A Portfolio That Had Lost Its Way
Today I want to share a compelling story of strategic realignment and simplification. It also shares a tangible tax saving that will make a real difference over time. It is a bit longer than my normal weekly note, but stick with it for a minute.
David Kelly had been receiving my weekly notes for a while, had bought and read my book in the background, and contacted me directly a few months back.
He had concerns about the complexity and performance of his discretionary managed investment portfolio. Over the years, his portfolio had undergone multiple changes in advisory teams, causing uncertainty and frustration.
The portfolio included 37 different investments, and in my opinion they were all firing at and against one another. There was not a belief system anywhere to be seen. It was like a bag of funds, stocks, and bonds had been thrown up in the air, landed on a table, and selected at random in the name of diversification.
David gave me his permission to share his story, on the basis that we both felt it could assist others in similar circumstances.
A Note on Discretionary Management
Among the 37 holdings, there was a suspended Woodford fund and a single company stock, Asian Trust PLC, which is now in liquidation.
This reinforces why I have no time for discretionary management. Subjective, yes, but I just do not like it and never have.
Not always, but typically a manager might include a few esoteric investments here and there in the name of deeper diversification, to stand out from the crowd. I would much rather be exposed to around 4,000 small caps through a fund. Some of those will fail, no doubt about it. But with that level of exposure, the odd Asian Trust here and there makes far less of a difference. It is far better left to an institutional-grade manager and a less complex setup.
Market Insights
I reviewed David’s portfolio and continued to do so amidst the recent market fluctuations and devaluations across all major indices, the FTSE, S&P, Dow, Nasdaq and Russell 2000, and it became clear that proactive steps were needed.
It was about setting the plan up in the background so we were ready when we felt the time was right to sell down his assets.
The Strategic Decision
Working with David, we took a collective decision to execute a full sale of his holdings to cash, apart from the suspended fund that will come over in-specie, and his holding in Asian Trust PLC, which will stay where it is until we know whether anything will come from it.
Everything else is being sold to cash, transferred to our platform of choice, and realigned with our evidence-based, institutional-grade model. These decisions were driven by a desire for clarity, simplicity and efficiency in portfolio management.
The Tax Planning
Because of the shifts in adviser teams over the years, David’s income draw had been set up to give him a monthly payment comprising 25% tax-free cash and 75% income. Each year he had been paying between £1,400 and £1,500 in tax.
I did not see any reason to continue with that. We have adjusted the mechanics to give him the full amount required on a phased retirement basis, using only his tax-free cash. There is no point in paying income tax now if you do not need to. The £1,500 per year can continue to grow tax-free in the pension instead.
The effect is significant.
That circa £15,000 over 10 years, paid at £125 per month, with investment growth at 6%, is worth £19,665. Over 20 years it is worth £55,444. This shift in background mechanics alone is set to pay all of David’s onboarding costs, and his ongoing relationship and investment management fees, many times over, for years to come.
What David Now Has
Onboarding David as a client gives him something he did not have before. An adviser to work closely with him in his best interests. An adviser whose name is on the door and who does not move around from network to network, bank to bank.
Transitioning his assets to our Dimensional-led model not only streamlines his portfolio but aligns the return data with his long-term financial goals. This approach minimises unnecessary risks associated with chasing star funds and managers, as well as volatile market movements.
Intra-year market declines are common yet also provide manageable opportunities for strategic realignment. It is not an exact science, but on balance we felt the time was as good as any to mobilise the transition.
If you have concerns about the complexity, cost, or performance of your own portfolio, we are always happy to have that conversation.
Contact us today or call 0345 200 4041 to arrange a complimentary review.
