Infrastructure | 0.6% | 2.0% | 8.2% |
| HK listed ETFs | ||||
| 2800 | HK Index tracker | -0.7% | -2.2% | 5.9% |
| 3049 | CSI 300 China tracker | -9.5% | -26.7% | 2.5% |
| Other Equities | ||||
| AV.B | Aviva Pref Shares | -6.8% | -22.1% | 8.3% |
| AAPL | Apple | -0.9% | -2.3% | 2.5% |
| Metals | ||||
| Gold | -22.9% | -29.3% | 7.3% | |
| Silver | -26.8% | -64.4% | 2.1% |
Overall, the core high yield ETFs have performed well, in particular the UK & Eurozone ETFs. Gold and Silver have been a bit of a disaster but in some respects they were bought more as a hedge to the equities and i don't intend to sell.
I've roughly estimated the portfolio to be yielding around 4% in dividends, which is a lot more than i can currently earn on cash. I added a few new ETFs during the June downturn (including VHYL) and the portfolio has recovered well so far in July.
I'm not looking to aggressively grow the portfolio at this stage, but will keep looking out for bargains and buying opportunities.
Friday 12 July 2013
2013 objectives: Mid year review
Back in January i posted my financial and non financial goals for the year. I thought now would be a good time to see how i'm doing, six months on:
Financial goals:
1) Reduce cash balances towards a medium term target of 20% of total assets.
This hasn't gone too well, with cash balances actually rising to 36% following a couple of large one-offs. It isn't all that bad though, i've been adding regularly to my investment portfolio which has kept cash below 40%. As i'm averaging just over 2% income on my cash so there's no urgent need to decrease this. I'll just carry on investing as & when opportunities arise.
2) Maintain investment discipline.
Apart from one hiccup where i lost money on a more speculative preference share investment (getting greedy with yield) this has gone reasonably well. Whilst gold, silver and a couple of ETFs are under water, overall the portfolio meets my goals of broad diversification and high yield. I am also seeing market dips as buying opportunities rather than panicking like i may have done in the past.
3) Achieving a high savings rate.
This is going very well, partly thanks to the one-offs earned early in the year. My current year to date savings rate is around 75% and whilst this will decline through the second half of the year, it should still end up in the high 60s. Stripping out the one-offs my savings rate would be around the target 60%. I've enjoyed a few treats this year, but will be comfortable spending a bit more in the second half, given i'm well on track with this goal.
Non-financial goals:
1) Improve fitness
Well logging my diet & fitness failed terribly, but i have been getting to the gym around 2-3 times a week at least. I'll try to pick this up a bit for the rest of the year.
2) Improve work/life balance
Workload has been bad this year, worse than last year. Whilst it has been quite stressful i've managed to keep weekends free and have maintained a decent social life. I think i can do better switching off out of work and will make a bigger effort to do this. I've also booked some time off for holidays in the second half of the year.
Overall, financially it has been a great start to the year, but there are definitely points here that i can improve on. Reading these objectives again has certainly helped to refocus for the rest of the year.
Financial goals:
1) Reduce cash balances towards a medium term target of 20% of total assets.
This hasn't gone too well, with cash balances actually rising to 36% following a couple of large one-offs. It isn't all that bad though, i've been adding regularly to my investment portfolio which has kept cash below 40%. As i'm averaging just over 2% income on my cash so there's no urgent need to decrease this. I'll just carry on investing as & when opportunities arise.
2) Maintain investment discipline.
Apart from one hiccup where i lost money on a more speculative preference share investment (getting greedy with yield) this has gone reasonably well. Whilst gold, silver and a couple of ETFs are under water, overall the portfolio meets my goals of broad diversification and high yield. I am also seeing market dips as buying opportunities rather than panicking like i may have done in the past.
3) Achieving a high savings rate.
This is going very well, partly thanks to the one-offs earned early in the year. My current year to date savings rate is around 75% and whilst this will decline through the second half of the year, it should still end up in the high 60s. Stripping out the one-offs my savings rate would be around the target 60%. I've enjoyed a few treats this year, but will be comfortable spending a bit more in the second half, given i'm well on track with this goal.
Non-financial goals:
1) Improve fitness
Well logging my diet & fitness failed terribly, but i have been getting to the gym around 2-3 times a week at least. I'll try to pick this up a bit for the rest of the year.
2) Improve work/life balance
Workload has been bad this year, worse than last year. Whilst it has been quite stressful i've managed to keep weekends free and have maintained a decent social life. I think i can do better switching off out of work and will make a bigger effort to do this. I've also booked some time off for holidays in the second half of the year.
Overall, financially it has been a great start to the year, but there are definitely points here that i can improve on. Reading these objectives again has certainly helped to refocus for the rest of the year.
Monday 8 July 2013
Property value update
I've recently noticed the valuation of my rental property has increased a lot since the last time i looked.
As a recap, i periodically update the value of my rental property in my net worth calculation, based on a conservative interpretation of a local valuations / sales. I've decided to include this at market value in my net worth and forecasting by nature of the property serving more as an income generating investment rather than a primary residence.
The last update was in August 2012, and since then, the market value seems to have increased between 5-10%.
As such, i'll be increasing the value in my records by 4% this month. I've chosen to use a slightly lagging value with infrequent updates as (a) i prefer not to make lots of up & down changes and instead want to slowly reflect a longer term trend, and (b) i have no immediate plans to sell so the exact monthly value is less of a concern.
As a recap, i periodically update the value of my rental property in my net worth calculation, based on a conservative interpretation of a local valuations / sales. I've decided to include this at market value in my net worth and forecasting by nature of the property serving more as an income generating investment rather than a primary residence.
The last update was in August 2012, and since then, the market value seems to have increased between 5-10%.
As such, i'll be increasing the value in my records by 4% this month. I've chosen to use a slightly lagging value with infrequent updates as (a) i prefer not to make lots of up & down changes and instead want to slowly reflect a longer term trend, and (b) i have no immediate plans to sell so the exact monthly value is less of a concern.
Sunday 30 June 2013
June 2013 Review
June saw my net worth fall by 0.6%, with a sharp drop in the value of my pensions and investments more than offsetting savings for the month. This has been my worst month on record, and the first down month for over 4 years.
The investment portfolio was down 5% with sharp falls in the emerging markets and fixed income components in particular. Gold & Silver continued their decline. I added positions in a global high dividend ETF and an asia pacific high dividend ETF, along with a small HK iBond subscription.
My pension fund unit values fell by over 6% with global equities falling, but emerging markets in particular.
My property remained occupied with no out of plan expenses.
Cash balances fell with the new investments. Income was strong but the savings rate was lower than average, with a couple of out of plan expenses associated with renewing my tenancy agreement.
Year to date net worth growth: 26.7%
Year to date savings rate: 77%
The investment portfolio was down 5% with sharp falls in the emerging markets and fixed income components in particular. Gold & Silver continued their decline. I added positions in a global high dividend ETF and an asia pacific high dividend ETF, along with a small HK iBond subscription.
