Portfolio Review – May 2018 – the stock market today

stock market

The stock market today is an interesting one. Investors have benefited from a nearly uninterrupted run up this decade. That’s why it almost seemed out of character to see the small stumble this year. The stock market can fall? What madness is this?

January started off strong with the S&P 500 returning over 5%. However, February wasn’t as rosy with nearly a 4% drop and March continued that trend with the S&P 500 dropping another 3%. This quick turn into negative land didn’t make many people happy as it brought to mind the risk that comes with investing in stocks. That’s especially true if investors bought anything near the January highs. Suddenly, they were down quite a bit in a short time. That’s enough to spook any investor but especially newer ones.

There was a lot of worry about whether this was the start of a new downturn. The typical doomsayers were out in full force talking about how the stock market could drop another 40%. What happened after? April was pretty flat and May is up nearly 3%. The stock market today is still 5% off the January highs but it’s important to keep everything in perspective. Q1 2018 with all it’s negative press ended up with a -1.17% return. That was the first negative quarter for the S&P 500 since Q3 2015. The S&P 500 today is still up 2% YTD and up nearly 14% in the last year.

There were stocks that suffered more as bond yields rose. Stocks with a direct relation to yield fell more than the market. The same happened to those who showed any signs of lagging growth. The recent corporate tax rate cut was expected to be a boon to corporate earnings so any companies guiding lower were punished heavily. Yield names suffered too as people no longer needed to pay historically stretched valuations to get a 3-4% yield now that bonds were getting close to that level.

Individual investors with exposure to those stocks likely saw their portfolio slingshot. My own portfolio which was up 3.2% in the January update fell 3.4% in the February update. The slingshot wasn’t done yet! My portfolio grew 6.3% in March then dropped 2.1% in the April update.

Related : Portfolio Review – April

The Q1 drop may not have been huge in hindsight. However, the day to day movement in some stocks were larger than I’ve seen in a while. Did this worry me at all? Not really as I kept investing through the ups and down. I’m a long term investor so these short term fluctuation don’t matter to me. In fact, a prolonged downturn is actually beneficial to me since it allows me to buy good companies at better prices.

It helps that the underlying fundamentals seem decent right now. There’s some uncertainties but earnings are actually growing now. Factset shows a 24.9% earnings growth rate and an 8.2% sales growth rate in Q1. That’s not bad at all especially after years of stalled growth and expanding P/E ratios. Growing earnings with flat prices means P/E ratios are coming down right now. That’s a good thing for long term returns.

That’s all well and good but it requires a strong stomach to stick through the down turns. However, that’s the reality of investing. The negative results we saw in Q1 were nothing when compared to an actual bear market. An investor has to expect one sometime, it can’t all be rosy forever. The average bull market lasts about 9 years and we’re nearly 10 years into this one. That doesn’t mean a bear market is around the corner. There have been bull markets that lasted 15 years. However, it does mean that the cycle dictates a bear market eventually. It doesn’t mean anyone should stop investing today and wait for it. After all, that bear market may happen after the stock market rises another 50%.

Personally, I’ll keep buying as the stock market rises and keep buying as it falls. Time in the market beats timing the market when it comes to long term success.

If the small drops this year have worried you a ton then maybe it’s time to reconsider your asset allocation. Stocks are risky, they drop in price, sometimes by quite a lot. The Q1 return of -1.17% is a far cry from the 20-50% drop we’ll probably see in the next bear market. The stock market today has been easy. It seems to keep going up almost all the time. That’s why these pauses seem to worry investors so much as many of them entered the market after 2008. There have been negative months since then but they have been few and far between. These pauses have been very short too but that may not always be the case. It’s important to keep that in mind as an investor.

Stocks drop, stocks rise. This is normal. My portfolio was down last update. However, since then the S&P has done well again with a 4.73% return. That means I’m likely back to new heights despite the market volatility. That’s the beauty of long term investing. If stocks fall, you just buy more and they’ll eventually rise back up to a new high. It may take a while but you’ll be all right as long as you don’t need the money right away and didn’t overweight a certain stock as individual stocks may take longer to recover(or they may never recover). This recent fall was short term and we may revisit those lows again soon but who am I to know that? I’ll just keep buying rain or shine.

My portfolio was at $501,738.96 last month so let’s look at it today.

The Portfolio

stock market today

My portfolio now sits at $523,117.61!

That’s an all time high again after some losses in the last update. You can see the up and down nature of this market as I was up in January, down in February, up in March, down in April. May is up again which means losses are ahead! At least, they are if that trend is to continue. The interesting thing about these losses is that they’re more than offset by the gains.

