Portfolio methodology
Benchmark: FTSE All-Share Total Return Index.
The All-Share Total Return Index has been chosen as the benchmark simply because it is what most UK investors try to outperform. Readers are welcome to use an alternative benchmark.
To buy into the All-Share Index someone would need to purchase a ETF or open-end fund that tracks the index. Both would have ongoing fees and a tracking error. Accordingly, it is likely that someone buying a fund designed to track the All-Share Index will generate a slightly lower result.
Portfolio performance: includes bid/offer spread and stamp duty
The approach taken is to factor in costs that don't vary according to broker or the portfolio size. Costs that do vary according to portfolio size or platform are not factored in. The rationale is that the portfolio performance is then more comparable. Readers can factor in the "drag" that comes from their own investment platform's costs and trading fees.
Bid/offer spread and stamp duty (included) - The portfolio will take both account when entering positions. They are unavoidable and don't vary according to the investment platform/broker used.
Trading costs (excluded) - These vary by investment platform/broker and according to the portfolio size. Hargreaves Lansdown doesn't charge a commission for buying into an open-end fund, for example, while most other platforms do. For a reasonable size portfolio the trading costs are likely to not be significant. This is because the charge for a trade is typically a flat fee (i.e. £10).
Platform fees (excluded) - These also vary by investment platform/broker and according to portfolio size. They are also in place if you buy an All-Share tracker. Accordingly, they won't have an impact on the relative performance of the portfolio versus an All-Share tracker held in an investment platform.
Summary - The skew between the real return on an all-Share Total Return fund and the portfolio is the exclusion of commission for buying and selling funds. Both will incur investment platform fees. The commission for buying the All-Share Total Return fund only occurs once when it is bought. The portfolio has trading commission over time when different funds are bought and sold. However, trading commission is relatively low on funds and so the overall impact is not likely to be significant.