Summer is over as we roll into September and the weather certainly seems to think so too. Any way the normally quiet August passed off in its usual fashion with low volumes and only a modest positive return of 0.77% for the FTSE All Share Index. The Compound income Scores (CIS) portfolio continued its strong run of outperformance in August with a total return of 1.25%.
For the year to date this makes 7 out of 8 months so far in which it has outperformed the broader FTSE All share index and leaves it with a total return of 25.71% year to date & 52.18% or 19.81% annualised since inception at the end of March 2015. You can see a full table of the performance history by clicking here if that is of interest to you. There is also a chart of the portfolio performance against the other FTSE UK indices such as the Mid 250 and Small Cap available on the website and this is reproduced at the top of this post. The only thing missing from this chart, which is worth pointing out, is that I don't have data for the total return of the All AIM index which as shown in the following chart has been the best performing UK index this year.
Now this is worth bearing in mind as the CIS Portfolio currently has 40% in AIM stocks and is also skewed towards Mid 250 Stocks & Small Caps with 35% and 12% respectively and only has 12% in FTSE 100 Stocks which have brought up the rear this year. So this has been beneficial to the portfolio and will help to explain a large part of the outperformance this year, although obviously selecting the right stocks within in that, thanks to the Compound Income Scores, will also have been necessary. No doubt if we see a return to FTSE 100 stocks leading the way then some of the recent performance could reverse.
With that background I wanted to highlight to readers the broader benefits of the Scores as they are not just for dull income stocks but cover the breadth of the market with over 600 stocks drawn from FTSE 100 down to small caps and 200 under researched AIM stocks too. Now you may not be that interested in income stocks in particular, but it is worth bearing in mind that given the focus of the Scores on quality and growth metrics as well as yield, value and financial security, they can and do also flag up attractive quality growth stocks such as ARM before it was taken over and more recently the likes of Fevertree. These do however tend to be on expensive looking valuations, which given my value bias and limits, tends to mean that they get excluded from the CIS Portfolio. If you are that way inclined or more willing to tolerate highly rated quality growth stocks for capital compounding then the Scores can also help you to identify these type of stocks too, although they do exclude those that do not pay a dividend so you would have to look elsewhere for guidance on those. Hmm, makes me think perhaps we should launch an unconstrained Scores portfolio.
The other feature of the Scores is that hitherto they have up to now only been delivered via Google Drive. We understand that not everybody has or wants one of these or even know how to use it and it may therefore not be their cup of tea. So talking of tea - for around the cost of a cup of tea each week (£1) we would like to offer access to more people on a more user friendly basis. Therefore we are delighted to be able to announce that henceforth the Scores will now available via the following services:
So if the Google Drive access has put you off in the past and you would like to gain access to the Scores by subscribing in one of the other ways, or indeed via Google Drive if you are a new reader who uses that, then please click on your preferred method of receiving the Scores listed above to be taken to our payment partner to subscribe.
When you subscribe you'll be provided with a free e-book explaining the background to the Scores.
...but if you liked the recent post called How much is enough - what's your number and you are early into the process of investing or trying to build up a nest egg - then the following books may be of interest. The first one if rather long and a bit US focussed, but nevertheless has some useful advice in it. While the second on, by a less famous author is more UK focussed and an easier read so may be more appropriate for a domestic audience and maybe even holiday reading?
Finally, if they are not to your taste, then don't forget that you can get lots of other suggestions for not so light books to read and other useful resources for investors at the Resources page - happy holidays.
Further to the update on the Scores Portfolio, we have had a few contacts recently with people looking to sign up. We have replied to all those queries individually but are aware that there may be problems with spam filters and our replies may have gone to the recipients junk mail folders. So if you have been in touch and are still awaiting a reply from us then please could we ask you to check your junk mail folder.
Just to reiterate if you want to gain access to the Scores it should be relatively simple to do via this link or those given on the Scores page here or via the menu at the top of the site. But please note that this product is currently delivered via Google Drive so if you wish to subscribe you will need an e-mail address and access to a Google drive associated with that e-mail address. As it it quite a large sheet it is probably best viewed on a PC or larger tablet rather than a phone, but if you want to be able to access them on your phone then check out details of these Google Apps for - Android and I Pad or I Phone, in the Play and I-Tunes stores. If you are unfamiliar with Google Drive and want to learn more and set one up then see this link for more information.
