Portfolio Review – July 2018 – International Stock Market Struggles
[This portfolio review about the international stock market may contain affiliate links at no cost to you]
The international stock market hasn’t been the best place for investors in the past few years.
That trend has continued this year. It was especially clear this month as foreign stocks lagged domestic by quite a bit.
That’s sure to cause a stir with my portfolio.
It might force my international allocation down despite the fact that I’ve been dipping my toes in the international stock market.
Recent purchases have skewed towards bonds and international stocks and that trend may have to continue.
The YTD graphic below from Personal Capital tells the story well.
One piece of good news is that my portfolio has weathered the storm well.
However, it’s clear that my asset allocation to foreign stocks has weighed on my returns. The U.S. stock market is positive YTD but foreign stocks have a negative return for the year. They’re 6.49% behind their domestic counterparts.
That’s a shame but it’s the reason asset allocations exist in the first place.
When one area zigs, the other may zag and we’re seeing that this year.
Domestic stocks are doing well leaving their international friends in the dust. It’s not good for returns in the short term but it may be good for returns in the long term.
That’s because an under performing market may allow investors such as myself to purchase at an opportune time.
My asset allocation is a guide post to tell me when I should be buying certain asset classes. Last month, it was telling me to buy international stocks and bonds.
This month will likely be the same story. That might be the case for a while unless something changes and that’s fine.
That’s because there will be a time in the future where international will regain their footing again. The script will flip and domestic stocks will lag while international takes off.
It’s then that investors like myself who are being dragged down by the international stock market now will be happy they kept buying today.
That’s because, at least in theory, my asset allocation is telling me that international is a better value right now in relation to historical norms. Whether that matters at all in terms of future returns is anyone’s guess but I’m hopeful it does.
As always, I’ll revisit my asset allocation next year and see if I want to make any changes but there are currently no plans to do that.
Hopefully, foreign stocks can start doing well sometime soon but if not then I’ll just keep buying more and wait it out.
I’ve got a long term outlook and timeline. These short term price fluctuations don’t bother me.
My portfolio last month was at $535,565.60 so let’s see where I am right now.
My portfolio now sits at $536,864.78!
That’s a bump of 0.24% to a new all time high! It’s not a big change but that’s expected given the market performance this month. The below comes from Personal Capital.
You can see that my holdings were actually down for the month. That means it was contributions that drove me into positive growth.
My stocks performed better than the S&P 500 despite the woeful foreign performance this month.
That’s mainly due to my exposure to bonds and excellent performance from MSG which was up nearly 19% this month.
I do wish I bought more shares of MSG when I wrote about it last year but I wasn’t expecting my thesis to play out so quickly.
In hindsight, this was a high conviction idea that didn’t have a ton of downside so I should have picked up more. However, it’s always easy to think that way after the stock is up 53% in less than a year.
Related : Recent purchase – The Madison Square Garden Company(MSG)
Overall, I’m happy with this month.
It’s positive despite weak stock market performance. My YTD performance is still solid despite exposure to an under performing area in international.
It’s hard to be unhappy with a market that has taken me from $428k on 7/9/2017 to nearly 537k now. That’s a lot of growth in one year and more than 2/3rds of that is price appreciation!
This month, my taxable accounts were up 0.39% and tax-advantaged accounts were up 0.19%.
Cash was unchanged and now makes up 6.49% of my portfolio, well below my 10% target.
I still have plenty of dry powder for purchases when good deals come up.
On top of that, monthly contributions through my paycheck go in every month so I’m always investing no matter the price.
The above returns indicate that international which lagged last month will be an issue again this month.
Let’s take a look at the asset allocation.
Bonds are back to where they need to be but international is struggling! That’s pretty much as expected given last month’s international returns.
Even my additional contributions weren’t enough to stem the bleeding.
Here’s a comparison of where I am today versus where I was last month.
It looks like REITs had themselves a nice little month.
I just checked and VNQ was up nearly 4% for the month and small caps(which include some REITs) did well also so both of those get a decent boost.
The recent purchase spree of bonds has done its job as that combined with a negative stock market has gotten me back to where I need to be on my bond allocation.
International remains the problem child with emerging markets joining the party.
That means the plan for next month is pretty clear.
- Buy international stocks/funds/etfs targeting both developed and emerging markets.
- Cash is at 6.5%. Look for individual values if any arise.
If anyone has some solid international stocks to recommend, let me know.
I will say I am much more well versed in domestic stocks and really only follow China so most of my international money is and will likely continue to be in simple index funds.
This wasn’t a big 10k+ month like I’ve had in the past two updates but not losing value when the market is down for the month is nice.
It shows the power of continued investing as contributions continually flow in and allow you to buy more when the stock market is down.
That’s nice and that’s going to be case for me with international.
I don’t know if performance will shift in the short term nor do I care. I’ll keep buying until that asset shortfall is fixed. That’s the idea behind time in the market.
Pick an asset allocation you can live with, stick with it and keep buying through highs and lows.
The asset allocation will tell you when it’s smart to buy certain securities and that should serve to boost long term returns. What happens in the short term doesn’t matter much beside informing you what to buy next. It’s nice to have a simple system like this to follow.
I don’t need to do much analysis, just a monthly update that shows me where to direct my funds.
This month it’s international but who knows what it’ll be next month(probably international).
That’s it for July’s update. Thanks for reading and let me know how your portfolio did this month.
VXUS (International ETF) has taken a big hit this year. But, they had a strong performance last year. Like you said scoop them up 🙂 Not mention I got a hefty dividend in Q2.
Yup, international is probably a good value right now in relation to domestic stocks.
Tom @ Dividends Diversify
Time, Still good to stay diversified even though the international holdings lagged.
90 second plank today before the day 13 rest day. Core is a little sore.
It might be a little sore but it’s stronger too!
You use index funds for international diversification. Ever thought of picking up individual stocks? And if so, which ones?
Mostly index fund and one active fund.
I do have some individual stocks but most of them are in China. I own Tencent, Baidu and Netease. I also just picked up some Softbank the other day after this post.
Thanks for the transparency on your portfolio. I am working on getting up the nerve to be more open.
It is tough when certain parts of the market is down, but as you said that is why diversified portfolios are built. One thing to note, which you comment on in your post, is that the best times to buy can be when the market is down.
I actually think now is a better time to invest in international – especially emerging markets – than it is U.S. I refer to research done by Research Affiliates (don’t want to provide a link as that may not let this comment get posted – if you google them you will find their site).
They have a tool that calculates expected returns based on current valuation (such as CAPE and other valuation metrics). What their research shows is that the U.S. market has a higher valuation than international developed and emerging markets. The inference from the research is that now is the time to buy these markets as opposed to higher priced markets like U.S. and Canada.
Long story short, probably good that you continue to invest in that part of your portfolio as down the line it may be the one that will be outperforming all others!