Portfolio Rebalance - It’s more enjoyable than it sounds!
01 Nov, 2020
I’m having a muck around with one of two of our investments this week. A “re-balance” is the fancy terminology, but I’m taking the opportunity to make sure that we are sticking to our investment plan because I have a tendency to wander off track. Some people are super organised and set a date to do this once a year, I don’t, I’ve just become aware that ‘it’s time’.
I’m a shocker at putting things through The Complicator where I complicate my simple investing plan so the point of what I want to share today is that from time to time I check in to see that our investment dollars are not being spread too thinly over several platforms and I’m always endeavouring to keep my portfolio arranged in a very simple way.
And I think of my Great Uncle Alan each time to contemplate this. He once told me that every time he left the house he would pat himself down and ask himself if he had the following: Spectacles, testicles, wallet and watch?
Apparently, all four were essential for a good outing. Now, apart from one glaring difference between my Great Uncle Alan and I, his phrase is one that I also use when I leave the house!
But the simplicity of that sentence extends to my money as well.
Start with a Bank Account Health Check
My review starts with the very basics and before I make any adjustments to our investments, I take a quick look at our daily banking set up and ask myself a couple of questions which cover off the basics:
Everyday money, savings, emergencies.
Do we have enough in our everyday bank account to buy the basics this month?
Am I on track with our sinking funds where I’m saving up for things?
Is my emergency fund appropriate and well-stocked?
There is absolutely no point making changes to our investments and potentially sending money off to them if I’m leaving myself short ‘at home’. I think that is where some people go wrong, they get so keen on investing that they don’t leave enough cash in their daily banking and then what happens is that somewhere down the track they will ‘have to’ cash out an investment. I have no plans to sell any investments and when I put money into them, well, that’s where it stays, for good. So if I’ve done my very quick health check on my bank accounts, then I can move on and look at our investments area by area.
A quick note here too. I’m receiving many emails at the moment from people who have always had an “awareness of their money”, but have never actually kept track of their dollars and cents. The only reason I can take a five minute health check on my bank accounts is because I keep a budget and have done for many years. And this serves me well in good times and bad, but the key is to get it set up, running and maintained so that when you need the ‘help’ a budget can give you, say in times of job loss, the numbers are there to help you make the right decisions for your whanau.
KiwiSaver
First up is a check in on our KiwiSaver which we have for the three of us.
We are all tracking along just fine, still all with Simplicity in Growth funds. I continue to make a voluntary contribution of $100 a month for Jonny as he is self-employed and this amount will see him contribute over the $1,042 required to see him get the $521 government contribution each year. My contributions to my fund are a mix of employer contributions and voluntary contributions. Because I only work very part-time, I also make a regular voluntary contribution of $50 a month. I put $40 a month into our daughter’s fund and have done since she was born more or less.
Despite these small contributions to our funds, the total value of Jonny and my KiwiSavers has grown 11% in the last 12 months.
Note to self: Don’t let anyone tell you that KiwiSaver is not worth your while!
Smartshares
I continue to make regular monthly automated investments into two Smartshares ETFs, the US 500 (USF) and the NZ Top 50 (FNZ). They are building at different rates because I started one fund earlier but I’m equally happy with both. Each month I look at the cash we have available in our bank and I always seem to be able to make an additional lump sum payment into each fund.
With our contributions plus share value increases, the balance of these funds has increased 17% in the last 12 months. Despite a pandemic.
This remains where we do the bulk of our investment because we are trying to have as much invested OUTSIDE of KiwiSaver as possible so that we can draw returns off these early to cover our living expenses when we retire early.
Sharesies
I have a Sharesies account and I make a regular weekly deposit into the Smartshares NZ Property Fund (NPF) via Sharesies. This is also where I invest the $5 I receive every time someone uses my affiliate link (I get $5 and YOU get $10). Thank you to those who have used it. When COVID-19 hit and the share market dropped there was a big upswing in people using my link and I was receiving $5 each time they did. I wanted to take advantage of this big drop and buy the Smartshares NZ Top 50 fund (FNZ) while it was “on-sale”, so I also started buying into that fund using Sharesies and in the last eight months the money in this fund has started to build up.
But Sharesies is NOT where I invest the majority of our money, I do that directly with Smartshares and this is where I need to do some rebalancing because I’ve essentially got the same thing going on but in two different places - I invest in the Smartshares FNZ fund directly with Smartshares and also with Sharesies. Not overly clever of me.
Therefore, I will leave my NPF alone but I’m selling down all of my Sharesies Smartshares FNZ fund and will be buying the same amount in my Smartshares NZ Top 50 fund. I cannot transfer from one to the other, I have to sell it off and buy again.