My pension fund unit values fell by over 6% with global equities falling, but emerging markets in particular.
My property remained occupied with no out of plan expenses.
Cash balances fell with the new investments. Income was strong but the savings rate was lower than average, with a couple of out of plan expenses associated with renewing my tenancy agreement.
Year to date net worth growth: 26.7%
Year to date savings rate: 77%
Monday 24 June 2013
HK iBond Purchased
I've been allocated 2 lots (HKD20,000) in the latest HK iBond launch. This is down from the 3 lots i was allocated last year, but is better than nothing given the inevitable 3%+ day one gain as it is valued & traded on the secondary market.
Last year i sold the 3 lots fairly quickly to realise the day 1 gain & reinvest the funds. I'm tempted to do the same again this year, with the equities pull back looking to offer some good buying opportunities.
As the amounts are small i'm not too concerned either way.
Last year i sold the 3 lots fairly quickly to realise the day 1 gain & reinvest the funds. I'm tempted to do the same again this year, with the equities pull back looking to offer some good buying opportunities.
As the amounts are small i'm not too concerned either way.
Thursday 20 June 2013
VHYL.L Purchased
Having seen all my investment portfolio gains wiped out in the last 2 weeks and then some, i've decided to treat the sharp market pull back as a buying opportunity.
Vanguard UK has recently launched a new low cost global high dividend ETF, a perfect fit for my investment portfolio and almost certainly something i will add to over time.
It ticks many boxes on my shopping list, including:
Low cost - at 0.29% this is well below comparative ETFs provided by the likes of iShares
Exposure to the US - with around a 33% weighting to the US, this plugs the most obvious geographic gap in my portfolio
High diversification - according to the factsheet, this ETF has just over 1000 stocks, the most i've seen in this sort of product
High yield - at around 4%, this is a good yield for a globally diverse fund. The PE (around 13) is reasonable too.
My entry price was just over GBP30, close to the lows since this was launched in May.
Vanguard UK has recently launched a new low cost global high dividend ETF, a perfect fit for my investment portfolio and almost certainly something i will add to over time.
It ticks many boxes on my shopping list, including:
Low cost - at 0.29% this is well below comparative ETFs provided by the likes of iShares
Exposure to the US - with around a 33% weighting to the US, this plugs the most obvious geographic gap in my portfolio
High diversification - according to the factsheet, this ETF has just over 1000 stocks, the most i've seen in this sort of product
High yield - at around 4%, this is a good yield for a globally diverse fund. The PE (around 13) is reasonable too.
My entry price was just over GBP30, close to the lows since this was launched in May.
Monday 17 June 2013
Not a great start to the month!
A quick mid month refresh of my finances suggests i might be on course for my first monthly decline in net worth for over 4 years.
The main contributing factors are:
1) Around a 5% decline in the value of my investment portfolio, with emerging markets equities & currencies suffering materially in the first 2 weeks of the month. I've also noticed quite rapid declines in the value of the fixed income components of my portfolio (high yield bonds/pref shares). I took advantage of the declines to add the iShares Asia Pacific high dividend ETF to my portfolio. I have identified some other potential purchases aligned to my core strategy but will hold off committing too much to the markets at this moment.
2) Around a 4% decline in the value of my pension funds, which are heavily invested in global equities, and have broadly tracked the markets down.
3) I've also had a couple of one off expenses associated with renewing my tenancy, resulting in a below average (albeit still positive) savings rate.
I'm trying not to see this as a negative. The investment declines are market wide and if anything a pull back in the recent rally is healthy and provides a buying opportunity. Income and savings are still strong, and cash, property & investment yields are all healthy.
The main contributing factors are:
1) Around a 5% decline in the value of my investment portfolio, with emerging markets equities & currencies suffering materially in the first 2 weeks of the month. I've also noticed quite rapid declines in the value of the fixed income components of my portfolio (high yield bonds/pref shares). I took advantage of the declines to add the iShares Asia Pacific high dividend ETF to my portfolio. I have identified some other potential purchases aligned to my core strategy but will hold off committing too much to the markets at this moment.
2) Around a 4% decline in the value of my pension funds, which are heavily invested in global equities, and have broadly tracked the markets down.
3) I've also had a couple of one off expenses associated with renewing my tenancy, resulting in a below average (albeit still positive) savings rate.
I'm trying not to see this as a negative. The investment declines are market wide and if anything a pull back in the recent rally is healthy and provides a buying opportunity. Income and savings are still strong, and cash, property & investment yields are all healthy.
Sunday 9 June 2013
Unplanned costs of moving / not moving home
Having recently renewed my tenancy agreement, i've been hit with a couple of costs that i should have budgeted for, but didn't.
These included agency handling fees & stamp duty for the contract renewal, a top up to the rental deposit due to the increase in rent, and the purchase of some new furniture items that i'd been holding back on given the uncertainty of whether or not i would be moving.
However, it did make me realise that this was a clear hole in my budget & longer term cash flow plans, as costs would arise every couple of years regardless of whether i move or not. For instance, by not moving, the costs above would still recur to a greater or lesser extent every couple of years. If i did move, the costs would probably include all the above (but higher), and in addition the costs associated with physically moving.
I'll therefore add an estimate for this item to my long term cashflow forecasts and annual budgets. Whilst it didn't make a material dent in my current year plans, the costs would add up over a long time horizon.
These included agency handling fees & stamp duty for the contract renewal, a top up to the rental deposit due to the increase in rent, and the purchase of some new furniture items that i'd been holding back on given the uncertainty of whether or not i would be moving.
However, it did make me realise that this was a clear hole in my budget & longer term cash flow plans, as costs would arise every couple of years regardless of whether i move or not. For instance, by not moving, the costs above would still recur to a greater or lesser extent every couple of years. If i did move, the costs would probably include all the above (but higher), and in addition the costs associated with physically moving.
I'll therefore add an estimate for this item to my long term cashflow forecasts and annual budgets. Whilst it didn't make a material dent in my current year plans, the costs would add up over a long time horizon.
IAPD.L Purchased
My investment portfolio has seen a fairly sharp decline in the past 2 weeks, as emerging market & asia pacific equities & currencies have suffered more than most following the FOMC's hints at reigning back their loose monetary policies.
I've seen this as a buying opportunity for an ETF i've been looking to buy for a long time, the iShares Asia Pacific Select Dividend ETF. It has a high weighting to Australia & New Zealand Financials,, Telecoms, Consumer Services & Industrials, and is currently yielding around 5%. Whilst the Australian currency has had a sharp pull back against the USD, i still believe the long term prospects for this region to be strong.
I bought at 2135p, which is around a 13% pull back from its recent high. Whilst i'm by no means certain the pull back is complete, it has unwound almost all its year to date gains and thus felt like a good buying opportunity to add some solid high yielding names to the portfolio.
