My portfolio – February update

There are moments in life when things change and your portfolio might have to change as well. I had one of those moments this month – well not just this month but in all the months leading up to it. I have never seen myself as a home owner and while I certainly saved a little bit in a home fund(separate from this and my emergency fund) – it certainly wasn’t enough to get me into a house anytime soon because I wasn’t planning on buying a house or making a down payment for the next 5+ years. Then I met my girlfriend, had her move in with me and started talking about our future.

And now those plans; to concentrate on growing my portfolio and let the house fund slowly accumulate for that down payment 5+ years down the line are changing a bit. I don’t think 5+ years is the right number anymore – that wasn’t a conclusion I came to lightly; it took months and months of living together with the girl of my dreams. We talked a lot about other things but houses do come up whenever we talk about our future plans. I’ve never been someone who didn’t want a house. I like the romantic idea of home ownership and I live in an area where home ownership makes decent financial sense if you can find the right place but as I said – I always thought it was five years away at the least. Then I met someone who changed my mind about that pretty quickly and the idea of living in a house together with that person and our pets just started to seem right and suddenly I didn’t think 5+ years made sense anymore. I suddenly thought 0-2 years away made more sense and then I looked at my house fund and saw where it was and 0-2 years away didn’t work with the amount of money I had saved there.

Then I looked at my portfolio and saw the cash I had laying around waiting to buy something and thought about what to best do with that cash. Note that I sold some more individual securities since my last update so my cash pile had grown well above my 10% cash max that my financial plan dictates. There were two options. One – invest that cash right away to make sure I wasn’t above that 10% and then cut back on my contributions heavily while I work on getting my house fund up to snuff or two – take 10 or 20k out of my portfolio and put it in the house fund so that if and when the perfect house comes around – I’d have enough money for a sizable down payment.

Based on this post – I think you know which decision I made. I decided to shrink my retirement portfolio and put 15k in the house fund? Why? Because I want a house and I think based on recent market volatility – I want to make sure I have enough money in that house fund in case the perfect house comes along soon. It wasn’t an easy choice for someone who just started this journey. Seeing my portfolio drop 15k immediately wasn’t easy to swallow and it somewhat feels like I’m taking a step back. I started tracking this thing with 300k+ in funds and suddenly I’m down to below that number in one move.

However, I think it was the right choice for a few reasons but the most important one is the emotional security I’ll have knowing that I have the option to buy pretty much anything in case anything great comes up soon. This market is as volatile as I’ve seen it in a while and while taking a step back from contributions was an option – it would still take 12-15 months to save up this amount of money. What if an opportunity comes along faster than that? I could tap into my emergency fund or I could sell then which could put me in a compromised position if a real emergency comes up or if I have to sell at a price I’m not comfortable with. It just made more sense to me to take the plunge now and continue my retirement savings plan as it was with heavy contributions flowing in to replace the money I took out for the house fund. That way – if a house does come up – I know I have the savings for it. I’m all about peace of mind when it comes to savings and this just seemed like the right play for me.

In any case – I wanted to do a quick explanation of why the fund suddenly dropped so much before continuing with the update. I’ll do two updates today – one that shows the original totals for the past two months and another that shows the past two months adjusted to remove 15k from the cash pile to make it relevant to this month. Going forward – this second total will be what we’ll be going with. It’s a lower starting point and puts me behind a little bit but the added security I get knowing my house fund is up to snuff is worth it to me. Plus – with the yearly bonus coming in pretty soon – the totals will be back to 300k in no time. Unless the market crashes 50% or something that is!

Here is the portfolio pre-adjustment. You can clearly see the drop in the taxable account total.

Here it is with 15k cash removed from the prior months.

In this one we still see a notable drop from the prior months but not as big as before. Our cash totals have grown as I sold out of some of my individual securities that were over weight in my account(UNH and DIS) and my overall taxable account total have dropped for the same reason.

