US (S&P 500) stock market including the cyclically adjusted price earnings ratio (PE10 or CAPE) – June 2010 Update

To try and squeeze some more performance out of a retirement investing strategy that is heavily focused on buy & hold and asset allocation I am using a Cyclically Adjusted Price / Average 10 Year Earnings (PE10 or CAPE) ratio for the S&P 500 to value the US (specifically the S&P 500) stock market. The method used is that developed by Yale Professor Robert Shiller however I also incorporate earnings estimates up to the PE10 month of interest. Background information here.

Buying Australian Equity Index Tracker (ASX200)

As I’m sure everyone knows the Australian Stock has seen some falls of recent weeks. Using my monthly data set it’s down 13% from the monthly peak of 4876 in March 2010. Of course it’s still well above the monthly low of 3345 in February 2009 by some 27%. These falls have meant that my target asset allocation of ASX200 equities within my Low Charge Portfolio has risen to 20.9% and my actual has fallen to 17.0%. If you’re not sure about how I built my asset allocation and particularly how I use tactical allocations then please read here and here.

Australian (ASX 200) stock market including the cyclically adjusted price earnings ratio (PE10 or CAPE) – June 2010 Update

To try continue to try and squeeze some more performance out of a retirement investing strategy that is heavily focused on asset allocation I am using a cyclically adjusted PE ratio (known as the PE10 or CAPE) for the ASX 200 to attempt to value the Australian Stock Market. The method used is based on that developed by Yale Professor Robert Shiller for the S&P 500. I will call it the ASX 200 PE10 and it is the ratio of Real (ie after inflation) Monthly Prices and the 10 Year Real (ie after inflation) Average Earnings. For my Australian Equities I will use a nominal ASX 200 PE10 value of 16 to equate to when I hold 21% Australian Equities. On a linear scale I will target 30% less stocks when the ASX 200 PE10 = 26 and will own 30% more stocks when the ASX 200 PE10 = 6.

UK Mortgage Rates and Mortgage Approvals – June 2010 Update

Today I present two regular charts that could provide an indication of what is happening in the housing market. The first shows the monthly interest rate of UK resident banks and building societies sterling standard variable rate mortgage to households (not seasonally adjusted) and highlights that for this data set rates remain at near record lows at 3.99% for May 2010 (actual low was 3.82% in April 2009). Compare this with the retail price index (RPI) of 5.3% and the average mortgage is better than free money with a negative real interest rate.

Calculating historic portfolio returns and particularly my return versus a sensible benchmark

As I’ve explained many times my Retirement Investing Low Charge Portfolio has both a Strategic and Tactical Asset Allocation associated with it. The construction of this portfolio can be seen here. The tactical element is an attempt to squeeze some more performance from the portfolio however I want to monitor the return of my total portfolio carefully to ensure that I am not under performing a simple stocks/bonds allocation. After all why put all the effort in and then under perform.