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.
Tuesday, 30 April 2013
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!
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