Early last year I wrote my “Lessons from the past“-post, in which I analyze my returns on my Pension from its infancy (2007) until the end of 2019.
This post became the most read post of the year. So as promised, I will do a follow-up each year to analyze how my Pension portfolio have performed in the previous year. I also revealed my pension AA for the coming year(s) and set myself a goal to beat my previous returns (which was rather measly compared to the market avg) going forward.
2020 has been dubbed an annus horribilis by the mainstream media, but as most of you probably know very well – pandemic aside – 2020 was a pretty decent year – at least in terms of investment returns.
So, did I manage to beat my avg return on my pension in the annus horriblis year of 2020?
YES! I DID manage to beat my avg return in 2020!
So, did I manage to score somewhere around the market average?
NOPE! – Not even CLOSE!
I managed to reach a 5% return…The market average? 15%…Only 3 times as much!…Well done, captain awful!
Aren’t you supposed to be the smart one?!
OH GIVE ME A BREAK! At least I managed to beat my OWN average, which was only 4% up until last year (after tax and fees). So at least it’s an improvement!
So here’s my pension charts from the years 2007-2020 (oooh, I love charts!):
26% of my pension portfolio value is now returns (up 1% from last year). I’ll be honest, when I look at the market average, I’m really not that satisfied. Had you told me in March/April 2020 that I would end up with a 5% return for the year, I would have been SUPER thrilled. – But the way things panned out, 5% is not good enough.
So, what happened?
What happened was that I was WAY too conservative with my AA. Just to recap (not that I enjoy looking at this), this was my AA going into 2020:
I apologize to my foreign readers for the “foul language” of this chart Let me break it down to something a little more tangible:
|Asset class||Portfolio allocation|
|AP Invest Properties Denmark||5%|
|AP Invest Properties (Foreign)||5%|
|AP FlexFond II||45%|
|AP Sustainable Medium-large stock allocation||45%|
The FlexFond is a fixed-interest product guaranteeing 2,0% interest (how they do it, I don’t know) . So i figured they could act a bit like bonds in my portfolio, which doesn’t return much these days. 2% secured interest is not a lot, but given the amount of volatility in recent years (remember 2018?), I’ll take it 😉
Looking back, parking 45% of my portfolio at a fixed interest rate of 2% was…silly. But remember that hindsight is always 20/20 (in the year 2021 this is almost poetic – get it?! 😛 ).
But ACTUALLY, I didn’t leave those 45% in there for the entire year – as the avid reader would know! I decided to mobilize some of that cash in April (which was fully in line with the strategy – to use the cash in case of a major dip).
But ACTUALLY, I made a big mistake (in hindsight). You see, I picked the “wrong” stock index. I “sold” about 35% of my funds in the FlexFond (leaving about 30% total allocation still in the FlexFond), and put it into MSCI World Minimum Volatility.
This is how MSCI World Minimum Volatility and MSCI World performed in 2020:
MSCI World Minimum Volatility basically hasn’t moved anywhere since May!
The Minimum Volatility index contains few(er) Growth stocks – and most of those are the Technology stocks, which has just completely taken off since the dip in March. So basically – I picked the wrong index (for that period at least)…
But wait a minute, Nick. Didn’t you say that the MSCI World index had increased by more than 15% in 2020? The Chart show only about half of that…
Yes I did – if you trade in USD. But (most of) us poor Europeans trade in EUR – and LOOK what else happened in 2020!
That’s right! The USD:EUR exchange rate declined by more than 8%. SUCKS TO BE EUROPEAN, EH?!
BUT ACTUALLY, when we look at it in THAT perspective, I guess my 5% wasn’t that bad 😉
Regardless – I think I should aim a little higher than 5%. 7% is a good benchmark, I think! Lets shoot for that! (Yeah right, like that’s gonna happen!)
I thus give to you my dear readers, my AA on my pension portfolio for 2021:
(Doesn’t that look lovely?)
If history had taught me anything, I would dispense of the FlexFond completely and just allocate that 30% towards a broad World index…Clearly I’m unteachable 😛
Maybe the year 2021 will present an opportunity to allocate more cash towards stocks – but for now I actually sleep pretty well with this allocation – and to me that is pretty priceless 🙂
Should an obvious “buy-the-dip” opportunity occur, I will lower the allocation towards the FlexFond and increase the Stocks allocation. I do want to keep a small allocation in the FlexFond, as it’s no longer possible to place funds in this category (they have closed down the 2% guarantee for new deposits – I wonder why 😛 ). So 2% guaranteed interest in todays market is something that I’d like to just keep a small allocation in going forward (the allocation percentage will drop automatically over time, as new deposits are allocated towards the Stock funds).
Some of you might have noticed that my Global Stock allocations has a 25% allocation towards a fund called “Global Stocks II”. So does that mean that there’s a “Global Stocks I” fund too – and if so, why did you pick “II”?
You guys are sharp! Nothing gets past you 😛
The “AP Invest Global Stocks II” is a fund (managed by walterscott.com) which tracks the “MSCI World 100% Hedged to EUR Index“. Since the consensus among the experts seems to be that the USD:EUR ratio is going to continue to decline, I believe hedging against this will benefit my portfolio in the coming years. Time will tell if this is going to be worth the “gamble”…
(Let me know what you think in the comments below 😛 ).
I have basically learned NOTHING! HAHA.
No that’s not entirely true; I’ve learned a great deal, and living through a year like 2020 has made me even more convinced that anything can happen next.
I’ve changed my risk profile a bit, and am now willing to accept a bit more risk in my portfolio than in previous years (after all, I’m only 37 – I have 23 years to grow my portfolio before I can access it).
I hope to see a bit more than 5% avg return in the coming years.
So how did the wife do, Nick?
Yeah, we don’t talk about that!… (She did 9,8%…100% invested in whatever actively managed product her provider chooses…).
So kids; Prepare for the best – but expect the worst 😉