How I invested small amounts in April 2022

Welcome to my online investor report! It’s time to see how my portfolio did over April 2022.

I’ve decided to publish this online as it’s a great way to keep myself accountable for my investing. It encourages me to actively look back and see what I’ve done, where I’ve made mistakes, and to learn from them. (If you’ve read my previous post about how and why I started this portfolio, skip to the portfolio returns section.)

Many people seem to believe that you can only start investing with lots of money and loads of knowledge.

Whereas there’s no doubt that knowledge absolutely helps – that’s what my website is about, after all – you really don’t need much money. What you do need is discipline.

This can be a challenge for me at times.

So, I’ve started investing small amounts of money and am keeping track of my portfolio on my blog. This will help me with accountability.

It’ll also be useful to compare the portfolio with a savings account and discuss the differences that arise. Making mistakes and learning from them is the best way to become a better investor.

My starting portfolio

As a reminder, my ideal – and theoretical – starting portfolio, at the beginning of April 2022, looked like this:

  • Cash in bank: £120
  • Bonds: Bond ETF £180
  • Stocks: Dividend ETF £900
  • Charges: £3 for ISA administration, £0 trading fees,
  • Net Value: £1,197

To make a comparison with keeping money in a bank account, I’m going to compare my portfolio with… keeping the money in my bank account! This means there are no fees to pay at the start of this theoretical ‘bank portfolio’ because I already have the account.

So, currently, in my theoretical bank account:

  • Cash: £1200

Obviously, the bank is better valued at the start because there were no set-up or account fees I had to pay.

How were my portfolio returns in April 2022?

At the beginning of April, I made three purchases in line with my portfolio asset allocation:

  • 18 shares of Vanguard FTSE100 ETF at £34.78 per share. Total: £626.04 (UK shares)
  • 5 shares of Vanguard S&P500 ETF at £63.71 per share. Total: £318.57 (Foreign shares)
  • 9 shares of iShares Indexed UK Gilts at £20.03 per share. Total: £180.29 (UK Bonds)

These purchases left me with £75.10 cash out of my original £1200. However, I need to deduct £3 for the ISA administration cost, so I now have I total of £72.10 cash in my asset portfolio.

So, at the beginning of April, my actual portfolio asset allocation looked like this:

As you can see, it’s a fairly close match to the original asset ratio I had planned for. It’s not exactly the same because the actual amount depends on the costs of the asset purchases I make.

I don’t like buying fractions of shares, so I buy the amount I can afford to the nearest whole number. This means that, for this portfolio, I’ve gone slightly over on my allocated shares percentage and slightly under on my cash allocation.

But, that’s ok – the ratio is a guide, and I can rebalance the portfolio on a regular basis.

So, what happened during April?

Well, depending on how you look at it, April was not a good month for either stocks or bonds. As inflation grows, central banks are raising interest rates which often results in dropping bond prices. And that’s what’s happening now.

Usually, having stocks in a portfolio will act as a countermeasure to lowering bond prices. Still, when even shares in legendary investor Warren Buffett’s Berkshire Hathaway are dropping in price, you know it’s a bad month! (NB. Stocks didn’t do as badly as Bitcoin, however.)

Companies are still trying to get back on their feet after the Covid-19 pandemic – supply chains were shut down – and now people are starting to spend again, and firms can’t keep up with the demand. And that’s before the Ukraine-Russia war sent oil prices – and related costs, such as distribution – much higher.

All this means that earnings are down and costs are higher, leading to fewer profits, less investment and disappointed market analysts.

To top it off, as inflation increases, central banks are trying to keep it down by raising interest rates. This makes for higher borrowing costs for both everyday folk and businesses. And this results in less investment and lower business growth… a downward spiral.

It also means many investors panic and will sell their shares, sending share prices in the same downward direction as bonds.

So, you can probably guess what happened to my portfolio?!

As of April 30th 2022:

  • Cash: £72.10 (-£3.00)
  • Bonds: £168.41 (-£11.88)
  • UK Shares: £628.83 (+£2.79)
  • Foreign Shares: £309.00 (-£9.57)

Total Portfolio: £ 1,181.34

Investment return = [(£1,181.34 – £1,200.00)/1,200.00] x 100 = -1.56%

Now I need to adjust for inflation

In the UK, the consumer price inflation (CPI) for March 2022 was 1.1%. (I’ll update this post once the inflation figures for April are in – I’m expecting it to be higher.)

Using this figure, I can calculate my inflation-adjusted return.

Unfortunately, the usual inflation-adjusted return formula gives the wrong result for negative returns. So, we have to make the calculation logically instead.

Inflation-adjusted return = negative return – inflation = -1.56% – 1.1% = -2.66%

This means the portfolio that was valued at £1200 on April 1st 2022, is now worth £1,168.00 at today’s prices.

How did the bank account compare?

Total Portfolio: £1200 on 1st April 2022.

Investment Return: Nil – my current account doesn’t pay interest and doesn’t incur any charges.

Inflation-adjusted return = 0 – 1.1% = -1.1%

So, the cash portfolio is now worth £1,186.80 at today’s prices, and it has kept its value at a higher level than my investment portfolio of varied financial assets.

I’m losing money? Excellent.

On paper, I’ve lost money this month.

In reality, I don’t lose money until I sell my assets for a lower price, known as ‘realising’ my losses.

And this is why investing is a long-term activity.

However, the great thing about bond and stock market prices dropping is the opportunity to buy assets at cheaper prices.

It’s the same logic as buying anything else. Assets are something we buy because we want to own them. Financial assets are no different from clothes, shoes, sports equipment, or anything else in this respect.

However, the BIG difference is that financial assets can provide you with an income. And that is what my bonds and stock dividends will keep doing, despite prices dropping.

I’m not expecting any sort of recovery in either bond or stock markets over the next month. However, I don’t know this, obviously. No-one does.

But, I do know that dropping prices means I get more for my money than I got last month.

It’s like buying a second pair of some fab jeans I found last month at a cheaper price this month. Winner!

So, I’ll be using my monthly £100 cash to buy something nice for my portfolio.

I’ll let you know how it goes.

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