How quickly things can change! Another bumper quarter for global equities has helped to chase the blues away like a glimpse of spring sun.

Our Slow & Steady model portfolio has plumped up 3.7% in the last three months. That’s on top of the 7% gain the quarter before that.

Overall, annualised returns are now back to a healthy 7%. Call it 4% after inflation. If you own an equity-heavy passive portfolio you’ll be happier still.

Here are the numbers, in Zippity-Doo-Dah-o-vision:

The Slow & Steady portfolio is Monevator’s model passive investing portfolio. It was set up at the start of 2011 with £3,000. An extra £1,264 is invested every quarter into a diversified set of index funds, tilted towards equities. You can read the origin story and find all the previous passive portfolio posts in the Monevator vaults.

While much of Q4’s rise was accounted for by a surge in government bonds and property they’ve both subsided a little since.

Instead we’re back to the established routine: US large caps as the motor of our passive portfolio.

Our Developed World fund had approximately 50% in the US when we first invested back in 2011. Now that allocation has climbed to over 70% – a worryingly high exposure to a richly-valued stock market and an economy stoked on government stimulus.

The Investor wrote an excellent piece for Mavens on how to think through this situation, including your options for taking evasive action.

He also turned up a Larry Swedroe article on just how hot the US market would have to run to repeat the returns of the last decade.

In short: we’d need a Tech Bubble Part II to get anywhere close.

Needless to say I won’t be selling the Slow & Steady’s equity allocation to plough it 100% into an S&P 500 ETF anytime soon.

However neither am I about to advocate for a wholesale shift into a World ex-US tracker.

American idle

For one thing, the Slow & Steady portfolio is only 28% US large caps when you take the whole portfolio into account.

And even if we did dilute the Developed World fund’s US holding back down to the 50% level where we first invested, the US large cap allocation would only be reduced to 20% of the total portfolio.

Said differently – the portfolio is already adequately diversified. If Big Tech’s future returns are sub-par, a 28% to 20% shift won’t make a huge difference.

Secondly, nobody is predicting negative returns for the US. Just that the market must surely mean revert – and that some other region must surely take the lead for a while – because the S&P 500 doesn’t win every decade.

I’ve been reading predictions like this for more than a decade. Nobody can make a strong case for any other market besides, “it’s cheap.”

Mean reversion is not a physical law. It’s a pattern found in the last 100 years of data. It doesn’t mean that cheap markets can’t get cheaper.

The Russian market looked awesome value before the Ukraine War. I’m glad I didn’t bet my shirt on those stocks.

In my personal portfolio, I siphoned off cash to deploy in emerging markets and UK equities for years because they were cheap. That hasn’t worked.

It did teach me a useful lesson about trying to outwit the market though.

I can’t do it.

New transactions

Every quarter we nourish our portfolio with £1,264 of investment fertiliser. This fresh muck and brass is split between our portfolio’s seven funds, according to our predetermined asset allocation.

We rebalance using Larry Swedroe’s 5/25 rule. That hasn’t been activated this quarter, so the trades play out as follows:

UK equity

Vanguard FTSE UK All-Share Index Trust – OCF 0.06%

Fund identifier: GB00B3X7QG63

New purchase: £63.20

Buy 0.24 units @ £262.85

Target allocation: 5%

Developed world ex-UK equities

Vanguard FTSE Developed World ex-UK Equity Index Fund – OCF 0.14%

Fund identifier: GB00B59G4Q73

New purchase: £467.68

Buy 0.722 units @ £647.54

Target allocation: 37%

Global small cap equities

Vanguard Global Small-Cap Index Fund – OCF 0.29%

Fund identifier: IE00B3X1NT05

New purchase: £63.20

Buy 0.148 units @ £428.36

Target allocation: 5%

Emerging market equities

iShares Emerging Markets Equity Index Fund D – OCF 0.19%

Fund identifier: GB00B84DY642

New purchase: £101.12

Buy 53.63 units @ £1.89

Target allocation: 8%

Global property

iShares Environment & Low Carbon Tilt Real Estate Index Fund – OCF 0.18%

Fund identifier: GB00B5BFJG71

New purchase: £63.20

Buy 27.95 units @ £2.26

Target allocation: 5%

UK gilts

Vanguard UK Government Bond Index – OCF 0.12%

Fund identifier: IE00B1S75374

New purchase: £316

Buy 2.355 units @ £134.21

Target allocation: 25%

Global inflation-linked bonds

Royal London Short Duration Global Index-Linked Fund – OCF 0.27%

Fund identifier: GB00BD050F05

New purchase: £189.60

Buy 179.546 units @ £1.056

Target allocation: 15%

New investment contribution = £1,264

Trading cost = £0

Take a look at our broker comparison table for your best investment account options. InvestEngine is currently cheapest if you’re happy to invest only in ETFs. Or learn more about choosing the cheapest stocks and shares ISA for your circumstances.

Average portfolio OCF = 0.16%

If this all seems too complicated check out our best multi-asset fund picks. These include all-in-one diversified portfolios, such as the Vanguard LifeStrategy funds.

Interested in tracking your own portfolio or using the Slow & Steady investment tracking spreadsheet? Our piece on portfolio tracking shows you how.

Finally, learn more about why we think most people are best choosing passive vs active investing.

Take it steady,

The Accumulator

The post The Slow and Steady passive portfolio update: Q1 2024 appeared first on Monevator.

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