HOWEVER, as I’ve written about before, I can only buy with Smartshares once a month. On the 20th they take the money from my account and on or about the 3rd of the next month they allocate my units. There is a lag time of about two weeks.
In order not to miss out on “time in the market” what I did was temporarily take money from our emergency fund to the same value of what I’m selling out of Sharesies so I could place my order with Smartshares. On the day that Smartshares issues my new units, I will immediately sell my Sharesies and put that money back into my emergency fund.
What I am endeavouring to do is buy and sell at roughly the same share price. It won’t be perfect, but it will be close enough.
Hope that makes sense!
The Sharesies Smartshares NZ Property Fund that I continue to invest in on a weekly basis is currently up 13% so I’m happy to keep that going as a much smaller part of my portfolio.
Much earlier in 2020 I also sold the very small holding (just $100) that I had in Ryman Healthcare. I realised back then that I was starting to get interested in single companies and that this could derail me from my index investing strategy, so I got rid of them and put that money into the FNZ fund instead. It’s very easy to get distracted!
Meridian Energy
When they announced the imminent closure of Tiwai Point Aluminium Smelter earlier in the year, the value of these shares took a big drop and THAT is the problem with owning individual stocks. Yet against my better judgement, I continue to keep our Meridian shares! The main reason being I like receiving the dividends twice a year and although the share price fluctuates quite a bit, as I write this post the value of this shareholding is up 18% compared with 12 months ago.
So, you know, it’s tough to say no to that - even though I know that Meridian Energy is also IN the Smartshares NZ Top 50 ETF that I buy.
Every investor has to struggle with their own biases and emotions and I am still struggling with mine!
Kernel - because I couldn’t resist
I suffer from ‘shiny object syndrome’ and I could not help but test out the Kernel NZ 20 Fund and back in May, I started a weekly $20 investment that I’ve since increased to $40. This small investment is showing a return of 16% currently so I’ve got no plans to stop investing in it. But it will reach a tipping point like the Sharesies fund did where I decide “do I want to continue with this investment or sell and add this to my NZ Top 50”? That’s a discussion for the next review.
Hatch
I continue to keep my small investment with Hatch (just $100) in the Gender Diversity Index ETF (SHE) and it’s showing a current return of 3.5%. So, out of sheer interest, it gets to stay for now.
Bitcoin
As you would have read, we sold our Bitcoin, it was an experiment that was educational and enjoyable while it lasted, but ultimately it had to go and when we sold we did at least get our money back and a tiny profit, but I’m pleased to have it gone and as one comment on my blog said: “so you bought in at the top and sold before the next rally. LOL”. Well, yes we did, which is an excellent lesson in why mere humans should never try to time the market and think that they know more than they actually do. Anyone who thinks they know better will come crashing down at some point. Case closed on Bitcoin.
Gold
We still have two ounces and I look at the price at the end of each month when I update our net worth spreadsheet. It’s actually up 20% from 12 months ago - prompting my friend Roy to remind me that I sold out the other five ounces a year or two back and therefore missed this rise in price. I still maintain that was the right thing to do though as I then put THAT money into the NZ Top 50 and have actually benefited in capital gains AND dividends in that time. Gold never pays me a single cent and I would only make money when I sold it. I can’t see myself selling this anytime soon though and see it being handed on to the next generation as a bit of a memento of when the world used to place such a high value on a lump of metal…
Our House
Then of course there is our house. To try to work out what it is worth - and let’s face it we have no idea until we sell it and what someone is willing to pay - each year I look at the houses that have sold around my neighbourhood, plus I look at our current rateable valuation and I come up with a figure. So, based on that, in the last 12 months our house value has grown by 3%. I still love our property but it still greatly irks me that so much of our net worth is tied up in our home, an asset that returns us no money until such time as we sell it. I think I am one of few people in New Zealand willing house prices to plummet so that this casino which appears to be our housing market ends and that those people who want to buy a home to live in, actually can.
The Tally Up
All in all, when I tally up all of our investments (not including our house), plus cash on hand in various bank accounts, our net worth has grown by 13% in the last 12 months. Which is not bad considering what a complete shocker of a year 2020 has been for the world right? And with the little tweaks I’ve made I’m now happy to sit back and just let things ride for another six months to a year until I check in again.
Today’s blog was just to show you the exercise I go through as the CFO of my whanau to make sure we are happy with where our hard-earned money is invested and to prompt you to write out your investments and just assure yourself that you don’t have things sneaking into your portfolio that either should not be there at all or are holding you back from reaching your goals.
Much like how I feel after I’ve gone through my wardrobe and had a big chuck out, I get the same sense of achievement and satisfaction when I do the same with our investments. I’m by no means a minimalist, but I’m happy.
