Where've you been?

It's been just shy of 12 months since my last post, and boy have i had a busy year.  The biggest development was the birth of my son in May (yay!), which has focussed the mind.  Looking back over my post from the start of the year, i have really stuck to my plan to get more involved in commodities to rebalance my portfolio - and at a faster rate than i initially suggested - and boy have i learned some interesting lessons about investing in mining companies.

Lesson #1

The first lesson i have learned is that production  cost trumps everything else in commodities.  You might have a sweet management team, a top investor relations website, and some cool imagery - but if it costs you twice as much as your competitors to dig up (*and deliver) product to the end customer, you are on a hiding to nothing.

Lesson #2

Commodities investing is painful.  Really painful.  Especially if it is iron ore (ow!).  If the price of the commodities goes down, your share pricing is going down - and you have little chance of dodging that one.  Like Graham suggests, make sure there are going to be dividends to take the edge off those drops (see Lesson #1).

So how has the grand rebalance gone?  Well, this goes slightly beyond the realms of my pension (i am considering all the assets i hold in my personal portfolio as i appraise the mix across the different classes).

The answer is: things are rebalancing.  Aside from my CAPE investments over the last twelve months, my investments have entirely been across the commodities asset class.  Any other variations are down to saving, spending, and changes in the value of the class's components.

Here's a view of what my current 'ideal' portfolio should look like:

Suffice to say, I am some way off this at the moment- but we will get there over time.  The more acquainted reader may observe the 'cash' and 'bonds - short' categories can be read interchangeably.  At the most basic level, the reason for cash or short bonds is to provide finance for investment elsewhere in the portfolio during periods where the value of one or multiple asset classes drops - and under my model i have a very conservative 26.67% of my 'ideal' portfolio put aside for this purpose.  I justify this decision thus: within my portfolio mix i include all the property i own, including homes i mortgage; i also include the deposit for the house i might one day buy with my wife - to this end, i am comfortable with holding a significant proportion of what i own in cash and near-to-cash.

So, what does the mix look like today?  Well, i don't have today's figures for my overall portfolio (as opposed to my SIPP), but what i do have is the standing on the 28 November 2014 - which is as follows:



So somewhat different to what i'd say was 'ideal'.  If i look at the asset classes at a high level, as opposed to through the subclasses, the situation is as follows:

• Commodities     -     12.31%     -     -7.69%
• Property     -     23.69%     -     +3.69%
• Bonds     -     27.13%     -     +7.13%
• Shares     -     18.61%     -     -1.39%
• Cash     -     18.27%     -     -1.73%

Based on these figures, as i move into 2015 my main focus will continue to be commodities investment where there is a significant deficit to make up versus other classes.  The overwhelming majority of my property investment is via a buy to let, so i will continue to take retain the rental income and invest that elsewhere across the portfolio.  I am quite clear that for this particular asset the value is almost entirely dictated by British house prices, local sale values, and government policy.  So it'll probably oscillate a bit then!

I'll report back, hopefully with a greater frequency than thusfar, as to the spread of invesments across the different asset classes. This approach should keep me honest, particularly with regards to directing my capital into thos assets and asset subclasses that are out of favour with the wider market (and thus relatively cheap!)