Friday 31 May 2013
May 2013 Review
May saw my net worth grow by 1.4%, with a good savings rate and strong pension performance more than offsetting a one-off investment loss.
The investment portfolio was down 2.6% for the month mostly due to a loss realised on the disposal of my Co-op bank pref shares (i'm somewhat comforted by the continued decline in price after i sold). This was compounded by declines in some of the ETFs at the end of the month, although partly offset by the receipt of a number of dividends in the month. Gold & Silver both also continued their recent decline.
My pension fund unit values were up strongly (around 4.5%), due in part to a heavy weighting in the uk market which hit new 12 year highs during the month.
My property remained occupied with no out of plan expenses.
Cash balances increased with good income & low expenses, along with the cash freed up from an investment disposal. I've decided to increase my monthly income tax accrual to avoid another large catch-up later in the year.
Year to date net worth growth: 27.4%
Year to date savings rate: 80%
The investment portfolio was down 2.6% for the month mostly due to a loss realised on the disposal of my Co-op bank pref shares (i'm somewhat comforted by the continued decline in price after i sold). This was compounded by declines in some of the ETFs at the end of the month, although partly offset by the receipt of a number of dividends in the month. Gold & Silver both also continued their recent decline.
My pension fund unit values were up strongly (around 4.5%), due in part to a heavy weighting in the uk market which hit new 12 year highs during the month.
My property remained occupied with no out of plan expenses.
Cash balances increased with good income & low expenses, along with the cash freed up from an investment disposal. I've decided to increase my monthly income tax accrual to avoid another large catch-up later in the year.
Year to date net worth growth: 27.4%
Year to date savings rate: 80%
Thursday 30 May 2013
Tenancy renewal update
I mentioned a couple of weeks ago that i'd started the process of negotiating a new rental contract for where i'm living in HK.
After a couple of offers & counter-offers we have settled on an increase of around 4.7%, which i'm quite happy about for a couple of reasons:
Firstly, it means i don't have to move - i hate moving!;
And secondly, this means that over a 4 year period (the last 2 years and the next 2 years) a 4.7% increase is actually very reasonable and well below the local inflation rate over the time period in question.
This also gives certainty to an important component of my expenses, and the increase will not have a material impact on my savings rate.
After a couple of offers & counter-offers we have settled on an increase of around 4.7%, which i'm quite happy about for a couple of reasons:
Firstly, it means i don't have to move - i hate moving!;
And secondly, this means that over a 4 year period (the last 2 years and the next 2 years) a 4.7% increase is actually very reasonable and well below the local inflation rate over the time period in question.
This also gives certainty to an important component of my expenses, and the increase will not have a material impact on my savings rate.
Saturday 11 May 2013
Expenses review - six months on
Having built up around six months of detailed expense data i'm now in a better position to understand and evaluate my expenses.
Here's a summary of my findings:
Overall: total expenses (incl rent and tax) have been tracking under 40% of gross regular income, resulting in a consistently high savings over 60%.
Tax: whilst being a big number in absolute terms, it is considerably lower than it would be in many countries, resulting in a material net worth benefit over the last few years.
Rental expense: a large item and so far the most stable, although this is currently under review and is likely to change in the near future. I'm not really willing to spend much more than i do now.
Bills: fairly consistent and relatively low, especially utilities. I've also learned the hard way not to use data roaming overseas!
Travel: low so far, as i haven't been able to take much holiday this year due to work commitments. I have budgeted a large amount for this item and intend to make a few trips later in the year.
Food & drink: this is an area i know i could cut back on if i wanted to. Its a little higher than budgeted at the moment, but not enough to be of concern.
Entertainment & luxuries: despite a few sporting events, concerts & gadgets, this is still under budget.
Other items: gym membership is budgeted and property costs have been low.
In summary, i'm broadly in line with what is quite a conservative spending budget, with a few items over and a few items under. I'm also tracking the cumulative amount under/over through the year, with the intention of using any under-spend to top up my luxuries budget as required.
Here's a summary of my findings:
Overall: total expenses (incl rent and tax) have been tracking under 40% of gross regular income, resulting in a consistently high savings over 60%.
Tax: whilst being a big number in absolute terms, it is considerably lower than it would be in many countries, resulting in a material net worth benefit over the last few years.
Rental expense: a large item and so far the most stable, although this is currently under review and is likely to change in the near future. I'm not really willing to spend much more than i do now.
Bills: fairly consistent and relatively low, especially utilities. I've also learned the hard way not to use data roaming overseas!
Travel: low so far, as i haven't been able to take much holiday this year due to work commitments. I have budgeted a large amount for this item and intend to make a few trips later in the year.
Food & drink: this is an area i know i could cut back on if i wanted to. Its a little higher than budgeted at the moment, but not enough to be of concern.
Entertainment & luxuries: despite a few sporting events, concerts & gadgets, this is still under budget.
Other items: gym membership is budgeted and property costs have been low.
In summary, i'm broadly in line with what is quite a conservative spending budget, with a few items over and a few items under. I'm also tracking the cumulative amount under/over through the year, with the intention of using any under-spend to top up my luxuries budget as required.
Friday 10 May 2013
Portfolio Sale CPBB.L
I've just sold my pref shares in the Co-op bank, following (a) its failed attempt to buy a portfolio of Lloyds branches, (b) the downgrade of its debt to junk status, and (c) the exit of its CEO.
I managed to get out at around 98p, around a 25% loss from its purchase price last month. This loss in theory should be softened by the receipt of a preferred dividend later in the month (assuming it is still paid!).
I didn't need to sell, but there is no obvious reason to hold on to this now, despite the yield that attracted me in the first place. The market may have over-reacted today, the price may recover and this may have gone on to be a solid investment. However I decided to cut my losses primarily due to the individual counterparty risk this investment gave me. If this had been a broad ETF suffering from a market wide event i would have probably held on, but i have found the chance of failure against one struggling counterparty to be unacceptably high.
Lessons learnt:
Stick to the original strategy of broad diversification
Understand and accept the risks associated with high yield
Do more due diligence and research prior to investment
Fortunately this has not had any material impact on my finances, with the original investment being well under 1% of total assets. I hope the experience and lessons learnt may well go on to save me a lot more in the future than i lost today.
I managed to get out at around 98p, around a 25% loss from its purchase price last month. This loss in theory should be softened by the receipt of a preferred dividend later in the month (assuming it is still paid!).
I didn't need to sell, but there is no obvious reason to hold on to this now, despite the yield that attracted me in the first place. The market may have over-reacted today, the price may recover and this may have gone on to be a solid investment. However I decided to cut my losses primarily due to the individual counterparty risk this investment gave me. If this had been a broad ETF suffering from a market wide event i would have probably held on, but i have found the chance of failure against one struggling counterparty to be unacceptably high.
Lessons learnt:
Stick to the original strategy of broad diversification
Understand and accept the risks associated with high yield
Do more due diligence and research prior to investment
Fortunately this has not had any material impact on my finances, with the original investment being well under 1% of total assets. I hope the experience and lessons learnt may well go on to save me a lot more in the future than i lost today.
