A Retirement Investing Today Review of 2012

This is a belated 2012 review of my own personal situation.  It comes a little later than most personal finance bloggers for 2 main reasons:

• A portion of my exposure to Australian Equities is held with Vanguard Investments Australia in the form of the Vanguard Index Australian Shares Fund.  This fund distributes income on the 31 December and so it takes a few days for the distribution to be declared and the unit price to adjust.  I can’t close out my year until this occurs.
• I monitor the value of the Retirement Investing Today Low Charge Portfolio on a weekly basis rolling up the values every Saturday.  This means for me my year actually started at the market close on the 06 January 2012 and finished on the market close on the 04 January 2013.

My personal investing strategy is now aligned around the mantra – Save Hard, Invest Wisely, Retire Early so let’s review my year around those 6 short words.

Save Hard

My aim is to regularly save 60% of my earnings.  Earnings I define as my gross (ie before tax) earnings plus any employee pension contributions.  When the year is rolled up I actually missed my target with a result of 55% of earnings being saved.  So where did the money go:

• 32% was invested into Pension Wrappers
• 18% was invested into ISA’s, NS&I Index Linked Savings Certificates and non tax efficient locations 
• 5% was used by my better half to ensure both our early retirement ambitions stay in sync.  Therefore this money didn’t make it into my Invest Wisely but are still family savings so I’ve chosen to include them.

Year end score: Conceded Pass.  The amount saved was nowhere enough for Early Retirement Extreme however it should still be plenty for a nice Early Retirement.  My plan for next year is to get that savings rate back up to 60%.

Invest Wisely

I have continued with the Retirement Investing Today Low Charge Strategy.  My asset allocations at year end are shown in the chart below.

 

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I have continued to invest as tax efficiently as possible.  At year end 69.1% of the total portfolio is invested this way with the distribution being:

• 39.2% held within Pension Wrappers with the majority being within a Sippdeal SIPP
• 17.3% held within NS&I Index Linked Savings Certificates
• 12.6% held within ISA Wrappers.  100% of which is invested within the TD Trading ISA.  I continue to use TD Direct Investing as the Investments I hold within the ISA, plus the fact that I have over £5,100 with TD means I have no annual fees to pay.  This helps ensure I minimise fees and taxes and not just taxes.

Year end score: Pass.  Sure I am only 69.1% tax efficiently invested but I have at least maximised the opportunities made available to me in the year while ensuring I maintain my risk profile.

The S&P 500 Cyclically Adjusted PE (aka S&P 500 or Shiller PE10 or CAPE) – January 2013 Update

This is the Retirement Investing Today monthly update for the S&P500 Cyclically Adjusted PE (S&P 500 CAPE).  Last month’s update can be found here.

As usual before we look at the CAPE let us first look at other key S&P 500 metrics:

• The S&P 500 Price is currently 1,461 which is a rise of 2.7% on last month’s Price of 1,422 and 12.3% above this time last year’s monthly Price of 1,301.
• The S&P 500 Dividend Yield is currently 2.1%.
• The S&P As Reported Earnings (using a combination of actual and estimated earnings) are currently $87.55 for an Earnings Yield of 6.0%.
• The S&P 500 P/E Ratio is currently 16.7 which is up from last month’s 16.3.

The first chart below provides a historic view of the Real (inflation adjusted) S&P 500 Price and the S&P 500 P/E.  The second chart below provides a historic view of the Real (after inflation) Earnings and Real (after inflation) Dividends for the S&P 500.

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As always let us now turn our attention to the metric that this post is interested in which is the Shiller PE10.  This is also shown in the first chart which dates back to 1881 and is effectively an S&P 500 cyclically adjusted PE or CAPE for short.  This method is used and was made famous by Professor Robert Shiller.  It is simply the ratio of Real (ie after inflation) S&P 500 Monthly Prices to 10 Year Real (ie after inflation) Average Earnings. 

