2023 Review

 

2023 Review

January 8, 2024

2023 Grinding out a 1-0

TLDR

What I got right

• Not panicking as we YOLOed our way through 2 huge pullbacks 
• Adding to debt allocation on higher yields
• Avoided the huge losses on long-dated gilts which seem to be the pension-industry's equivalent of "No one ever gets fired for buying IBM"

What I got wrong

• Not implementing risk-adjusted stop losses on what should have been dull income ITs
• Trusting inept managements' RNSs from the likes of #CSH and #DGI9
• Still not properly scaling into all my adds and not taking longer to average down

Review

Having taken a 10% loss in 2022 my hopes were simply not to lose any more money in 2023. After a brief surge at the beginning of 2023 the combined portfolios of our ISAs and SIPPs struck a series of lower lows in April whilst we were on holiday, followed by a new low in July whilst in Iceland and yet another one in October whilst in Nepal. So the Santa rally well and truly rescued the final YTD positive figure.

Our supposedly lower-risk (and lower volatility) SIPPs basically flatlined (after the removal of our annual ~24k income). My wife's higher-risk ISA lost about 1k and the surprise to the upside was the virtually fully equity-based income ISA whose yield funds our YOLO holidays and most of the discretionary spending.

#DGI9 - the elephant in the room

The big lesson of 2024 was of course #DGI9 which I've stubbornly held and even averaged down, again too early (see last year's failed lessons). This has a been a perfect poster child for everything that can go wrong with a company, investment trust and management. Too much debt, inept shareholder communications regarding maintaining the dividend and poor execution in selling the finest assets at a discount with a lengthy uncertain earnout, and leading to a NAV marked down from their still official 102p to a market-adjusted 32. Triple Point definitely won't be getting any more of our cash for this or any of their other funds. The good news is that having reduced in value from £40k to £13k it can't have a similar impact this year!

Asset allocation

I'm basically underweight everything except Debt and Cash, both of which have benefitted from the increases in interest rates. Other than private equity, I'm underweight equities which haven't fallen anywhere near as much as I'd've expected given the interest rate rises. And overweight debt by the same amount.

Wealth Preservation

One pleasing aspect was my own outperformance against my benchmark Capital Gains Trust IT. This was bought to protect us against me but prior to an off-grid Nepal trek just as Israel was preparing their invasion force, I decided to sell it and leave the cash in our SIPPs. Cash is even more of an option when the interest is worth logging in Sharepad. #PNL, our other wealth preservation holding is under review but I kept it due to its gold holding.

At our retired stage of life, holding on to what we've built up over a working lifetime is infinitely more important than chasing high returns. The unexpected losses (realised on disposing of #SONG and still on paper with #DGI9) revealed my cavalier attitude to building a diversified income stream led to too many holdings with not enough conviction in many. So just as 2008's scars put me off banking shares, so 2023 has made me resolve to avoid "esoteric" and "alt" income investment trusts. 

Income

Portfolio income rose from 64->71k. This is really down to reallocation of capital towards debt as the interest rates appear to have peaked. 2024 income is forecast to be 78k. I added a new tab to my mahoosive spreadsheet to roughly score our income holdings' "indexation" and was pleased to see I had a leg in both interest-, inflation- and a bit of floating-rate income courtesy of #GACB. We're basically compounding half of our SIPP incomes and taking all of the ISAs natural yields. We will have to increase what we take from our SIPPs but don't feel comfortable taking all the natural yield yet until we can see the state pension age firmly in our sights - we're 58 and expect it in 9 years if there are enough taxes left by then to pay it. I've always assumed we'd never get one based it changing to be a means-tested benefit. 

Cash

For the first time, cash is playing an important optionality part of especially our SIPPs where the interest forms 10% of what we're extracting monthly. For some reason it's much higher in an HL SIPP account vs ISA. We hold around 10% at the time of writing. The cash (and cashless) PF yields have risen in response to rising interest rates.

Holdings

Current holdings

Summary

Having re-read my lessons from 2022, I've some work to do. I've reduced holdings by 6 to 64, through wind-ups like #CSH and disposals. With #EPIC and #RMII set to wind up soon, that's set to reduce further. I'm intending to build larger positions in ITs I've held for several years and reduce the di-worsification that has to some extent ensued due to my aversion of holding too much in any one fund. I've known this for a while yet struggle still to hold > 40k in anything.