Wednesday 8 May 2013
Tenancy renewal (this time for me)
I'm currently renting an apartment in HK. Whilst i don't enjoy giving away my money to pay someone else's mortgage, i currently have little choice given (a) the relative cost of property here, (b) the new tax measures in place to deter non-residents from buying property, and (c) my lack of a long term plan of how long i'll be based here.
Rental contracts in HK are typically for 2 years, with the ability to exit after around 1 year. I've been in the same apartment for close to 2 years now, and whilst i'm reasonably comfortable with the amount of rent i currently pay, my contract is close to ending.
I'd like to stay where i am (its a good location and i hate moving), and i've made initial contract with the landlord to negotiate a new tenancy agreement. I'm waiting for feedback on the new rental level to be proposed by the landlord.
I've heard many stories of extortionate increases being requested, so i'm expecting the worst and i'm prepared to move if the proposal is too high. The one thing in my favour is that there has recently been a shift in market sentiment for HK property, which will hopefully keep the negotiations to a sensible level.
To be continued...
Rental contracts in HK are typically for 2 years, with the ability to exit after around 1 year. I've been in the same apartment for close to 2 years now, and whilst i'm reasonably comfortable with the amount of rent i currently pay, my contract is close to ending.
I'd like to stay where i am (its a good location and i hate moving), and i've made initial contract with the landlord to negotiate a new tenancy agreement. I'm waiting for feedback on the new rental level to be proposed by the landlord.
I've heard many stories of extortionate increases being requested, so i'm expecting the worst and i'm prepared to move if the proposal is too high. The one thing in my favour is that there has recently been a shift in market sentiment for HK property, which will hopefully keep the negotiations to a sensible level.
To be continued...
Wednesday 1 May 2013
Sell in May?
May has been a bad month for stock markets for the last 3 years, prompting the saying 'sell in May and go away'.
I think a sign of my changing investment mindset is that i would actually welcome a fall now, i have no plans to sell my existing investments and have plenty of cash available should buying opportunities emerge.
In particular i'll be keeping an eye on the US markets. Apart from a small holding in Apple, i'm light on US equities exposure but have been holding off given the record highs being set in the major indices. If there is any material correction i'll be looking to invest in some form of dividend or property ETF.
I'm also looking at a few more emerging markets options, potentially adding to my China ETF or looking at some more emerging markets high dividend ETFs.
After making a few new purchases in April i'm relatively comfortable with the growth rate of my investment portfolio, so i'm not in any rush to continue buying at current levels. Instead i'll probably sit back and see what happens, allowing standard monthly purchases to keep the portfolio growing at a steady rate whilst being ready to add to these when opportunities emerge.
I think a sign of my changing investment mindset is that i would actually welcome a fall now, i have no plans to sell my existing investments and have plenty of cash available should buying opportunities emerge.
In particular i'll be keeping an eye on the US markets. Apart from a small holding in Apple, i'm light on US equities exposure but have been holding off given the record highs being set in the major indices. If there is any material correction i'll be looking to invest in some form of dividend or property ETF.
I'm also looking at a few more emerging markets options, potentially adding to my China ETF or looking at some more emerging markets high dividend ETFs.
After making a few new purchases in April i'm relatively comfortable with the growth rate of my investment portfolio, so i'm not in any rush to continue buying at current levels. Instead i'll probably sit back and see what happens, allowing standard monthly purchases to keep the portfolio growing at a steady rate whilst being ready to add to these when opportunities emerge.
Tuesday 30 April 2013
April 2013 Review
April saw my net worth grow by 7.7%, mainly due to receiving a share of some family inheritance, along with positive cashflow from employment.
My investment portfolio had its first down month since inception in Oct12, falling around 0.7% with most of the decline coming from my holdings of gold & silver. The ETFs were broadly flat, with no dividends in the month. A number of new purchases were made, most notably some preference shares and a global infrastructure ETF.
I've realised that although i've been tracking the month-end position at a total portfolio level, i haven't been logging the month-end value of each investment, making it difficult to monitor month on month portfolio performance at a more granular level. I'll add this to my ever-growing excel file going forward.
My pension fund unit values were broadly flat, starting the month poorly but recovering. I've been maintaining the highest possible contribution that still benefits from an employer match for some time now, which has helped to continue building exposure to global equities without needing to actively select & time new investments.
My property remained occupied. The outstanding maintenance and lease admin costs were settled during the month.
Cash balances increased with a lump sum cash inheritance and good income. Expenses were slightly higher than average with a few personal treats, but nothing large. These cash increases were partly offset by a number of new investments during the month.
Year to date net worth growth: 25.6%
Year to date savings rate: 82%
Thanks to the one-offs in March & April, i've now exceeded my planned net worth growth for the full year, and i'm tracking well above my target savings rate of 60%. Whilst i recognise i won't continue at this rate, it does feel great to start the year so strongly.
My investment portfolio had its first down month since inception in Oct12, falling around 0.7% with most of the decline coming from my holdings of gold & silver. The ETFs were broadly flat, with no dividends in the month. A number of new purchases were made, most notably some preference shares and a global infrastructure ETF.
I've realised that although i've been tracking the month-end position at a total portfolio level, i haven't been logging the month-end value of each investment, making it difficult to monitor month on month portfolio performance at a more granular level. I'll add this to my ever-growing excel file going forward.
My pension fund unit values were broadly flat, starting the month poorly but recovering. I've been maintaining the highest possible contribution that still benefits from an employer match for some time now, which has helped to continue building exposure to global equities without needing to actively select & time new investments.
My property remained occupied. The outstanding maintenance and lease admin costs were settled during the month.
Cash balances increased with a lump sum cash inheritance and good income. Expenses were slightly higher than average with a few personal treats, but nothing large. These cash increases were partly offset by a number of new investments during the month.
Year to date net worth growth: 25.6%
Year to date savings rate: 82%
Thanks to the one-offs in March & April, i've now exceeded my planned net worth growth for the full year, and i'm tracking well above my target savings rate of 60%. Whilst i recognise i won't continue at this rate, it does feel great to start the year so strongly.
Monday 22 April 2013
Cash profile
I've spent a lot of time over the past few weeks organising and managing my cash balances. As the balance has grown to a significant proportion of my total assets (currently around 36%) and isn't likely to reduce significantly in the short term, i consider it important to manage this as closely as i would manage my other investments.
There are a number of parameters i consider in managing my cash. These include:
Security:
My preference is to use reputable financial institutions, with balances covered by deposit guarantee schemes. The only exception i have made to this is a relatively small experimental placement in a peer to peer lending site, which offers a much greater return for the increased risk to capital.
Accessibility:
The ease of transferring funds in and out of accounts. This is important being an expat with funds in different locations. My preference is to do as much as possible online. I also need to be aware of the terms and conditions of existing and new accounts, which can differ by country and institution.
