<p>I&#8217;ve been doing a bit of a clearout recently and I came across a mass of old investment statements that I thought had long since departed this world. For a little while, I was tempted.<!--more--></p>
<p>Until recently, I never really <a href="https://www.itinvestor.co.uk/2018/08/how-to-measure-your-portfolio-performance/">tracked my returns</a> in a proper fashion. Therefore, I&#8217;m not exactly sure how I&#8217;ve performed over the long term.</p>
<p>My feeling is that I&#8217;ve done ok, but not delivered anything spectacular.</p>
<p>I have some very crude calculations that put me at 130% since the start of 2007 compared to 95% for the UK market. There&#8217;s a wide margin of error in that, though, as I&#8217;ve got information on how much new money I added but not when (and I think I might even be a little out on how much as well).</p>
<p>But with all this rediscovered documenation perhaps, I thought, I could piece something more accurate together?</p>
<p>Luckily, common sense soon prevailed.</p>
<p>It would be a mammoth task to sieve through all that paperwork. I suspect I would get halfway through and find I still didn&#8217;t have enough data to get an accurate figure.</p>
<p>Of course, in an ideal world, I&#8217;d be able to go online and download all the necessary information with a few clicks. Because I&#8217;ve moved brokers a few times and also suffered from a few broker takeovers and platform updates, I only have access to a few years of historical data online.</p>
<h2>What&#8217;s my number?</h2>
<p>While I&#8217;m happy investing actively, I&#8217;m conscious that it does take up a fair amount of my time and that most active investors underperform the market average.</p>
<p>Exactly how many of us underperform depends on which study you look. But most seem to suggest a figure of between 80% and 90% fail to cut the investment mustard over the long term.</p>
<p>I have a vague plan that should my active style of investing not measure up in terms of returns that I will switch in index trackers and give myself the gift of time.</p>
<p>I call it a vague plan because I haven&#8217;t completely decided over what timescale to measure, against what index, and what sort of cut-off number I have for making that decision. Apart from those little questions, though, I&#8217;m all good!</p>
<h2>The right timescale</h2>
<p>My investing style has evolved over the years, starting off in privatisation shares and investment trusts and then moving more into individual shares.</p>
<p>I even dabbled with the dark side of dodgy little oil and mining shares for a little while, before coming to my senses and moving back to (mostly) <a href="https://www.itinvestor.co.uk/portfolio/">investment trusts</a>.</p>
<p>As I&#8217;ve said before, it probably wasn&#8217;t until <a href="https://www.itinvestor.co.uk/2019/01/2018-review-reshuffling-my-pack/">the start of 2014</a> that my investing style settled into the way it is today. That was when I shifted my portfolio much more into global stocks. Before I was very much concentrated on the UK market.</p>
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<p>Looking at my portfolio around that time, I&#8217;ve come up with something I&#8217;m calling my crud coefficient. It&#8217;s the percentage of my portfolio that was invested in utter tat that I&#8217;d be embarrassed to admit to.</p>
<p>At the start of 2011, my crud coefficient was around 50%. That&#8217;s with the benefit of hindsight, of course, but it&#8217;s hard to look at that portfolio now without wincing.</p>
<p>A couple of years later, it was down to 27%. Partly that was because I&#8217;d sold some crud, but other crud I still held had fallen in value.</p>
<p>At the start of 2014, I was down to 17% and I closed that year at just 6%.</p>
<p>Admittedly, it was a few more years before I hit 0% and became crud-free, but the start of 2014 feels like the cleanest starting point.</p>
<h2>Is matching the market good enough?</h2>
<p>When I&#8217;m selecting what to invest in these days, I&#8217;m taking a more conservative approach than I used to.</p>
<p>My aim is to largely match the market with my largest holdings, but hopefully be less volatile in terms of returns. Then I&#8217;m adding a few side bets like UK small-caps and private equity to (hopefully) add a little bit more in the way of overall return.</p>
<p>Yes, I want to have my cake and eat it.</p>
<p>That said, I&#8217;ve always enjoyed the process of investing. I think it&#8217;s fair to say that, even though my aim is to outperform the market, I&#8217;d be happy continuing with my active approach even if I just matched it.</p>
<p>To be honest, I&#8217;m not sure what level of underperformance would drive me to become fully passive.</p>
<p>I would probably need to underperform by a level that threatened my retirement plans. That&#8217;s impossible to put a precise number on although I suspect I would know it if I saw it.</p>
<p>Anything that drove me to rein in my spending, for example, would probably be a clear sign that a radical change is needed.</p>
<h2>The UK vs. the world</h2>
<p>The last piece of the puzzle is what to measure against.</p>
<p>In the past, I just used a UK total-return index. That was fine when I was mostly investing in UK stocks and UK-focused trusts.</p>
<p>But it doesn&#8217;t suit the way I invest today. And the performance of the UK and global markets have been very different in recent years.</p>
<p>Going back to the start of 2007 again, I reckon global markets are up around 195%. That&#8217;s on a total return basis and measured in sterling.</p>
<p>Interestingly, pretty much all the outperformance against the UK&#8217;s 95% over that same period seems to be due to currency movements. Back in early 2007, the pound was worth a little under $2 whereas it is just $1.26 today.</p>
<h2>Good data is hard to find</h2>
<p>If you&#8217;re a cheapskate like me, refusing to pay hard-earned money for data feeds, then getting a good, ongoing source of global index figures can actually be quite difficult.</p>
