My portfolio – July update

It’s time for the regularly scheduled portfolio update.

Thanks for joining me and thanks for stepping away from Pokemon Go for a few minutes! It seems like everyone in the 10 to 40 age bracket is out there staring at their phones as they walk past you this weekend. I recently downloaded the game and it certainly scratches that nostalgia itch.

Nintendo stock is up over 17% in five days on the success of one mobile app from two companies it owns a portion of which shows how thirsty the market is for good deals these days. One sign of potential and a stock can surge rather quickly. That’s not to say that Nintendo is a bad investment as their IPs have huge potential if used properly and Pokemon Go certainly shows a new side to the company.

On the other hand, one sign of instability and the market can fall rather quickly as was evidenced by the surprising Brexit vote a few weeks ago.

We’ve since seen the market stabilize although those with high foreign exposure probably suffered more. Those markets were hit much more harshly than the U.S. which has become something of a safe haven which drives domestic equity prices higher despite continued high volatility.

At one point this month, The S&P 500 was down nearly 6% from the last update but ended up being 1.5% higher. That’s not bad for those of us with a lot of U.S. exposure especially if you bought a few shares during the dip.

Those with a lot of exposure to the U.K. or the banking industry in the Euro zone saw a lot of pain as those securities fell quite a bit in the past few weeks and will likely take a long while to recover.

On my end, I saw my portfolio dip quite a bit for a while but recover nicely. I actually sold off a few shares of my emerging market securities which were above their target in my portfolio to tax loss harvest only to see those prices fall more after the Brexit vote. I wonder if I sold a bit too much but I guess we’ll see in this weeks’ asset allocation percentages.

I didn’t make a ton of moves beyond buying a few ETFs when the market was lower. I also moved a few dollars between my bond fund and REIT fund as I said I would do last month.

My ESPP also went through this month and I sold it off immediately as I don’t like double dipping on the risk spectrum there.

ESPP plans are often a great deal especially if you get 15% off and have no holding period but they add more risk to your portfolio. Your income is already tied to the company so it adds more risk to have your portfolio return tied to it as well. They can naturally be beneficial in the long run if you happen to luck out and work for a company with a great long term return but one has to remember the additional risk they’re taking on if the company goes under.

In any cases the emerging market sales and the ESPP sales will increase my cash position this month meaning I might be closer to my 10% target than I want to be again. That can be a good or bad thing depending which may the market heads. Still – this blog isn’t called timing the market so it’s certainly wiser to have money in the market when thinking about long term return.

Since I’m in the finance industry and enjoy flexing my financial brain, my investment plan does allow me to have some flexibility and calls for a 10% maximum in cash that I can play around with at my whim. I generally keep it well below that threshold since time in the market does beat timing the market but finding deals in this market has been hard and months with ESPP sales generally tend to spike my cash totals as well since that money usually comes in on the second Friday of the month which is right before this update which doesn’t give me any time to reinvest!

With all that said, let’s take a look where the portfolio stands this month.

As a reminder, last month ended up at $326325.

It’s good to see another month of growth despite all the market turbulence around the Brexit vote. Contributions and the growth in the U.S. market were the main drivers here and led to a 2.3% bump in portfolio size.
My overall portfolio now stands at $333970.71!
 