Maturity:
This is a balance between funds being available on demand or after a fixed term, based on when i would like the ability to access the cash. The current maturity profile of my cash balances is summarised below:
I am currently keeping a significant amount of cash in instant access accounts should better investment opportunities arise. I'm generally keeping new time deposits to a maximum of 2 years given the current low rate environment, as there is little advantage to locking in low rates for excessive time periods.
Currency/Country:
Again, this requires more active management as an expat. I generally limit myself to placing cash in countries that i either currently live, have lived in the past or am likely to live in the future, in order to minimise my global tax footprint. In terms of currencies, this is primarily based on currencies that i have active cashflows in, or the currency of the country where the funds are placed. I generally do not make speculative investments in currencies, apart from the occasional RMB time deposit which has recently offered the opportunity for both enhanced yield and capital appreciation.
Yield:
This is generally a trade-off with the other parameters, with higher rates often available on longer term fixed rate deposits or in certain currencies. Following some recent maintenance and a few new accounts, my average yield on cash is up to around 2%. I have been trying to minimise cash held in HKD given (a) the extremely low interest rates available, and (b) my positive HKD cash flow generation from employment.
There are a number of parameters i consider in managing my cash. These include:
Security:
My preference is to use reputable financial institutions, with balances covered by deposit guarantee schemes. The only exception i have made to this is a relatively small experimental placement in a peer to peer lending site, which offers a much greater return for the increased risk to capital.
Accessibility:
The ease of transferring funds in and out of accounts. This is important being an expat with funds in different locations. My preference is to do as much as possible online. I also need to be aware of the terms and conditions of existing and new accounts, which can differ by country and institution.
Maturity:
This is a balance between funds being available on demand or after a fixed term, based on when i would like the ability to access the cash. The current maturity profile of my cash balances is summarised below:
| On demand | <3mths | <1yr | <2yrs | >2yrs | Total | ||
| % of cash | 49% | 19% | 3% | 23% | 6% | 100% | |
| % of assets | 18% | 7% | 1% | 8% | 2% | 36% |
I am currently keeping a significant amount of cash in instant access accounts should better investment opportunities arise. I'm generally keeping new time deposits to a maximum of 2 years given the current low rate environment, as there is little advantage to locking in low rates for excessive time periods.
Currency/Country:
Again, this requires more active management as an expat. I generally limit myself to placing cash in countries that i either currently live, have lived in the past or am likely to live in the future, in order to minimise my global tax footprint. In terms of currencies, this is primarily based on currencies that i have active cashflows in, or the currency of the country where the funds are placed. I generally do not make speculative investments in currencies, apart from the occasional RMB time deposit which has recently offered the opportunity for both enhanced yield and capital appreciation.
Yield:
This is generally a trade-off with the other parameters, with higher rates often available on longer term fixed rate deposits or in certain currencies. Following some recent maintenance and a few new accounts, my average yield on cash is up to around 2%. I have been trying to minimise cash held in HKD given (a) the extremely low interest rates available, and (b) my positive HKD cash flow generation from employment.
Saturday 13 April 2013
Another cash boost
Earlier this month i received a long expected share of some family inheritance, with the final amount being larger than originally expected. This was all in cash.
Although i've made a number of investments in the past 2 weeks, the recent cash inflows have seen my cash balances increase to around 36% of total assets, well in excess of my 20% target.
Whilst i will try to manage this balance down, i'm not going to rush it. I'm managing to average about a 2% return on my cash in the meantime and more than half of it is available at short notice for investment opportunities or emergencies.
A key point to consider is that if i do nothing, this balance will continue to rise with a positive savings rate each month, potentially drifting up to 40% later in the year. At these levels, larger investments such as property become a much more viable option.
Although i've made a number of investments in the past 2 weeks, the recent cash inflows have seen my cash balances increase to around 36% of total assets, well in excess of my 20% target.
Whilst i will try to manage this balance down, i'm not going to rush it. I'm managing to average about a 2% return on my cash in the meantime and more than half of it is available at short notice for investment opportunities or emergencies.
A key point to consider is that if i do nothing, this balance will continue to rise with a positive savings rate each month, potentially drifting up to 40% later in the year. At these levels, larger investments such as property become a much more viable option.
Metals: what to do now
I was a little alarmed to see the sharp drop in gold and silver prices overnight, with both down around 5% in one day.
This takes the value of my holdings of gold to around 13% below cost, and silver around 4% below its more recent purchase price. I now need to consider whether to buy more, hold (ie do nothing) or sell. I'll try to present my thoughts on these options:
Buy
It is tempting to take advantage of the price falls and add to my positions, thus averaging down my cost price to capitalise on any rebound. The reasons for my original purchases are still valid (being global economic uncertainty and continued money printing), however it seems these factors are not the only ones driving the recent price movements. There is also some talk of Cyprus selling off its gold, but this really shouldn't move the market.
What is holding me back from adding more is that the original purchase was partly intended to be a hedge against income earning equities (which it certainly has been) and not a core investment, and that i don't want to get into a trap of buying more and more if it continues to fall. Given the lack of income generation, i don't want metals to become too large a component of my investment portfolio.
Hold
It is tempting to do nothing and ride out the volatility. Unlike individual equities, metals can't really drop to zero and should always hold a solid amount of intrinsic value. A key consideration here is the time horizon for holding, in that for short term investments it might be better to cut losses and reinvest elsewhere. However in my case, i could easily hold these indefinitely and i have plenty of cash available for other investing opportunities.
Sell
This for me would be the hardest option, in that it would realise a cash loss, and i would then be kicking myself as the price no doubt recovered shortly after! However, there are plenty of examples where investments have fallen in value and have never gone on to fully recover, for example the Nikkei in the late 80s. Also, given the recent rally in equities, it would make little sense to sell my only real hedge against an equities pull-back.
I think the most likely option for now is to do nothing and see how the next few weeks play out. My holdings in metals represent an immaterial amount of total assets and the portfolio as a whole is still well in profit.
This takes the value of my holdings of gold to around 13% below cost, and silver around 4% below its more recent purchase price. I now need to consider whether to buy more, hold (ie do nothing) or sell. I'll try to present my thoughts on these options:
Buy
It is tempting to take advantage of the price falls and add to my positions, thus averaging down my cost price to capitalise on any rebound. The reasons for my original purchases are still valid (being global economic uncertainty and continued money printing), however it seems these factors are not the only ones driving the recent price movements. There is also some talk of Cyprus selling off its gold, but this really shouldn't move the market.
What is holding me back from adding more is that the original purchase was partly intended to be a hedge against income earning equities (which it certainly has been) and not a core investment, and that i don't want to get into a trap of buying more and more if it continues to fall. Given the lack of income generation, i don't want metals to become too large a component of my investment portfolio.