It is important to highlight that my calculation method varies from that of Professor Shiller.  He only uses S&P 500 Actual Earnings data where because I use the S&P 500 PE10 to actually make investment decisions from I also include extrapolated Earnings estimates right up to the present day.  This is to try and make the value as current as possible.

Posting the Quarterly Roundup on Monevator (Again)

There is no post today as I’m guest posting over on Monevator what is now a regular quarterly feature – The Monevator Private Investor Market Roundup.  The Roundup reviews various global markets over the last quarter and is in my usual non-emotional (well not too much emotion) fact based analysis and today covers equities, UK housing and commodities.  Some of the content is unique to the Roundup and is not available on Retirement Investing Today.

If this is of interest (and you are not a regular reader of Monevator) here is the link to The Monevator Private Investor Market Roundup for January 2013. ( ) While you’re there you might want to subscribe to Monevator via email, RSS, Twitter or Facebook as the team over there really do make a lot of sense.

As always it would be great to hear your thoughts.

Gold Priced in British Pounds (GBP or £’s) – January 2013 Update

This is the regular Gold Priced in Pound Sterling update.  The last update was in December 2012.

The chart below shows the Nominal Monthly Gold Price since 1979.  The key Nominal Gold metrics are:

• The Nominal Gold Price is currently £1,030.03 which is 1.3% below the December 2012 Price of £1,044.09.
• Year on Year Nominal Gold Prices are 3.5% below the January 2012 Price of £1,067.76.  

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The chart below then adjusts this chart by the continual devaluation of Sterling through inflation.  The key Real Monthly Gold Price metrics are:

• Real Gold Peak Price was £1,176.61 in January 1980.  At £1,030.03 we are 12.5% below that peak today.
• The long run average is £528.29 which is indicating a very large 95% potential overvaluation.
• The trendline indicates the Real Gold Price should today be £478 which would indicate even further overvaluation today.  

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The Fiscal Cliff and Severe Real S&P500 Bear Markets – January 2013 Update

With the US Government this week deciding that it was going to make no attempt to at least start the country along the road towards living within its means, the so called Fiscal Cliff was avoided.  In response the S&P500 rose 4.0% in the week to close at 1,466.  While the main stream media were getting all excited about this increase I started to think about how this continual kicking of the can down the road could actually be storing up future problems, which might actually prolong the Severe Real S&P500 Bear Market I believe we may still find ourselves within.  I last posted about this analysis in September 2012.  As a reminder I define a Severe S&P500 Bear Market as a period in time where from the stock market reaching a new Real (inflation adjusted) high it then proceeded to lose in excess of 60% of its real Value.

The previous Severe Real S&P500 Bear Markets are revealed in the chart below which corrects historic S&P500 Prices since 1881 by the devaluation of the US Dollar to arrive at Real Prices.  This chart shows we are now back to Prices last seen in March 1998 and also shows we have seen three previous Severe Real Bear Markets.    

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If I think of the US Government putting off this unpopular decision for another day then at some time in the future the bond market may force them to make a decision.  Of course at that time they will then have somebody else to blame which will suit the weak politicians whose only focus seems to be to get themselves re-elected.  The subsequent rise in taxes and cuts to spending which would then follow would then have to be worse than they were faced with today because through indecision they have made the problem a larger one to solve. The S&P 500 may then respond with a big fall which brings me back to the chart above.  Now there is of course a risk that I’ve been looking at this chart too long however I can generally see in the last 3 Severe Bear Markets two lower Real highs following the initial new Real high.  From this second lower Real high we then see Real Prices fall between 40 and 60%.  Are we are nearing that second lower high and could this government indecision actually end up causing this next big leg down?  Of course I would never buy or sell based on this hypothesis because the market can remain irrational far longer than I can remain solvent.

If I overlay the three Severe S&P Bear Markets with today’s market by comparing the percentage change in value from the peak for each of these periods we arrive at today’s second chart.  So what were these previous bear markets?

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