I was down $16k in February but over over $30k in March. This month’s gain of $21k follows a loss of $11k. That means I’m still well up this year when compared against the $483 at the end of December or even the $499k at the start of January.

The S&P was up 4.73% since the last update so it’s clear that my portfolio would follow. My portfolio was up 4.26% since last month but that includes contributions. My return without contributions was 3.83% which lagged the S&P 500. You can see that at this point, the market gains(or losses) far outweigh the contributions I make each month. That’s a cool spot to be in as I can let the power of compound growth work for me.

Related : The First $100,000 is the Hardest – the Miracle of Compound Interest

YTD my portfolio’s return is 2.41% which is a bit better than the 2.02% from the S&P 500. My asset allocation does have big U.S. large cap exposure but I do tilt towards small and mid-caps as well. There’s also an international exposure plus bonds which means my portfolio will differ from the S&P by a bit. I’m happy to see that it’s doing better than the S&P 500 as it comes with some benefits like slightly lower volatility.

Related : Revisiting my Asset Allocation

Overall, I’m happy with the results here as the portfolio keeps chugging along.

My taxable accounts were up 5.6% driven by solid returns in UNH, APPL and MSG.

My tax-advantaged accounts were up 4.1% driven by the recovery of the U.S. markets and additional contributions in my 401k and HSA.

Cash was unchanged and makes up 7.8% of my portfolio. That’s below the 10% max called for in my asset allocation. I wasn’t very active in buying any individual securities in the recent drop as I haven’t had a ton of time to take deep dives into any individual stocks.

The good thing about having an asset allocation plan is it allows me to buy when conditions are favorable.

I was a bit underweight in domestic stocks last time around. That mean I was buying as the market was falling. Now, contributions and strong domestic stock market returns this month means that’s likely fixed. That means my contributions going forward will likely focus on something else offering me an opportunity to invest in an asset class that has lagged behind recently.

Let’s take a look at my asset allocation.

Asset Allocation

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Stocks rise and bonds fall behind. Stocks fall and bonds move ahead. It’s a tale as old as time! Last month stocks were coming off a poor month so my stock allocation was behind. That meant I was buying stocks as prices became more attractive. This month, stocks rose quite a bit and we’re behind on bonds again.

Here’s a comparison of where I am today versus where I was last month.

Most of my contributions last month went to small caps. That and strong performance from domestic stocks brought both of those asset classes above their targets. Bonds didn’t do much this month and since no contributions went there, they’re behind again. International is a similar story and both developed and emerging are lagging now.

That means next month’s strategy is simple.

  • Buy international stocks/funds targeting both developed and emerging markets.
  • Invest in bonds as well to bring them back towards target.
  • Cash is at 7.8%. Look out for values in the individual market and fill asset allocation gaps with ETFs.

I’ve had that same cash bullet point every month but haven’t bought much lately. Cash has remained static simply because I haven’t found a lot of values in the market. The ones that look somewhat decent are already in areas where I’m overweight like large caps and more specifically healthcare. I also haven’t had a ton of time to search out good values and do in depth dives on stocks.

Cash is a bit too high at the moment but it’s still below the 10% max my investment plan calls for so I’m not rushing to spend it. I can wait for an opportunity to come along if needed.

Even if I’m not finding any individual stocks to invest in, I’m always putting money to work via 401k/HSA/IRA contributions. That’s one of the key things about long term investing. It’s all about keeping that money flowing into the market no matter what happens.

Honestly, I’d likely be better off just investing my cash and letting it do it’s thing but I like to be active with a small portion of my money. That’s part of my investment plan and something I’m fine doing as it allows me to flex my investing muscle from time to time and manage my risk more closely. That’s the beauty of investing, it can work in many different ways as long as you have a sound investing plan in place and stick to it.

It can be as simple as investing in an S&P 500 fund and a bond fund according to your risk tolerance. Or it can be a bit more complicated like my investment plan if you want to increase your chance of a higher return or adjust your volatility or have a bit of fun with individual stocks. For me, it makes sense to do the latter mainly because I enjoy this tracking aspect of it and the research that comes with it alongside investing in individual securities and doing the legwork there. Many may not feel that way and be better off investing in a simpler two or three fund portfolio.

Whichever way works for you, it’s important to understand that time in the market is the most important thing. Stocks will go up and stocks will go down. As long as your time horizon is long enough then these monthly, quarterly or even yearly fluctuations don’t matter much. Keep investing through good times and bad and it won’t matter what the stock market today is doing. What’ll matter is the size of your portfolio in the end and the history shows that you’ll be a lot better off if you just leave your money in there and wait it out.

That’s it for this update. It’s another good one with a new record and over 20k in growth. It’s crazy how much the portfolio moves once you break that $500k mark. My contributions barely make a dent now and stock market movements lead the way. This month was a good one and I’m eager to see what the rest of the year brings.