Hold
It is tempting to do nothing and ride out the volatility. Unlike individual equities, metals can't really drop to zero and should always hold a solid amount of intrinsic value. A key consideration here is the time horizon for holding, in that for short term investments it might be better to cut losses and reinvest elsewhere. However in my case, i could easily hold these indefinitely and i have plenty of cash available for other investing opportunities.
Sell
This for me would be the hardest option, in that it would realise a cash loss, and i would then be kicking myself as the price no doubt recovered shortly after! However, there are plenty of examples where investments have fallen in value and have never gone on to fully recover, for example the Nikkei in the late 80s. Also, given the recent rally in equities, it would make little sense to sell my only real hedge against an equities pull-back.
I think the most likely option for now is to do nothing and see how the next few weeks play out. My holdings in metals represent an immaterial amount of total assets and the portfolio as a whole is still well in profit.
Thursday 11 April 2013
Preference Shares Purchased
Today i purchased the preference shares AV.B (Aviva) and CPBB (The Co-operative Bank) at 123.5p and 132.7p respectively.
The combination of my search for yield and growing cash surplus has led me to take the plunge into the world of preference shares. I liken these to corporate debt, generating a fixed yield providing the businesses remain solvent enough to meet interest payments.
Both investments are irredeemable. This means the interest should be paid throughout the life of the business, unless for any reason they become unable to meet payments. Aviva is cumulative, meaning any missed payments should be subsequently made up. Co-op is non-cumulative, meaning they have no obligation to make up missed payments at a future date.
In order to balance risk i have invested in one insurance business (Aviva), and one bank (The Co-operative Bank). Aviva is a large insurance business with an established track record of providing good returns to shareholders, despite recent challenges. The Co-operative Bank is a relatively small bank focused on the traditional activities of loans & deposits. It has also been struggling recently but it has a reasonable core retail business.
Based on the purchase prices, these should both yield about 6.8% to perpetuity. Higher yields were available from other financial institutions (eg Lloyds Banking Group, Santander), but i decided to sacrifice some yield in the hope of lower risk.
I don't intend for this to become a large part of my portfolio, rather an attempt to add some additional yield, risk & diversity to my passive income streams.
The combination of my search for yield and growing cash surplus has led me to take the plunge into the world of preference shares. I liken these to corporate debt, generating a fixed yield providing the businesses remain solvent enough to meet interest payments.
Both investments are irredeemable. This means the interest should be paid throughout the life of the business, unless for any reason they become unable to meet payments. Aviva is cumulative, meaning any missed payments should be subsequently made up. Co-op is non-cumulative, meaning they have no obligation to make up missed payments at a future date.
In order to balance risk i have invested in one insurance business (Aviva), and one bank (The Co-operative Bank). Aviva is a large insurance business with an established track record of providing good returns to shareholders, despite recent challenges. The Co-operative Bank is a relatively small bank focused on the traditional activities of loans & deposits. It has also been struggling recently but it has a reasonable core retail business.
Based on the purchase prices, these should both yield about 6.8% to perpetuity. Higher yields were available from other financial institutions (eg Lloyds Banking Group, Santander), but i decided to sacrifice some yield in the hope of lower risk.
I don't intend for this to become a large part of my portfolio, rather an attempt to add some additional yield, risk & diversity to my passive income streams.
Thursday 4 April 2013
INFR.L Purchased
Today i purchased INFR.L at around GBP15.19 per share.
This is a UK listed ETF tracking an index of global infrastructure companies. These are mainly utilities with a heavy weighting to the US, UK & Canadian energy providers, with a current dividend yield of around 3.4%
I've been meaning to make this purchase for a while as it fits a number of gaps in my portfolio both in terms of industry & geography, and the nature of the businesses tend to deliver large stable dividends. One of the components, National Grid (UK energy infrastructure), has recently announced its intention to grow its dividends in line with the retail price index - this is quite a bold commitment to dividend growth for the foreseeable future.
The only thing that was holding me back has been its strong recent performance, gaining around 10% during this rally. I had been watching it for a while & hoping for a pull back, but given its natural fit with my portfolio i decided to buy now and will try not to concern myself with short term price movements. Whilst i don't think this ETF is too expensive by historic standards (seems to have lagged the major indices since the crisis), it will hopefully(!) provide steady & stable returns.
This was one of my larger purchases and is intended to be a core long term holding.
Silver purchased
I decided to buy a small amount of Silver today, at approx USD26.8
Gold and Silver have both fallen sharply in the last few days, and both are now testing 1 year lows. I've been holding a small amount of gold in my investment portfolio since i re-entered the markets last October, which is now close to 10% below cost.
I think there are a number of mixed messages in the market at the moment, with fresh easing in Japan, mixed economic data in the US, continued uncertainty in Europe and increasingly bizarre comments coming from North Korea.
Given the combination of reaching a key technical low, the recent sharp drop in value and continued uncertainty i thought i would add to my precious metals, this time going for Silver to add some further diversification.
The investment is small for now. My assumption is that if precious metals start going up, there's a good chance shares will fall, in which case i'll buy some shares instead. If metals continue to fall, i might add to this position.
Gold and Silver have both fallen sharply in the last few days, and both are now testing 1 year lows. I've been holding a small amount of gold in my investment portfolio since i re-entered the markets last October, which is now close to 10% below cost.
I think there are a number of mixed messages in the market at the moment, with fresh easing in Japan, mixed economic data in the US, continued uncertainty in Europe and increasingly bizarre comments coming from North Korea.
Given the combination of reaching a key technical low, the recent sharp drop in value and continued uncertainty i thought i would add to my precious metals, this time going for Silver to add some further diversification.
The investment is small for now. My assumption is that if precious metals start going up, there's a good chance shares will fall, in which case i'll buy some shares instead. If metals continue to fall, i might add to this position.
Wednesday 3 April 2013
Risk appetite
Risk appetite has been a central consideration in developing my overall asset allocation.
I define risk appetite as a broad collection of rules or parameters which look to define the degree of risk i'm prepared to take in order to achieve an acceptable return.
A common example of risk appetite is the target percentages often quoted for asset allocation, for example 60% equities, 30% bonds, 10% cash. This is very much a personal decision, although it is widely accepted that the time horizon for investment should play a large role in making this decision.
In my case, i am very risk averse, and have traditionally only had a small proportion of my assets in equities. I did however find it a lot easier investing in property, which has proved a successful asset class for me in bridging the gap between cash & equities along the spectrum of risk.
My aim for the past year has been to target an overall asset allocation of 80% 'invested', and 20% in cash or near cash. The invested component currently consists of rental property, equities based pension funds and my ETF based investment portfolio. However, due to a combination of investment paralysis after the recent rally, and a few large cash inflows, i'm currently closer to 65% invested, 35% cash.
In the past i wouldn't have been concerned at all about this, but after having determined an asset allocation that i am comfortable with from a risk perspective, i do feel that i should be looking to move towards my target allocation, and i'm actively looking for opportunities to re-balance and reduce cash.
