Should This Investor Question His Investment Strategy?

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Question: My ETFs have not been performing well since I purchased them last year and I was wondering if I am right in thinking I should just ride this out and not worry.

Or should I be re-thinking my purchases?

This is how each has gone down in value:

Vanguard UK FTSE 100 (VUKE): Down 15%
IShares UK Gilts (IGLS): Down 10%
Vanguard FTSE All World (VWRD): Down 1%

 

 

Answer: There’s only one certainty in stock market investing.

 andrew_beach_200xThe markets will fluctuate. Over time, however, they rise more than they fall.

If you read my books, The Global Expatriate’s Guide To Investing or Millionaire Teacher, you’ll see why you should much prefer falling markets to rising markets.

Unless you’re already retired, a falling stock market gives you the chance to invest even more, at lower prices. If your portfolio is well balanced (such as yours is) then the money will recover.

My large concern, however, is how you are measuring your investment performances. Based on Morningstar data to March 31, 2015, your investments have actually gained money during the past year.

Measured in British pounds, Vanguard’s UK FTSE 100 (VUKE) has earned the following returns. In 2013 it gained 18.92 percent. In 2014 it gained 0.74 percent. And from January to March 31, 2015 it gained 3.6 percent.

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Here’s a look at your fund’s movement since July 2012.

Vanguard UK FTSE 100 (VUKE)

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I’m also curious about how (and since what date) you measured a 10 percent drop for your iShares UK Gilts (IGLS). First of all, this is a bond index, so you shouldn’t expect scorching returns. But Morningstar UK’s data suggests this fund has not dropped 10 percent in UK pounds.

It gained 2.7 percent in 2014 and so far in 2015 (to March 31st) it has gained +0.5 percent.

Your Vanguard FTSE All World (VWRD) measures its performance in U.S. dollars. So the following results are actually understated because the U.S. dollar has actually outperformed the British pound during the past year.

As such, if measured in British pounds, the results below would look even better.

In U.S. dollars, your index gained 21.8 percent in 2013. It gained 11.8 percent in 2014. And so far, in 2015, it has gained 7 percent (to March 31, 2015)

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On January 1, 2014, it took 1.64 USD to buy 1 British pound. One year later, you could buy a British pound with just 1.51 USD.

As such, if you measured the 2014 returns of this index in British pounds, it would not have gained 11.8 percent. It would have gained an additional 8.6 percent. So the return, measured in GBP for 2014, would have been 20.4 percent.

So don’t question your investment strategy.

It’s diversified.

It’s low cost.

And over your investment lifetime, it will serve you well.

Now hope for falling markets, so you can buy cheaper in the future.

Andrew Hallam is the author of The Global Expatriate’s Guide To Investing (Wiley 2015) and Millionaire Teacher (Wiley 2011)

 





Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I'm happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

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6 Responses

  1. Mark Holmes says:

    “On January 1, 2014, it took 1.64 British pounds to buy 1 U.S. dollar. One year later, you could buy a British pound with just 1.51 U.S. dollars.”

    Pretty sure there’s something not quite right in the first half of that sentence.

    • Thanks for the edit Mark! Here’s how it should be (correction made):

      On January 1, 2014, it took 1.64 USD to buy 1 British pound. One year later, you could buy a British pound with just 1.51 USD.

  2. David says:

    Thank you enormously Andrew for spending the time to do this, and thanks to the others who have posted on the other thread.

    I may well be crunching the numbers incorrectly. I also was surprised with those figures which is what prompted me to pose the question on the forum. What I have done is compared values from my financial statements. Here’s some examples:

    Instrument Amount Value (July/Aug) Value (March 2015) Currency

    Vanguard FTSE 100 ETF 90 4,635.39(July 14) 4,018.23 USD
    iShares UK Gilts 0-5 yr 25 5,378.85(Aug 14) 4,877.79 USD
    Vanguard FTSE All-World I 67 4,775.09(Aug 14) 4,731.54 USD

    What am I doing wrong? These are values taken directly from my statements.

    • I see part of the problem David. Your account measures profits and gains in USD. The British pound has been hammered by the U.S. dollar lately. In UK pounds, you have made plenty of money. If you’re British, that should be the only measurement you care about. When the USD loses to the pound (currencies ride up and down until time eternal) then your USD denominated British stock and bond investments will show inflated (and artificial!) gains. In other words, if the UK stock index gains 10% in pounds, but the U.S. dollar sinks, relative to the pound, you will show a massive artificial gain. Again, the only thing that should matter to you is how your money performs in pounds.

  3. David says:

    Thanks to all who added their thoughts. I’ve replied on the blog Andrew linked above.

    David

  4. David says:

    Andrew,

    You are absolutely right! I didn’t think of the strengthening dollar to the pound, and that coupled with the values on my statements all being in dollars. I’ve also done some new figures and you are bang with your summary of the movement of those ETF’s.

    All good, much wiser now and in addition, found out that I (and perhaps some others) am able to follow movement/value of my ETF’S in the currency purchased by using the account summary and it’s history on the Saxo dashboard. On there it is possible to track the values of your products from month to month and year to year. I hadn’t seen that function before.

    Many thanks again Andrew.

    David

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