Results haven’t been great lately as the market has been heading south lately. YTD the S&P 500 has a -8.8% and my portfolio has followed a similar path. I’m down 6.7% since the December update and 4.3% since the January update. This percentage includes all the contributions that have gone into that account since then as well. I’m not overly concerned with how my portfolio is doing against a particular index nor do these numbers represent performance against the S&P 500 since they include contributions and are a different time frame but showing those numbers as a reference. I will probably do a comparison against some indexes once a year or so to see how my portfolio is doing for fun for those who are wondering.

It’s hasn’t been the best year so far for those who are tracking portfolio performance but for those of us who are years away from retirement – these market downturns are a blessing as they allow us to buy at a much lower price which is always good news for long term returns. I was lucky enough to sell the shares that I sold near market peaks and am hoping we stay low for a bit so I can buy up more shares at reduced prices and replenish that 15k I recently took out at better valuations than we had when I sold. As always it’s tough to predict where the market goes in the short term but market sentiment seems to want to push it down and there are some fundamental issues out there that could help move it that way as well.

Now – let’s take a quick look at my Asset Allocation and where we are on that front. Last we checked, I was off on small-caps and REITs and a bit high on the other asset classes. My recent sell-off was primarily situated around large-caps so that might have caused a few issues in my asset allocation as well. Most of my new funds have gone into small-caps(with the added annoyance of my small-cap fund having some mid-cap exposure) and REITs.

This is exactly why I generally stay away from selling stuff and buy for the long term – often concentrating on ETFs and index funds that represent whole asset classes over individual securities and that’s because selling individual securities can screw up your asset allocation pretty quickly like it did here. However, sometimes valuations get away from you and selling makes sense even if makes for a bit of an annoyance for the next few months.

Let’s take a quick look at where I am and where I want to be based on my asset allocation.

  • US Large Cap – 39.4% versus target of 42.5%(-3.1%)
  • US Mid Cap – 12.7% versus target of 10%(+2.7%)
  • US Small Cap – 6.1% versus target of 10%(-3.9%)
  • US REIT – 7% versus target of 10%(-3%)
  • International Developed – 17.5% versus target of 15%(+2.5%)
  • International Emerging – 6.1% versus target of 5%(+1.1%)
  • US Bonds – 11.2% versus target of 7.5%(+3.7%)
Selling large caps will certainly skew a lot of things as will lowering the value of the overall portfolio by primarily making a move in one asset allocation and removing cash. Large caps are now a bit below the target allocation which is bad news but the good news is that my small cap and REIT miss against target is shrinking. That’s due to the big influx of money into those funds via 401k and ROTH contributions. Mid caps are still overweight due to their presence in my main small cap fund as are bonds. International had no contributions in a while but they grew as an overall percentage due to the shrinkage in large caps and overall portfolio plus general market volatility. 
In general – keeping an asset allocation is harder to do when the market is volatile like this as certain asset classes will make bigger moves than others. That’s also another reason I like fixing asset shortfalls with contributions versus full on re-balancing. It’s also a bit less of a headache as well. 
Cash is now at 10.8% of overall portfolio so I still have some buys to make in the near future. I have been making daily purchases of some commission free ETFs in assets where I’m short and plan to do that going forward to reduce my cash position. I’m being pretty patient there as I still haven’t found a ton of screaming buys on the individual side so most of my purchases are in the ETF space. I could see the market fall a bit more in the near term so I’m dollar cost averaging instead of buying in big large sums but am still purchasing a few hundred bucks in ETFs/day. 
Just like last month -we still have a lot of work to do when it comes to getting my assets to where I want them to be and here’s what we’re doing going forward.
  • Continue heavy small-cap contributions into my 401k and move more mid-cap money into the small-cap fund to speed that along. I might add 10-15% exposure into my large-cap fund to get that back up there as well. 
  • ROTH IRA contributions going entirely into the REIT fund to get that up. I might move a bit of the overweight bond fund into the REIT fund as well. 
  • Continue daily buys of commission-free ETFs in underweight areas.
Not the best month in terms of returns but it’s a long term game guys so keep the contributions coming and the growth will eventually return! If nothing else – at least our imaginary dividend employee will make money as long as those dividends aren’t cut!

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