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

Latest update on my journey to $1M. #Portfolio #Investing #Saving

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21 thoughts on “Portfolio Review – May 2018 – the stock market today

  1. Hey TITM. Your portfolio continues to grow! That’s a nice upward trend over the last year.

    Like you I like to try my hand at actively investing in individual stocks, although I haven’t beaten the market so far. My individual stock account has evolved into a dividend portfolio as I learn more about investing, and it’s done ok so far this year.

    For further diversification, I have recently started a position in a currency-hedged individual bond fund. Have you given any thought to diversifying in that direction?

    I look forward to your next update. Keep up the good work!

    1. I have 7.5% of my portfolio in a bond fund but it’s all U.S. bonds in dollars. What sort of currency does your bond fund hedge against?

  2. I own Vanguard’s total international bond fund (VTIBX). The fund is hedged back against the dollar, because of the danger that a change in the dollar exchange rate could reduce the value of the fund’s position in a particular foreign bond, even if the bond’s value did not drop. They hedge by buying currency forward contracts, which locks in an exchange rate to buy or sell a currency on a future date.

    Here is a good recent Kiplinger article that talks about international bond funds and their hedging strategies:

    https://www.kiplinger.com/article/investing/T052-C009-S004-hedge-risks-with-overseas-bond-funds.html

    1. Gotcha, I haven’t really considered international bonds in my allocation since I’m not sure there’s a ton of benefit to them. However, I haven’t taken a very close look at them.

      Does that fund(VTIBX) really only have a sub 1% yield. Is a lot of that due to how the currency relates to the US dollar?

  3. Time –

    Great fricken progress. You are consistently staying in the market, rolling with the tides in the market and continually staying focused on that long-term goal. $21k closer, and the momentum is in your court, keep it up.

    -Lanny

  4. I believe you pretty much covered it – and good progress! Regardless of whether you’re an active or passive portfolio – it doesn’t seem to matter much in this particular phase of the market.

    1. I do enjoy the higher yields in bonds even if it pushes some stocks down. I’ve had a hard time making sense of putting more money into bonds with where yields were but they’re suddenly getting more attractive.

    1. You’ll get there soon enough. In a few years, you’ll have to change your blog from thepoorswiss to the welloffswiss.

    1. Good is relative to your risk tolerance Lily – maybe you guys have more bonds and slower growth but if that works for you then that’s great. It might also be a good move if any big long-term volatility shows up soon.

  5. Hi TITM, I like your perspectives on the market movements this year and the reference to the current bull market. You definitely seem to have a very solid investment strategy, with the focus on asset allocation, and a commitment to keep buying regularly whether the market is going up or down.

    I think ‘chugging along’ is the right way to sum up your portfolio – keep on chugging your way to that $1 million mark!

    Cheers, Frankie
    Frankie @ Fully Franked Finance recently posted…A Dazzling Disney Discounted Cash Flow Analysis (and a Dangerous Decision Making Tool)My Profile

  6. Nice progress, Time! This also stuck out for me:

    “Honestly, I’d likely be better off just investing my cash and letting it do it’s thing but I like to be active with a small portion of my money. That’s part of my investment plan and something I’m fine doing as it allows me to flex my investing muscle from time to time and manage my risk more closely. ”

    I feel the same way most of the time. I do like to have most things automated, but I’m enjoying having the opportunity to get more hands on with a much smaller portion of our portfolio. (Specifically, as we slowly build out our taxable portfolio into potential individual names.)

    Thanks again for the post. – Mike
    Mike at Balanced Dividends recently posted…Passive Income & Portfolio – April 2018 UpdateMy Profile

    1. Yea it’s fun to play around from time to time – gotta enjoy this a little bit when you can. It’s not for everyone but stretching those investing muscles is a great time for me.

  7. Hey TM,

    your portfolio is impressive, Congrats on cracking the 500k mark. The chart shows constant growths over the last year and if you look at the chart in 10 years, the sum of 500k will put a grin on your face. The markets will go up and down and we’ll see a crash once in a while, but having solid companies working for you will beat it in the end.
    Personally i like investing into companies more than investing into ETFs or other kind of funds. I want to follow the progress, the dividend increases, identify to some degree with the core holdings i own and save the managing costs…but as you said: whichever way works for you…

    Greets
    DividendSolutions

  8. Our portfolios are very similar. The difference is in REITs. Instead of REIT funds I have additional allocation to international funds. I am not sure if it is worth holding international bonds. Getting international equity exposure might be sufficient. I used to own VTIBX.

    All Vanguard target funds seem to have international bonds.

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