[This portfolio review about rising rates may contain affiliate links at no cost to you]
Rising rates were the story this month as America’s strong economy kept barreling on. That meant bad things for high dividend payers like REITs, bonds and some riskier assets like small caps.
It may seem counter intuitive that a strong economy would be bad for stocks. The problem comes from the prospect of rising inflation and the concern of a peak economic cycle. The flight to safety that may create combined with rising rates pushing equity valuations down led to mediocre results in the month.
The reality is that rates have been low for quite some team leading to expanded equity valuation. The prospect of alternative investments or cash giving better returns may not be good for certain areas in the short term. That includes bonds as rising rates push bond prices down.
Add to that global trade disputes, weak global growth and you’ve got a recipe for a frothy market.
The S&P 500 didn’t suffer much this month as the September growth offset the recent drop. However, those of us with some exposure to other areas of the market were hit. REITs were down 5% and small caps weren’t too far behind. Bonds took a small dive as well as seen by the graphic below from Personal Capital.
It’s not a surprise that my You Index lagged the market as I have some exposure to REITs, small caps and bonds. Those were the asset classes most impacted by rising rates. It’s certainly wasn’t a great month to be an investor in riskier asset classes. Foreign equities did decent but certain pockets impacted by the trade war like China continued to fall.
This trend away from some riskier asset classes has been common in the last few months and that’s reflected in the YTD results.
My portfolio continues to lag the market due to my exposure to REITs, foreign stocks and bonds which haven’t had a banner year. It’ll be interesting to see if that continues or if trends reverse. One can’t predict the future. All I know is that these movements will just create buying opportunities in certain areas.
The good thing is that my expensive months of the year are behind me now which means good things for my savings. November might be rough since I’m heading to Hawaii but my wedding expenses are done now!
That means continue to move down, I’ll have plenty of money flowing into the market.
My portfolio last month hit $558,278.67 so let’s see where it sits now.
My portfolio now sits at $556,651.35!
That’s a small reduction of 0.29% against last month.
It’s not unexpected if you look at the monthly performance of my portfolio. Combine that with the lack of contributions due to high expenses and I’m down for the first time since April.
Taxable accounts were up 1.4% due to strong performance from UNH and APPL. The offset to that comes in my tax-advantaged accounts which were down 0.82%. That was mainly due to REITs, bonds and small cap stocks.
I’ve also thrown some more money into my M1 Finance account which drove taxable dollars up.
Related : My Thoughts on M1 Finance
Cash was down a bit as I picked up a few more shares of BAM and some ETFs. Cash now makes up 5.47% of my portfolio which is below my 10% max target.
I’ll be on the lookout for more value out there. China looks good on paper but there’s so many question marks there right now that I’m a bit wary about putting more money into Chinese stocks until the trade disputes resolve.
Overall, it wasn’t a positive month but my share counts keep increasing and I’ll keep buying whether stock prices rise or fall. This is a long term game and I’m far from the finish line so these negative months actually benefit me more than any positive months.
Let’s take a look at my asset allocation now.
Domestic large caps continue to look strong against all other asset classes. That is despite the fact that 0 money has flown into that class in months.
Poor performance in other areas and strong returns from my individual holdings make that a reality.
International has finally gotten better but now I have a few other classes falling behind as seen below.
Mid caps, small caps and REITs tumbled quite a bit this month. That means those guys will need some infusions going forward. It’s no surprise that REITs and other riskier asset classes are down due to rising rates. I expect that trend to continue if rates keep moving up.
The money I’ve been putting to work in international and bonds has gotten those assets back to their target. I still need to shore up some deficiencies there but it’s not the #1 priority anymore!
I’m not at a point yet where I want to sell some large caps but if things continue as they have, I might get there in a few months.
For now the plan for next month is as follows;
- Transition 401k contributions in mid caps, small caps and REITs
- Continue small purchases of international equities and US Bonds
The fact that my big wedding expenses are behind me means I can pump more money into the market now. On top of that, I should pay off my car loan this month so I can take advantage of these rising rates and their impact on prices and bond yields.
I was down this month but it’s a slight move in the grand scheme of things. We’re still in the middle of one of the best investing environments in history. The reality is that’s bound to change eventually. It has been an easy ride these past few years and it’ll be interesting to see what happens when that’s no longer the case. It’s impossible to tell whether that’s soon or way down the line but it’s always good to have that mentality in place.
Months like this are important to give investors a reality check that the stock market doesn’t always move up. This was a small dip but I’m sure larger dips are coming eventually. I don’t know when they’ll occur but I know I’ll keep pumping money into the market and take advantage of the better prices and I hope you do as well.
Investing is a long term game. I’ll be up some months and down others. I’ve been really lucky to catch the ride up and the reality is that I’ll feel lucky to catch the ride down too if my horizon is longer than a few years from now and I retain my job in the next recession. It’s important to keep that perspective so that months like this one with rising rates don’t rattle you.
That’s it for this month. Please let me know how your portfolio did in October and if you see any values on the horizon.