Whilst i have developed a high level target asset allocation, i have not yet given as much thought to the asset mix i would like to target within the invested component of my assets, other than maintaining a high level of diversification and maintaining a large proportion of my assets in property.
I think developing a clearer long term investment strategy would help to reduce my focus on short term market fluctuations, and get me back to making longer term investment decisions.
This is now next on my to do list!
I define risk appetite as a broad collection of rules or parameters which look to define the degree of risk i'm prepared to take in order to achieve an acceptable return.
A common example of risk appetite is the target percentages often quoted for asset allocation, for example 60% equities, 30% bonds, 10% cash. This is very much a personal decision, although it is widely accepted that the time horizon for investment should play a large role in making this decision.
In my case, i am very risk averse, and have traditionally only had a small proportion of my assets in equities. I did however find it a lot easier investing in property, which has proved a successful asset class for me in bridging the gap between cash & equities along the spectrum of risk.
My aim for the past year has been to target an overall asset allocation of 80% 'invested', and 20% in cash or near cash. The invested component currently consists of rental property, equities based pension funds and my ETF based investment portfolio. However, due to a combination of investment paralysis after the recent rally, and a few large cash inflows, i'm currently closer to 65% invested, 35% cash.
In the past i wouldn't have been concerned at all about this, but after having determined an asset allocation that i am comfortable with from a risk perspective, i do feel that i should be looking to move towards my target allocation, and i'm actively looking for opportunities to re-balance and reduce cash.
Whilst i have developed a high level target asset allocation, i have not yet given as much thought to the asset mix i would like to target within the invested component of my assets, other than maintaining a high level of diversification and maintaining a large proportion of my assets in property.
I think developing a clearer long term investment strategy would help to reduce my focus on short term market fluctuations, and get me back to making longer term investment decisions.
This is now next on my to do list!
Sunday 31 March 2013
March 2013 Review
March saw my net worth grow by 12.8%, mainly due to a larger than expected lump sum payment from my employment.
My investment portfolio was broadly flat, having grown earlier in the month and then fallen back. The ETFs had mixed performance in the face of uncertainty around Cyprus, with falls in emerging markets & Europe offsetting gains in Asia The month contained 3 small purchases, with Apple increasing around 2.5% in the last 2 weeks. A couple of small dividends were also received in the month.
My pension funds also continued their positive run, increasing by around 3% above the monthly contributions.
My property was occupied, with a new lease now signed for the next year. 2 small maintenance costs that have been expected for a while will now be included in April.
Cash balances increased significantly with a lump sum payment from work and no major expenses. I've opened a new time deposit for some of this, but will keep most of it in easy access for now until i have a clearer investment plan.
On a year to date basis, my net worth has increased by 16.6%
My investment portfolio was broadly flat, having grown earlier in the month and then fallen back. The ETFs had mixed performance in the face of uncertainty around Cyprus, with falls in emerging markets & Europe offsetting gains in Asia The month contained 3 small purchases, with Apple increasing around 2.5% in the last 2 weeks. A couple of small dividends were also received in the month.
My pension funds also continued their positive run, increasing by around 3% above the monthly contributions.
My property was occupied, with a new lease now signed for the next year. 2 small maintenance costs that have been expected for a while will now be included in April.
Cash balances increased significantly with a lump sum payment from work and no major expenses. I've opened a new time deposit for some of this, but will keep most of it in easy access for now until i have a clearer investment plan.
On a year to date basis, my net worth has increased by 16.6%
Thursday 28 March 2013
3049.HK Purchased
Today i purchased 3049.HK at around HKD6.13 per share.
This is a HK listed ETF tracking the shanghai composite index of mainland chinese companies. It is made up of 300 companies, with a heavy weighting in financials. Whilst i'm aware of a number of issues with chinese banks (including credit quality, rapidly changing regulations etc), i believe these are largely priced in to the market already, and sentiment is quite low despite strong performance to date.
I decided to buy today following a significant drop in bank shares, following news of tightening wealth management regulations. The holding is relatively small in comparison to my previous ETF purchases, but i plan to hold, regularly assess the risks and valuations, and potentially add to this position.
Although i had some indirect China exposure through my HK index purchase, this provides more direct coverage and fills one of the gaps in my portfolio.
The last couple of days have seen a pull back in equity valuations. I'll be keeping a close eye on the markets and may take the opportunity to make some further purchases.
Tuesday 19 March 2013
Managing an investment portfolio
Following a comment in another post i'll try to summarise how i manage my investment portfolio. Whilst this certainly won't cover all the options available, i'll try to cover how i personally went about it and what i considered.
I'll break this down into 3 sections:
1) What markets / risk do i want exposure to
2) What products offer that type of exposure
3) Which service providers offer access to these products
Markets
Firstly, with respect to the markets & risk categories to target, this is very much a question of an individual's risk appetite. In my case, i have been targeting broad geographical & industry diversification, with a focus on high yield. However, the options i've looked at were almost limitless, for example:
Developed, Emerging; Large cap, Small cap; Yield, Value, Growth;
Country, Regional, Global; Individual names, Broad sectors;
Companies, Commodities, Currencies and so on.
Products
Once i had a clear idea of the markets i wanted to target i moved on to choosing suitable investment products. In my case, the priority here was to minimise fees, hence increasing the proportion of income/growth returned to me. I personally try to avoid products such as managed funds, unit trusts, insurance linked investment products etc which have all traditionally come with high fees, either at opening, closing or on an annual basis. I recall looking at a bond fund prospectus that charged something like a 4% upfront fee and a 2% annual fee. It would need to perform very well before the customer started to benefit.
My preference for achieving low cost diversification is currently Exchange Traded Funds, which come with annual fees typically in the 0.2-0.6% range. ETF ranges have been steadily growing for a few years now and there is almost always something suitable for my needs.
In addition to the appeal of lower costs, ETFs also offer the lazy option to diversification, allowing easy access to track an index without needing to hand-pick individual companies. This is ideal for me as I don't have a lot of time to manage the portfolio.
If pre-packaged diversification isn't required, the obvious options include but are not limited to direct equities, bonds, buying physical assets, or more complex structured/derivative based products.
Service providers
In some respects I found that this flowed from the choice of market & product. I found the simplest option to be a broker through a high street bank, many of which now offer dedicated online services. This is good for those trying to keep personal finances clean & easy to manage, but for those looking to build more complex or active portfolios, a dedicated brokerage may be preferable.
Again, a key consideration for me is fees, i try to avoid quarterly/annual holding fees, inactivity fees or preferential terms for a higher frequency of orders, simply because i don't think they will suit my infrequent buy & hold investing style. I would always recommend shopping around for the best deals though, as there are many options out there.
Again, another appealing factor of ETFs to me is that these can cover equities, bonds or commodities all via the stock market, which can make market access simpler if a basic online brokerage/bank provider is chosen.
(Disclaimer: every post on this blog is a personal opinion and in no way should be interpreted as professional or financial advice. Please consult a professional adviser if advice is needed.)
