My portfolio – March update

Q4 2016 earnings season is pretty much done.

According to factset, 99% of companies have reported and we’re seeing a 4.9% earnings growth rate in Q42016 which is nice and it’s the first time we’ve seen two consecutive quarters of earnings growth since Q42014 and Q12015.

The stock market has seen market large price inflation despite not seeing any substantial earnings growth since 2014.  CY2014 S&P 500 EPS was $118.96 and CY2016 will end up near $119.14.

That means that pretty much all of the price appreciation since 2014 has been driven by P/E expansion. That’s not great to see from a long term investing standpoint as P/E expansion can only go so far and needs to be backed up by E expansion in order to sustain long term results.

I think the 2 months of growth is an excellent start but 2017 really needs to show some growth if investors are to get more comfortable around where the stock market is pricing securities right now. There are certainly some proposed changes from the new administration that might spur earnings but those are still out in the future and it’s unclear how much of that will actually come to fruition.

The truth is that EPS estimates for CY2017 have continued to shrink down from $134.50 in September of last year to $131.28 right now which shows that some of those growth assumptions might be getting pushed off into 2018.

Still, 2017 estimates show 10% growth and would be awesome to see but keep in mind that 2016 projections also called for sizable growth that never actually materialized.

There’s been a lot of comfort around mediocrity in the market the past few years due to low interest rates driving money out of suddenly low yielding alternative investments and into rapidly growing stocks.

It seems like that might change soon due to solid economic headwinds and likely continued interest rate bumps that might make other investments a bit more attractive. It’s hard to say how that will impact the market in the long term but high yielding securities like REITs will likely take a hit in the short term.

I think rising interest rates are a good thing in the long run and there’s also a lot of hope that things on the earnings side will change soon and that the future stock price growth will be driven by earnings growth. That optimism is driving the continued rally in the past few months that has been great for my portfolio. I’m happy to see and I’m hopeful that it will continue and yet I can’t help but shake the feeling that we’re getting too optimistic about something(tax/infrastructure plans) that might have less of an impact than we hope.

I’m a long term investor and short term price appreciation isn’t ideal for me as P/E expansion simply means things are getting more expensive so any additional purchases I make and will continue to make are bought at a premium. If earnings don’t catch up with prices then there’s the real possibility of mediocre long term returns as prices eventually revert to the mean.

I’m not a market timer so I’m staying in the market no matter what and I enjoy seeing my portfolio grow every month but I’m also realistic about what price appreciation without growth means for long term returns.

We’ll start getting Q1 results sometime in April and we’ll see if that 10% growth rate is realistic or if the market is being a bit too optimistic. I think Q1 is too early to make a certain judgement but it’ll be a time where we get more clarity around this administrations healthcare and tax plans as well which should give a clearer view to where this market is heading.

With all that said, it’s portfolio time. I was on my way to 400k last month and the market has continued to grow so let’s see if I’m there this month or if it’ll take another solid month to put me over that milestone.

I changed the colors of the graph to make the three separate categories easier to see.

The portfolio continues to grow and as of today the total stands at $396,944.31!

That’s $12,783 in growth in just one month or a 3.33% increase month over month.

February was a pretty solid contribution month as I bumped up my 401k contributions to a higher % due to my bonus coming in that month but the growth was also helped by solid performance from the market.

The S&P 500 returned 2.44% for the month and we haven’t seen a down month in the market since October.

My taxable accounts grew 5% this month driven by great performance in my individual holdings like UNH and AAPL.

My tax-advantaged accounts were up 2% driven by solid performance in the US markets and a big contribution month but offset by negative returns in the income heavy areas like bonds and REITs.

Cash was up a bit this month as I put some of my bonus aside for future investments and now makes up 8.4% of my portfolio.

I’m not too far from 400k which is exciting and I should be able to hit that number if the market returns aren’t negative in the next month!

Let’s take a look at the asset allocation.

Here’s the breakdown of each asset class versus target.

  • US Large Cap at 43.4% versus 42.5% target(+0.89%)
  • US Mid Cap at 10.4% versus 10% target(+0.36%)
  • US Small Cap at 9.9% versus 10% target(-0.07%)
  • US REIT at 9.1% versus 10% target(-0.92%)
  • International Developed at 15% versus 15% target(+0.04%)
  • International Emerging at 4.9% versus 5% target(-0.10%)
  • US Bonds at 7.3% versus 7.5% target(-0.20%)

My individual securities have performed well as has the S&P 500 which leads to a big shift in my large cap allocation this month making them overweight. My ESPP contributions are also adding to this as each contribution is locked in large cap money until the purchase mid year.

I haven’t contributed anything to my small-caps in a while and we’re slightly below target there now due to the out-performance in other areas.

The near certain potential of more interest rate hikes has led to poor performance from REITs and bonds meaning REITs are even further under allocated now and bonds are below allocation for the first time since I started tracking this(a long bull run will do that to bonds).

It looks like the next few months will likely be dedicated to buying REITs and bonds while maintaining the other classes’ position to their target unless we see a big drop in stocks for some reason.

REITs will likely continue to experience short term pressure after rates are raised as will bonds but that only means lower prices and higher yields for my portfolio so that’s good in the long run!

The plan for next month is as follows.

  • Buy REITs and bonds in tax-advantaged accounts
  • Cash pile is at 8.4%, look for value
That’s it for this month. I’m pretty close to 400k which is exciting considering I was below 300k when I started tracking my portfolio size at the tail end of 2015! My portfolio has grown by more than I’ve earned in that period of time and that’s pre-tax earnings which is insane! It shows the true power of a bull market once you have a solid base of savings started.
Most of that growth been the excellent market performance but consistent contributions certainly help as well. It really shows the power of keeping your money in the market no matter what valuations look like because it really is impossible to predict where the market will go any given year.
Hope your month was as good as mine. I won’t complain about 10k+ bumps two months in a row and I’ll see you soon for a savings rate update.

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