That’s almost 14% higher than when I first started tracking back in December. That’s when I got more serious about contributions and sticking to my asset allocation strategy. That’s not bad for less than a year. It certainly helped to have a market that dropped a bit in January and February allowing for some values to emerge during my heavy contribution season.. The S&P 500 has grown about 5.8% in that time frame as well so favorable market return certainly helps.
I know this 2% increase every month that I’ve seen for the past four months won’t last forever and I won’t be too upset if we see some dips either. That just means I’m buying and reinvesting dividends at lower prices which actually decreases long term risk and improves long term return.
My cash pile grew quite a bit this month due to the aforementioned TLH(tax loss harvesting) of emerging markets and the sale of my ESPP. I actually track the expected value of my ESPP in my portfolio so selling it reduces the value of my taxable account and adds to my cash pile.
Cash grew 33% this month and now makes up 9.9% of my portfolio which is right below my 10% max. That allows me for some dry powder if the market drops or values emerge but it also speaks to my hesitance to invest quickly in this market.
As mentioned above, this is probably the first time in years that my cash pile has been consistently close to the 10% mark and it speaks to my inability to find any great individual values in this market.
The low interest rates make it harder to value securities and the search for yield has driven a lot of safe companies to very high ratios when measured against historic metrics. It’s hard to say historic metrics work in this type of interest rate environment and I’ll still continue pouring money into the market via regular paycheck contributions but I’m certainly more hesitant in putting my cash to work on individual securities than I have been in past years.
My taxable account shrunk nearly 6% this month driven mainly be the removal of my ESPP shares from that account but also the sales of a few shares of my emerging market ETFs.
My tax-advantaged account grew 2% this month. The international funds in it suffered this month but were buoyed by the domestic funds which rallied towards the ends of the month.
Dividends in all funds totaled over $1000 for the first time in a non December month which was exciting and were invested at prices below where the market currently stands so that’s favorable at this point. Seeing dividends at that level is great as it means more and more money is flowing into my portfolio without me having to do anything about it. Quarterly dividends might soon outpace my regular monthly contributions in certain months which will be nice to see!
Now let’s take a look at my asset allocation and see where I am today.
My ESPP sale affects my large cap allocation but additional contributions and growth there means it didn’t move much against target versus last month.
I did move some bond dollars into REITs so that is up this month but bonds also did very well price wise so they hardly budget and remain above my target range.
It also looks like my emerging tax loss harvest sale was a bit too aggressive as combined with the drop in prices there caused my emerging market allocation to go below target for the first time. Surprisingly, even with the price drop in the Euro Zone, international developed is still above target despite dropping a bit.
Here’s a breakdown of where I am versus my targets.
  • US Large Cap at 40.4% versus 42.5% target(-2.1%)
  • US Mid Cap at 10.7% versus 10% target(+0.7%)
  • US Small Cap at 10.3% versus 10% target(+0.3%)
  • US REIT at 9.2% versus 10% target(-0.8%)
  • International Developed at 15.6% versus 15% target(+0.6%)
  • International Emerging at 4.7% versus 5% target(-0.3%)
  • US Bonds at 9.2% versus 7.5% target(+1.7%)
Compared against last month US REIT grew the most and is now within 1% of target and emerging markets shrunk the most and is now below target. Bonds are still overweight despite my reduction in shares and that’s driven by price growth this month.
Still, we’re within 1% on all asset classes expect two which are only about 2% off. The simplest solution here would be to move some bond money into US large caps which I might do this month. As someone who likes to minimize costs, this would mean having transferring money from a Vanguard admiral fund(bonds) to a non admiral one(US large caps) since I wouldn’t have the 10k needed in that fund for quite a while.
The difference isn’t huge but from a cost minimization perspective, it makes much more sense to put more money into my 401k large cap fund(which has an expense ratio of .03%) than an investor class fund with an expense ratio in the teens! The bond funds in my 401k are also much more expensive than the admiral fund in my Roth so I can’t just switch it around there.
It’s clearly I’m overthinking it here but I’m the type of guy that likes the idea of paying as little as possible and keeping as much as I can in my pocket! I might just end up sticking to my allocations as they are now and fixing the ratios with more contributions.
The goal for this year remains to get everything with 1% of target which shouldn’t be too hard unless we see big movements in prices which throw everything out of whack. I plan to do the following to get more in line with my targets.
  • 401k contributions slanted towards US Large Caps
  • Consider moving US Bonds into US Large Cap into my Roth IRA
  • Invest additional money into US REITs and International Emerging
  • Cash pile is nearing my 10% max – be on the look out for attractively valued individual securities and invest in ETFs
That’s it for this month guys. I’ll look at my expenses in a week or so and hopefully have some time to write about some other topics I’ve been meaning to discuss here.
Thanks for reading and enjoy the rest of your day.
Happy saving to all!

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