I'll break this down into 3 sections:
1) What markets / risk do i want exposure to
2) What products offer that type of exposure
3) Which service providers offer access to these products
Markets
Firstly, with respect to the markets & risk categories to target, this is very much a question of an individual's risk appetite. In my case, i have been targeting broad geographical & industry diversification, with a focus on high yield. However, the options i've looked at were almost limitless, for example:
Developed, Emerging; Large cap, Small cap; Yield, Value, Growth;
Country, Regional, Global; Individual names, Broad sectors;
Companies, Commodities, Currencies and so on.
Products
Once i had a clear idea of the markets i wanted to target i moved on to choosing suitable investment products. In my case, the priority here was to minimise fees, hence increasing the proportion of income/growth returned to me. I personally try to avoid products such as managed funds, unit trusts, insurance linked investment products etc which have all traditionally come with high fees, either at opening, closing or on an annual basis. I recall looking at a bond fund prospectus that charged something like a 4% upfront fee and a 2% annual fee. It would need to perform very well before the customer started to benefit.
My preference for achieving low cost diversification is currently Exchange Traded Funds, which come with annual fees typically in the 0.2-0.6% range. ETF ranges have been steadily growing for a few years now and there is almost always something suitable for my needs.
In addition to the appeal of lower costs, ETFs also offer the lazy option to diversification, allowing easy access to track an index without needing to hand-pick individual companies. This is ideal for me as I don't have a lot of time to manage the portfolio.
If pre-packaged diversification isn't required, the obvious options include but are not limited to direct equities, bonds, buying physical assets, or more complex structured/derivative based products.
Service providers
In some respects I found that this flowed from the choice of market & product. I found the simplest option to be a broker through a high street bank, many of which now offer dedicated online services. This is good for those trying to keep personal finances clean & easy to manage, but for those looking to build more complex or active portfolios, a dedicated brokerage may be preferable.
Again, a key consideration for me is fees, i try to avoid quarterly/annual holding fees, inactivity fees or preferential terms for a higher frequency of orders, simply because i don't think they will suit my infrequent buy & hold investing style. I would always recommend shopping around for the best deals though, as there are many options out there.
Again, another appealing factor of ETFs to me is that these can cover equities, bonds or commodities all via the stock market, which can make market access simpler if a basic online brokerage/bank provider is chosen.
(Disclaimer: every post on this blog is a personal opinion and in no way should be interpreted as professional or financial advice. Please consult a professional adviser if advice is needed.)
Monday 18 March 2013
Another bailout
Although i'd been expecting a Cyprus bailout for some time, i had been expecting it to pass by quietly, given the numbers are relatively small in comparison with the other bailouts in the region.
As it happens, I was quite surprised (as it appears were most financial markets) to see the proposed details, for the first time proposing a 'tax' on ordinary savings accounts.
I think the EU have grossly underestimated the reaction this would cause, not just in Cyprus but around the world. It brings in to question the validity of deposit guarantee schemes, and after a few quiet months it raises fears again about eurozone contagion and what this now means for other struggling countries and banking systems.
Whilst ordinary people would end up paying anyway (through higher taxes, lower state spending etc), the way this has been structured and presented makes it look particularly arbitrary and unjust. Given the size of the EU budget, i think they should invest a bit more in better PR and communications!
I'm sure this will run for a few days and expect some degree of back-tracking, but it does make me think more about the importance of risk management, tax planning and diversification in managing personal finances.
As it happens, I was quite surprised (as it appears were most financial markets) to see the proposed details, for the first time proposing a 'tax' on ordinary savings accounts.
I think the EU have grossly underestimated the reaction this would cause, not just in Cyprus but around the world. It brings in to question the validity of deposit guarantee schemes, and after a few quiet months it raises fears again about eurozone contagion and what this now means for other struggling countries and banking systems.
Whilst ordinary people would end up paying anyway (through higher taxes, lower state spending etc), the way this has been structured and presented makes it look particularly arbitrary and unjust. Given the size of the EU budget, i think they should invest a bit more in better PR and communications!
I'm sure this will run for a few days and expect some degree of back-tracking, but it does make me think more about the importance of risk management, tax planning and diversification in managing personal finances.
Thursday 7 March 2013
Investment Portfolio update
Back in December i gave a brief review of my investment portfolio. As a few months have passed and there are a few new additions i thought i'd give an update.
All UK listed ETFs have performed very well, with double digit growth since being purchased between October and December. In particular, IASP (Asia Pacific property) has shown strong capital growth along with paying two dividends.
Gold has slipped back as equities rallied & confidence returned to the markets. I'm not overly concerned about this as it acts partly as a hedge to the equity heavy portfolio. I'm slightly surprised the high yield bond ETF (SHYU) has grown so much even without having received dividends yet, but i guess this serves as evidence of the continued search for yield in the markets.
The more recent purchases are the HK Index tracker fund (i have a small standing monthly purchase in place) and Apple. The HK tracker has leveled off in the last couple of months, but i'm happy to keep adding a small amount to this each month for the time being, certainly until it becomes a more material part of the portfolio. The Apple purchase is only a couple of days old so we'll see how it goes - i have no plans to add to this for the time being.
Overall i'm happy with the performance of the portfolio, and i'd actually quite welcome a pull back in the market so i can add a few new additions to improve diversification. I've also managed to stick to my buy and hold strategy, with no disposals to date. Obviously my nerves haven't been tested yet with any significant falls!
| Name | Return | CAGR | % Portfolio | |
| SEDY | 12% | 33% | 16% | |
| IASP | 19% | 57% | 17% | |
| SHYU | 10% | 29% | 17% | |
| IUKD | 14% | 51% | 17% | |
| IDVY | 11% | 52% | 10% | |
| Gold | (7)% | (19)% | 14% | |
| 2800.HK | (3)% | (8)% | 4% | |
| AAPL | (1)% | (82)% | 4% |
All UK listed ETFs have performed very well, with double digit growth since being purchased between October and December. In particular, IASP (Asia Pacific property) has shown strong capital growth along with paying two dividends.
Gold has slipped back as equities rallied & confidence returned to the markets. I'm not overly concerned about this as it acts partly as a hedge to the equity heavy portfolio. I'm slightly surprised the high yield bond ETF (SHYU) has grown so much even without having received dividends yet, but i guess this serves as evidence of the continued search for yield in the markets.
The more recent purchases are the HK Index tracker fund (i have a small standing monthly purchase in place) and Apple. The HK tracker has leveled off in the last couple of months, but i'm happy to keep adding a small amount to this each month for the time being, certainly until it becomes a more material part of the portfolio. The Apple purchase is only a couple of days old so we'll see how it goes - i have no plans to add to this for the time being.
Overall i'm happy with the performance of the portfolio, and i'd actually quite welcome a pull back in the market so i can add a few new additions to improve diversification. I've also managed to stick to my buy and hold strategy, with no disposals to date. Obviously my nerves haven't been tested yet with any significant falls!
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