Below is an unedited email from an existing 80-20 Investor member (I've only added headings for ease of reading). It provides some great insight into how members are successfully using 80-20 Investor to run their own money and outperform the market, fund managers and me!
Yet it also raises an interesting question regarding benchmarking which affects all DIY investors. I have been given permission to share the email with you. My response can be found below the email.
80-20 Investor review
Dear Damien,
I hope you are well.
First of all I just wanted to say that I am enjoying 80-20 Investor and your excellent research pieces although I don't always find the time to read them all (my fault, not yours).
My reason for getting in touch is to share my experience of 80-20 Investor, as you have often asked for feedback. Forgive my rather longwinded email but I wasn't sure I would fit all my comments into your monthly Chatterbox section.
Back in June I was looking to invest the annual ISA allowance for myself and my wife (£30,480 in total) in a way where I had more control over the investment choices and hopefully a greater return on my investment. Although I am not a complete novice I felt I needed more structure to my investment choices rather then choosing the funds with no consistent methodology. My results previously have always been a bit hit and miss.
After listening to your podcast I decided to give 80-20 Investor a try. Having had a good look round the information available within 80-20 Investor and elsewhere I decided I was only going to invest in 10 funds to keep my portfolio manageable. My aim was to build a medium risk portfolio so I planned to choose 2 low risk funds, 6 medium risk funds and 2 high risk funds to give me that risk profile.
The next decision I made was which funds to pick. I decided that I wanted to use a method that I could replicate myself when I wanted to switch funds in the future. I didn't want to take the lazy route and just follow your £50k portfolio.
So I decided on the following rules when selecting funds
1. To first go to the 'Best of the best' section
2. Select the risk category - low, medium or high
3. Look at funds with a good 6 month record, low volatility and low charges
4. From the group of funds that fit the above I choose the number of funds to bring the total in my portfolio up to 10.
The first time it took me around 30 minutes to complete my initial selection and i decided to invest in the following funds:
Low Risk
- 7im Unconstrained
- Jupiter Distribution
Medium Risk
- Kames Ethical Cautious Managed
- Aberdeen UK Smaller Companies
- Franklin UK Smaller Companies
- Henderson Japan Opportunties
- Henderson UK Smaller Companies
- Old Mutual Mid Cap
High Risk
- GLG Continental Europe
- Aberdeen European Property
On 12/6/2015 I invested 10% of my ISA allowance into each fund for both myself and my wife giving a total of £3,048 per fund. As an aside I chose Hargreaves Lansdown as my investment platform as I like the suite of information they provide and their smartphone app which makes it easy to monitor your investments.
Fund switches
My plan is to review my funds every month or so and do a bit of pruning rather than drastic changes. So far I've made the following fund switches:
- On 14/8/2015 I sold my holding in Henderson Japan Opportunities at a total loss of £96
- On 17/8/2015 I invested the proceeds of the above sale in FP Miton Undervalued Assets, a total of £2,952
- On 24/8/2015 I sold my holding in 7IM Unconstrained at a total loss of £212
- On 25/8/2015 I invested the proceeds of the above sale in Schroder Monthly High Income, a total of £2,826
The result so far
While I appreciate that it is early days I wanted to share my experience so far. As of today (6th October) my initial investment of £30,480 is now worth £30,154, so I'm marginally down. That equates to a drop of 1%. Over the same time the FTSE 100 is down around 6%. Obviously in an ideal world I would be up but I realise that when the stock market falls 15% as it did in August that is wishful thinking. So I'm pleased with how my portfolio has done so far.
Of course I realise that the FTSE 100 isn't an ideal benchmark because only around 70% of my portfolio is in equities, if my figures are correct. The biggest problem I find with running my own money is being able to see how I am doing against everyone else.
I know you sometimes compare how you are doing with your £50,000 against fund managers but I'm guessing you do that using expensive software which you pay for. Is there any easy way DIY investors can benchmark themselves against others, including professional fund managers? Using the charts for your £50,000 portfolio I estimate that the average fund manager is down about 4% over the period that I am down just 1%. Is that right, am I that much up on the professional fund managers
If it is the case then I am amazed and thank you. If my figures are right then it shows that explaining how DIY investors can benchmark themselves properly would highlight the value your momentum algorithm and research adds?
Keep up the good work,
Best Wishes
My response:
Hi,
Many thanks for your email. First of all yes your figures are correct. I took the liberty of recreating your portfolio using 'the expensive software' you mention (see the blue line in the chart below - click to enlarge it). As you can see your portfolio has hugely outperformed the average fund manager with an asset mix similar to your own portfolio.
In fact of the 209 fund managers in the Mixed Investments 40-85% Shares sector you have outperformed 205 of them! That means you've outperformed 98% of fund managers!
That is incredible and well done. You have also outperformed my own £50,000 portfolio by more than 2%.
This is exactly what I was aiming to achieve when I built it 80-20 Investor. I wanted to empower DIY investors to be able to outperform the so called expert fund managers. As for my own portfolio I run it to highlight one way to use 80-20 Investor. Given your success so far perhaps you should be running it!
As you highlight, benchmarking is so important. We shouldn't obsess about it but once in a while it is nice to glance around to see where everyone else is. Even Usain Bolt does it despite always being in front.
The good news is that I am looking into ways to enable 80-20 Investor members to benchmark their own portfolios. In the meantime I will write an article on how to benchmark a portfolio for the benefit of all 80-20 Investor members.
Thanks for taking the time to email me and do keep me posted how you get on in the future.
Best Wishes
Damien
