Rebalancing vs taxes vs expenses vs life

With us now being only a single working week away from the new UK financial year and the investment world still feeling the impacts of the COVID-19 situation I thought it might be worthwhile sharing a little about how my portfolio and life is changing given where we currently find ourselves.

Let's start with what my investing strategy, something I first shared way back in 2009 but wasn’t really finalised until 2012, tells me to do.  For this post there are three important pillars:

• If any of my assets, diversified by country and by asset class, gets more than 25% away from the plan then I will either sell or buy as appropriate to move that asset class back to plan
• Minimise taxes meaning I keep more of my wealth for myself
• Minimise investment expenses also meaning I keep more of my wealth for myself

It’s also worth sharing some other information that helped inform my recent decisions:

• My gold had become 25% overweight
• My bonds while not 25% overweight were well overweight
• The UK 2019/20 capital gains tax annual exempt amount is £12,000.  It’s also worth adding that I believe if you sell assets worth more than £48,000 or have gains before taking off losses of £12,000 then you will also have to complete the tax return capital gains summary pages.  Not a financial negative but a time waste worth avoiding if it sensibly can be.
• Once this COVID-19 problem passes it’s looking more and more likely that we’ll be Asian bound for the next part of our FIRE journey.  We’ve still not finalised plans, as we’ve learnt we have no need to rush these types of decisions, but we’re confident enough to start (continue?) shifting our asset allocation over the coming 6 to 12 months.  That involves moving our equity investment bias (may be controversial for some but it’s always been part of my strategy so I’m not changing it) from the UK (HYP, VUKE, VMID) to Asia mainly in the form of the Vanguard FTSE Developed Asia Pacific ex Japan UCITS ETF (VAPX).
• VAPX only went ex dividend/distribution on Thursday with all my Vanguard equity dividends/distributions being paid on the 08 April 2020.
• Within my portfolio I have pensions (all SIPP’s), an ISA, NS&I Index Linked Savings Certificates (ILSCs) and plenty of non-tax efficient investments. 

Lenses

A chart of the monthly FTSE 100 price looks something like this:

Click to enlarge, Monthly FTSE 100 Price

This is the chart that you’ll see on all the mainstream media channels and it shows that the FTSE 100 still has about 32% to fall if it’s going to match the worst of the global financial crisis (GFC).  This sounds like a long way until one thinks about a big failing with this type of chart.  It’s unit of measurement…  The FTSE 100 is priced in £’s and they’re constantly being devalued via inflation.  So, let’s take out a different lens and try and look at the chart in real, inflation adjusted, terms.

Firstly, let’s correct for the consumer price index (CPI):

Click to enlarge, Real (CPI) Monthly FTSE 100 Price

That shows that instead of falls of 32% being needed it’s actually closer to falls of 16% for parity with the worst of the GFC.