<p><a href="https://www.ftserussell.com/products/indices/geisac">FTSE provides figures</a> in various currencies and on a total return basis, but there is no historical record. <a href="https://www.msci.com/end-of-day-data-search">MSCI is better</a> on the historical front but doesn&#8217;t seem to provide total return data.</p>
<p>I&#8217;ve been turning to index fund prices as an alternative, therefore.</p>
<p>In many ways, this is probably a better way to benchmark your returns, even though it is a lower hurdle to clear. If you go the passive route, then it&#8217;s the fund you&#8217;re buying, with all its associated costs, not the underlying index.</p>
<h2>Choosing a fund to measure against</h2>
<p>Many UK global trackers are priced in US dollars, so aren&#8217;t as useful for my measuring purposes. A lot of them have only been going a few years, so don&#8217;t have oodles of historical data available.</p>
<p>I think the iShares Core MSCI World ETF (SWDA) is the oldest UK available global tracker, dating back to 2009. But it&#8217;s in dollars.</p>
<p>The SPDR MSCI World ETF from State Street (ACWI) goes back to 2011 and Vanguard&#8217;s VWRL, <a href="https://www.itinvestor.co.uk/2019/06/vanguard-all-world-etf-vwrl/">which I hold myself</a>, joined us in 2012. These are both quoted in pounds.</p>
<p>I&#8217;ve been using VWRL recently, mainly because I am familiar with it. The performance figures on Vanguard&#8217;s own site seem to be in US dollars (boo!) so I&#8217;ve been using those from <a href="http://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0000WAHE&;tab=1&;InvestmentType=FE">Morningstar</a> instead.</p>
<p>But I&#8217;m now leaning towards using Vanguard&#8217;s Global All Cap Index Fund. It was launched in November 2016, so it&#8217;s of limited use for historical measurement. However, it&#8217;s priced in pounds and <a href="http://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0000WAHE&;tab=1&;InvestmentType=FE">its accumulation units</a> provide an easy way to get up to date figures on a total return basis.</p>
<p>What&#8217;s more, you can get all the historical daily prices you might need from Vanguard&#8217;s website.</p>
<h2>And a little closer to home</h2>
<p>I&#8217;m also thinking that I should reflect the fact that my portfolio has a <a href="https://www.itinvestor.co.uk/2018/11/go-global-or-go-home/">fairly substantial UK weighting</a> of 30%.</p>
<p>As the UK market only accounts some 5% of most global indices, this makes a significant difference.</p>
<p>So, I&#8217;ve decided that I should also compare my returns to <a href="https://www.vanguardinvestor.co.uk/investments/vanguard-lifestrategy-100-equity-fund-accumulation-shares">Vanguard&#8217;s LifeStrategy 100</a> fund. It has 22% in the UK, so it&#8217;s a reasonably close match for my portfolio. It was launched in June 2011, so it offers a decent amount of readily accessible historical data.</p>
<p>If I were to go fully passive, I&#8217;m not sure whether I would stick with purely global trackers or give myself a little more of a UK weighting with something like a LifeStrategy fund. My spending is likely to be predominantly in pounds, so the latter appeals on that front.</p>
<p>The LifeStrategy fund has been an easier comparative recently, of course, and you could argue my choice to have that high a UK weighting is self-inflicted and not a good reason to use a different benchmark.</p>
<p>I&#8217;m planning to do another portfolio round-up in early July, and I think that will probably be against the global tracker, the LifeStrategy fund and the All-Share.</p>
<p>Keeping a wholly UK measure in there as a reference point seems sensible, as it provides a sense of continuity. It&#8217;s also useful to see just how the UK market is performing relative to everything else and how much of my performance is affected by my higher UK weighting.</p>
<h2>What do you do?</h2>
<p>I&#8217;d be interested to hear what others do when it comes to portfolio performance.</p>
<p>Do you measure it, and if so how precisely and for how long for have you done so? And do you stick to UK indices or venture a little further afield?</p>
<p>Let me know in the comments section below.</p>
 
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<p>Nothing on this website should be regarded as a buy or sell recommendation as I'm just a random person writing a blog in his spare time and I am not authorised to give financial advice. Always do your own research and seek financial advice if necessary!</p>
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Hi,
I now compare our performance against the Vanguard Life Strategy 80 fund. The reason being that if I were to go passive then I would stick the lot into that fund or another version of the Life Strategy offerings. My wife is very cautious and has her portfolio split 50/50 cash and investments so I guess the VLS 60 may have been a better choice. Either way, for an all in one comparator I think the Vanguard Life Strategy funds offer a good choice.
Another vote for VLS 80 as a benchmark.
But to track performance in Google Sheets to calculate money weighted returns using XIRR, I switched to 80% HMWO and 20% AGBP for the real time price updates.
Admittedly you can screen scrape VLS fund prices using the IMPORTXML function, but it's not for the faint-hearted....
=value(SUBSTITUTE(query(IMPORTXML("http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/v/vanguard-lifestrategy-80-equity-accumulation","//span[@class='bid price-divide']"),"select* limit 1",0),"p","",1))/100
Thanks, both. I feel LS100 is probably more appropriate for my portfolio at the moment. Although I have some infrastructure trusts and a few trusts that hold fixed income, combined they are far less than 20% right now.
That formula doesn't seem to work in my Google sheet for some reason - user error I suspect!
I measure portfolio performance against the FTSE All Share Total Return because that's where I am mostly invested. I currently measure this on a monthly and calendar yearly basis. That index goes back to when I started investing in 1986 so I have been able to construct a full historic record.