Here's a brief belated update to the start of August rather than the end of July as I was away on a short break at the end of the month. It was another good month for the CIS Portfolio which was up by 4.9% versus the 1.8% for the FTSE All Share Total Return index. This leaves it up 24.2% YTD & 50.3% since inception or 19.2% per annum on an annualised basis. These figures are all ahead of the various UK indices as per the graph above, but then everyone is probably having a wonderful time swimming in the warm waters of this on going bull market aren't they? Mind you as dear old Warren Buffet says - we'll find out who has been swimming without trunks when the tide goes out. At least the CIS Portfolio still looks good value after this months trades as it sports a forecast PE of 13.7x with a 3.5% forecast yield based on expected dividend growth of 14% for the current year.
Talking of the total return indices above the latest Monthly timing indicators based on these remain about 5% above their averages in the case of the headline indices such as FTSE 100, while the Mid Cap and Smaller indices are further above their averages by about 7%. So these and the on going strength in US employment data and robust PMI indices suggest that the tide is still with investors so it should be safe to continue to go with the flow for now without protection and as the old saying goes the trend is your friend, so carry on enjoying it while it lasts.
A big question in life and for those who are considering retiring early. I guess at the end of the day there is no right or wrong answer to this one as it depends on what sort of person you are and what sort of lifestyle you want to lead. Obviously some entrepreneurs are driven and always looking for the next deal or to accumulate more so they can keep up with a Branson or a Jones or whoever it is they aspire to be. If however, you have more modest ambitions and would just like to take it easy and be free to spend you time how you like - how much would you need? As someone who has done this I obviously know what my figure was and what sort of lifestyle I'm comfortable with but everybody will be different.
In deed talking of different there was a programme on Channel 4 in the UK recently called - How to retire at 40. So it seems that this might be a topic which is going mainstream? I did however have some reservations about this programme as some of the participants like the young guy making £23,000 a year from a few hours selling personalised potatoes and the lady turning over millions from selling cakes, didn't seem to have retired and might only have been aspiring to? While some of the others seemed like they were enjoying themselves on the beach or in their camper vans, apart from talking about saving money by budgeting, they were a bit vague on how they were funding their lifestyle. There was however one "expert" they had on there who was an accountant and he quoted the 25 times your required income as the figure - which is the pretty standard 4% "safe" withdrawal rate for retirees so they just run out of money before they die!
Now that may be conventional wisdom for normal retirees, but personally I think it may well be poor advice if you are going to retire in your 40's given increasing life expectancy, the ever receding date for state pension entitlement and therefore the number of years that you would potentially have to fund yourself and your lifestyle for. I also came across a useful website recently thanks to twitter and the always useful the7circles website for UK investors, which put me onto one that is called Early Retirement Now - although it is more US focussed I believe. They have however done some awesome research on the subject of safe withdrawal rates for early retirees. If that is of interest you can see an extract and download a copy for free here.
This raises some interesting points and generally pours cold water on the validity of the safe 4% withdrawal rate generally and in particular for early retirees. Their bottom line if you can't be bothered to read the paper (although I'd recommend it) is that 3.25% to 3.5% is a more suitable safe rate for early retirees depending on how much if any capital you want to have left at the end. Personally I prefer to be more conservative than that but I suggest 3% withdrawal rate might be a safer figure to work with which gives a number of 33 1/3 times the income you require as the sum of money you would need to retire early rather than the 25x quoted by the "expert" on the TV show mentioned earlier. Easy to remember too for older folk like me who like their music and who remember vinyl records which you had to play at 33 1/3, although I gather they are all the rage again now - what goes around comes around - you spin me right round baby right round like a record.... no stop it (see video at the end if you must). So for example if you say wanted or needed an income of £30,000 then you would need to accumulate an investment fund of £1 million.
Now if that disappoints you, don't be discouraged because as I said everyone is different and their circumstances and requirements will vary. Indeed the Joseph Rowntree Foundation have done lots of work on this and define each year how much people need for A Minimum Income Standard (MIS) for the UK with the latest report for 2017 available to download here. They suggest a single person needs just under £18,000 a year for a MIS while a couple with two children would need £20,400 each I think. You can also take a short three question quiz from them here to define what your own requirements might be if that is of interest, but don't forget this is a minimum income standard so you might want to aim for more than the figure it suggests, depending on how you want to live your life.
Any way talking of living life, I've spent too long on this already - so I'm off now to get on with my life. I hope this might help you with setting your number if your are thinking of obtaining financial freedom too. Oh yes and here's some music as threatened 33 1/3 & all that!