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.
The 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.
Here’s a look at your fund’s movement since July 2012.
Vanguard UK FTSE 100 (VUKE)
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)
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 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)