Portfolio Review – January 2019 – 2018 Portfolio Returns

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Welcome to the first portfolio review of 2019! The new year is always a good time to look back and see how I did in 2018. My 2018 portfolio returns looked good until about October when the market started to sputter a bit.

My last update in December showed a bit of a reduction in portfolio size but it missed the large December drop that followed. I wasn’t too worried about the drop as a long term investor and didn’t mind the lower prices I got via my regular contributions.

However, as has been the case with recent drops, it recovered rather quickly. The S&P 500 is still a good deal below all time highs but also a good deal above the bottom of December. It wasn’t a great finish to 2018 for most investors but it was far from tragic.

You can see in the below graphic from Personal Capital how my portfolio fared during the volatile December.

You can see that the You Index lagged the S&P 500 since the last update. However, the overall performance for the month isn’t bad given where it was in the middle. At the bottom, the S&P 500 was 10.71% below the start of the period while my portfolio was down 9.01%.

The recovery was swift and the market ended up closing closer to flat for the period. My portfolio lagged a bit despite better performance from foreign equities and bonds. The reason for that is my holdings of UNH and Apple which lagged in recovery from the broader market.

It’s another negative month but all that means is more favorable pricing going forward. It’s important to remember that the market is still doing pretty damn well in the past ten years even accounting for the recent drop. Even my overall 2018 portfolio returns weren’t that bad despite the fact that the last four months came in with negative returns. Take a look at the same graph above but for the 2018 calendar year.

Things seemed bleak but the overall performance of my portfolio was -3.72%. That compares favorably against the -6.24% S&P 500 return for that same time period. That’s despite the awful returns from foreign equities. It’s important to have a long term view of stock returns. For example, while UNH has lagged the market recovery in this review period. It’s performance through 2018 was favorable as the stock price is still 12% higher than it was at the start of 2018. That is not the case for the S&P 500. In fact, my individual holdings actually had a positive return for the year.

Overall, it’s a negative year but not a terrible one as far as those go. The portfolio going up every month is easy to get used to but that’s not market reality. In the long run, negative years are beneficial because they allow me to buy at lower prices. That’s a recipe for long term success even if it doesn’t look great on paper in the short term.

I talked about my 16 consecutive months of growth a few months ago. That ended in October and might continue into 2019. That’s not a terrible thing if your time horizon is long enough. Valuations are down to more reasonable levels and that’s a good thing for buyers.

My portfolio ended at $540,010.44 last month so let’s see where I am today.

The Portfolio

My portfolio now sits at $533,914.37.

That’s a 1.13% reduction from the last update. My portfolio had a negative return for the month that was partially offset by contributions. This marks the fourth consecutive decrease in portfolio size.

That means I’m buying things at better prices than in September, my portfolio peak! In reality, it sucks to lose money but these are paper losses on money I don’t need for 10+ years. This is a long term portfolio that’s 92.5% in stocks so losses are not unexpected. In fact, these movements are small in relation to the kind of losses that are possible with this risk profile.

Am I comfortable with that? I sure am because my time period is quite long. It was good to see that I didn’t fret or worry or lose sleep during this small market turbulence. That just shows that my risk tolerance is about where I thought it would be when I set my asset allocation.

My tax-advantaged accounts were actually up 0.8% due to contributions. That included the first 401k contribution in 2019 which I front load a bit now that the maximums are reset again.

My taxable accounts were down 10.1% this month. Most of that is due to selling my ESPP shares at an instant 16% return and not buying anything with it yet.

That means cash is up 29% this month and makes up 9.23% of my portfolio. That’s still below my 10% investment plan maximum but I plan to put some of that to use soon. I’m still contributing weekly to my M1 Finance account and have enjoyed my experience there.

Related : My Thoughts on M1 Finance

For those wondering, my individual stock returns were solid this year. Most of my money is in tax-advantaged index funds but I do have some individual holdings.

These returned 14.1% for the year and really buoyed my overall portfolio returns which were dragged down by foreign holdings in 2018. It’s always nice to have a positive year on my individual trades. It’s too bad this individual account makes up only a small % of my overall holdings. However, I probably won’t say that the next time this trend is reversed!

My top individual 5 holdings to end the year are UNH, AAPL, MKL, BAM and MSG in that order.

In my tax-advantaged accounts it’s 90% Vanguard funds with VIIIX in my 401k leading the way. One of my international holdings in my 401k, RERGX, really weighed negatively on my returns with a 14% fall in 2018, mirroring the foreign equity index.

Asset allocation is probably an issue due to the ESPP sale and the big market moves in the last month. That’ll guide my buying decisions in the next month.

Asset Allocation

My ESPP sale and poor stock performance sends my large cap stocks below target for the first time in a while. International actually jumps up due to reasonable performance against domestic stocks in recent months.

Let’s look at where things sit against the last update.

I’ve got a big shift in large caps and a shift to the positive in most other areas. Bonds are overweight now as they would be when stocks do poorly.

I find that looking at these asset allocations monthly has been a good guide in driving my buying decisions. I haven’t been buying large caps for a while since international was underweight. Now that the performance has switched a bit, I can get back to buying large caps and fix the shortfall.

In a way and in theory, this means that I’m always buying something that’s undervalued in relation to the other asset classes and I like that.

The plan for next month is as follows;

• Purchase U.S. large caps followed by U.S. small caps.
• Cash is at 7.6%, look for individual values or purchase ETFs of asset classes that are below target.

Overall, 2018 wasn’t a great year for investors. However, it was a nice small reminder of the risks that come with stock investing.

If you were sufficiently diversified and didn’t sell in the middle of December, the fall wasn’t large. However, there were short time periods where the market was down quite a bit and certain individual securities fell a ton. That’s bound to happen and might get worse before it gets better.

In the end, it’s important to be aware of your risk tolerance and invest accordingly. This year was a good reminder of that.

Hopefully, your 2018 portfolio returns weren’t terrible and you weathered the storm well. I’m not sure what 2019 will bring but I plan to keep investing whether it’s good or bad.

That’s the best way to succeed; have a long term perspective, keep investing and don’t panic. Time in the market beats timing the market.