China Trade Wars : Episode IX

Welcome to the ongoing saga of the China trade wars. On today’s episode, we look at my portfolio and see how much it has fallen!

The last few months in the stock market have definitely been interesting. These months seem out of the norm because of the rather easy road we’ve had in the past few years. It’s easy to forget that the market can have negative returns when so much has gone right in the past decade. There was some volatility since 2008 but it was all relatively short lived. That means the fact that 2018 started off with a negative quarter seems like a big deal.

Maybe it is but to me it just seems like the market doing its thing. The trade war with China presents an uncertain future so it makes sense that the market reacts negatively. Volatility is common in times like these as investors try to digest the news is at comes out. It seems like every other day, there’s something new that sends the market moving in the opposite direction from the day before.

There’s tariffs from the U.S and the market tanks. The next day, they don’t seem so bad and the market rallies. A few days later China retaliates with their own tariffs and things are a mess again. A few days later, maybe the tariffs won’t be so bad and there’s a rally.

It’s an interesting time to be an investor for sure but it’s one that was expected eventually. The stock market has barely taken a pause in the past decade and it’s unreasonable to expect it to keep going up and up forever. Investing is a long term game and that includes living through the peaks and valleys. For most people new to investing, it’s been a ride of many peaks and few valleys.

Perhaps this is the start of some valley adventures for our intrepid investor(or not who knows).

Maybe that’s why the headlines have been so melodramatic lately. You gotta go after those clicks after all. I’ve seen words like CARNAGE used to describe the recent trade war sell offs. There have been some drops here and there but the S&P 500 is down 2.6% YTD. It might be down about 6% this month but that’s after being up 6% last month. If we’re calling that Carnage then we might run out of descriptive words for when the market really takes a sour turn.

As it always is with these things. It’s hard to tell whether this is the start of something bad or if it’s just a pause and the bull market will resume. Earnings are still good, unemployment is low and things seem to be humming along for now. A trade war with China might put an end to that or it might get resolved before any tariffs go into play. I don’t have a degree in economics so I’m no expert on the long term effects of a trade war but the market is voting it off the island as a bad thing right now.

It’s never great to see your portfolio drop in size but if you have a long term perspective, you have to remember that these short term fluctuations don’t really matter. You also have to consider how you got to where you are now.

RELATED : Porfolio Review – March 2018 – The Half Million Dollar Portfolio

My portfolio recently broke the 500k mark and a lot of that was due to market appreciation in the past few years. It makes sense to remember that as you look at the stock market month to month. There may be some down months in the future but they follow countless positive months that have grown my portfolio to where it is now. On top of that, I have an investment plan and asset allocation I’m comfortable with and I’m willing to ride any downturns.

That might not be great advice to new investors. However, if you’re a new investor then a falling market is good news for you too since it improves your chances at higher future returns. After all, buying at lower earnings or cash flow multiples is likely a good thing.

Another thing I try to remember is that I’m still well in the accumulation phase of my investment plan. My recent March dividend update means a sell-off allowed me to re-invest those dividends into more shares than I would have otherwise gotten. Plus, any current contributions; whether 401k, Roth IRA or taxable are getting me more shares and future dividends than they would have gotten me last month.

That’s all a good thing for long term returns. It’s important to look at things in a positive light as an investor. It’s easy to do that when the market is growing but a bit harder to do when it’s turning negative. Still, as long as you’ve got a risk profile you’re comfortable with and keep investing, you’ll do fine in the long run. One of the worst things you can do is sell at the wrong time because you’re also very likely to buy at the wrong time too. The best strategy and the one I follow is to buy high, buy low and hold for a long time. Make sure to have an asset allocation you’re comfortable with too as you do that.

My portfolio was at $512,884.85 last month so let’s look where it is now.

The Portfolio

My portfolio now sits at $501,738.96. 

I am still a half millionaire. I was down 2.17% this month or a loss of $11145.

That’s not great to see but it follows a month where I was up nearly $30k so not too bad. Even with the drops in February and March, I’m still up $2000 from my January update. That growth includes contributions so the overall return is a negative 1.34% but that follows years of growth so who am I to complain?

The S&P was down 6.53% since the last update so my portfolio weathered that storm better than large caps. Without contributions, my monthly return was -2.98%. I do have a small exposure to bonds and some of my individual securities outperformed helping my numbers. My portfolio lagged the S&P 500 last month but did much better this month.

One nice thing about March was the influx of dividends from all of my mutual funds. I won’t complain about those being reinvested at lower prices and getting me more shares.

Related : Time in the market dividend review – March 2018 – mutual fund dividends

My taxable accounts were down 2.1% while my tax-advantaged accounts were down 2.9%.

Cash was up 3.6%. I made my final Roth IRA contribution for the year recently and haven’t invested the money yet. I wanted to see which asset classes were behind before I did. Cash now makes up 8.16% of my portfolio which is below my max of 10%.

My allocation to certain individual stocks, bonds and even REITs helped me to outpace the market. Let’s see where my asset allocation lies after the recent drop.

Asset Allocation

Months were stock returns are poor will mean bonds likely become overweight. REITs were a surprise too as they stayed roughly flat which made them overweight against the backdrop of the stock market drop.

Helping that was the fact that I made some contributions towards REITs and bonds before the market took a negative turn. Here’s a comparison against where I was last month.

Large caps didn’t move much as my biggest holding UNH was flat despite a falling market. Mid caps and small caps turned red. International securities moved in the other direction as well as the potential of a trade war weighed on the entire world. As mentioned, REITs and bonds are now overweight.

That means next month’s strategy is relatively simple;

• Buy more stocks targeting large cap, mid cap and international developed
• Cash is at 8.1%. Invest my Roth IRA money. Utilize cash to purchase attractive valued securities and/or ETFs.

There are some stocks that aren’t too far from their prices in February where I thought they became an OK value. I may pull the trigger on a few of them if prices continue to drop.

Despite the recent drop, I’m still a bit vary about individual security prices as I want a really good deal if I’m taking the risk on an individual stock. It’s much easier to put money into the entire market and ride the wave up or down. Even if I think stocks are overpriced, I’m always contributing money into the market every two weeks via my 401k and HSA contributions. After all, time in the market beats timing the market.

That’s why I have a 10% max on my cash holdings in my portfolio. I do like to analyze stocks and think I know what I’m doing. However, the truth is I probably don’t most of the time so it’s better to have most of my money in the market working for me.

That’s it for this update. The portfolio remains above 500k and we’ll see if the next month pushes me below that milestone or if it’s something I can hold on to longer.

Thanks for reading and let me know how your month went in the comments.