Portfolio Performance February 2018

US and most world markets had a pretty strong rally after the 2016 election. From about April 2017 through January 2018 our assets (consolidated across all 8 portfolios) went from about $137k to a high of $165k prior to recent market turmoil, a gain of about 20% (we had some assets added and withdrawn across that time period which roughly netted out). This 20% or so gain is about the same as the SPY ETF ticker which matches the S&P 500.

In the last few days, we gave back about 40% or so of that gain… so we are up by about 12% since that April rally began. While recent events had some of the biggest drops in indexes like the Dow in “numeric” terms, in percentage terms the impacts were smaller.  We are around the 10% reduction mark which is typically called a “correction”.

These will be interesting times.  The market has come back from recent lows and there is much more volatility now.  We will need to watch and see what happens next.

Thoughts on Portfolio One

These portfolios started out as a long run risk taking vehicle that (hopefully) would grow and show the importance of investing. The average person has a net worth of zero (after you take into account debt on cars and mortgages) and has little cash in the bank. With these stock portfolios at least everyone has some core body of savings that they can use for investing or to purchase key capital goods (an initial house, a wedding ring). Now, for some of the participants, the portfolios have moved away from a long term risk vehicle to more of a generalized investment portfolio that should logically be slanted towards equities and higher risk since the participants are young but also has to take into account the possibility of a correction that could reduce equity values 25% – 50% for some extended period of time (years) like it did in 2008. You do not want to be in a position where you sell at a downturn and don’t stay in the market because you have to liquidate remaining stocks to cover necessary investments.

For some of the participants we needed to move out of individual stocks and into ETF’s because their professions make owning individual stocks more complicated. ETF’s, however, share the same mix of risk and return as underlying stocks and during the transition we’ve also shifted some of the money out of equity ETF’s and into CD’s and gold as a hedge and partial hedge.

Our current goal for portfolio one is to take some level of risk out of the portfolio and replace it with a combination of CD (get a return of about 1.5%), gold (generally holds more during a crash), or cash (if you need it in the next few months). Depending on the short term interest rate the brokerage account gives in the cash fund we may just choose to leave it in cash instead of CD’s.

Portfolio One is worth about $45k. We could take out $15k or so which would leave $30k in stocks. This is still a pretty high percent of stock for the market (about 70% equity).

Continue reading “Thoughts on Portfolio One”

The Impact of the Dollars’ Fall on Portfolios

A few years’ back the dollar fell significantly against other currencies around the world.  US citizens who don’t travel overseas may not have seen the impact, but the impact was real in terms of investors in that anyone holding overseas assets (Europe, Canada, Australia) saw a “double return” in that the investments themselves rose and the return after the currency surge was an even bigger boost.

Then the dollar rose against most other currencies, and there were discussions that the Dollar / Euro ratio would move towards 1/1.  In general, if anyone has a prediction about FX, treat it with more than a grain of salt, because the consensus is often very wrong.

ETF’s took notice of investors wanting to get the underlying return of foreign stocks without the impact of the US dollar vs their currency, and ETF’s like HEFA were created.  HEFA takes a non-US portfolio of large capitalization stocks from major markets around the world and hedges them against fluctuations in the US dollar.  While it isn’t a perfect mix (because the underlying weighting of stocks comprising each index are different), HEFA under-performed the Vanguard non-US stock  ETF VEU by a bit less than 10%.  This is what you’d expect because the dollar fell by about 10% when compared to a basket of major market currencies during the last 12 months.

In this case, buying HEFA hurt returns because the dollar fell against foreign currencies.  When the dollar falls, you are better off in foreign assets.  On the other hand, HEFA would have been a superior investment to VEU during all the times when the US dollar was strengthening.

Portfolio Review December 2017

For our portfolios I created a summary view in Google Sheets that updates automatically.  I also “save” performance every month or so (per above) so that you can see performance across time.  Note that this performance also includes additional investments and withdrawals so it isn’t “apples to  apples” but is still useful.  Generally we’ve gone up a lot in total since May along with the total market, and been pretty steady for the last couple of months.

Since moving portfolios to Google Sheets, I also centrally review “all stocks” and update yield (which cannot be determined via a Google Finance formula) manually.  At this time I also go through the stock news and review some of the stocks that may be performance outliers, as well as remove information on stocks that we no longer track (like TTM and SAVE).

Some of the stocks noted:

  • Dow Dupont (DWDP) – the merger has been completed.  The stock is likely to split into three separate companies.  I think we will sell now and take our gains and review the companies later that spin out.  This also saves us from having just a few fractional shares (Portfolio 3)
  • Juniper (JNPR) – there were rumors of a buyout for this network equipment maker.  This company is at risk of remaining independent due to the migration to the cloud.  It went up with the speculation (and back down when it didn’t occur).  Would like to get the sale premium or see it embedded in the stock price.  The problem is that if the sale doesn’t happen, the price usually goes back down (Portfolio 5D)
  • Siemens (SIEGY) – the European conglomerate has held up better than GE in the face of the power meltdown (companies are not buying turbines as often anymore they are moving to solar and wind).  They are likely to spin off their health care business in Europe.  May be a time to sell (Portfolios 3, 5D)

Buying CD’s Through a Brokerage Account

As part of my “basic investing plan“, this site describes how to buy CD’s through your brokerage account.

Buying CD’s through your brokerage is the same as buying them through your bank, except that you typically receive a much higher interest rate. When a bank sets up a CD or savings account and markets it to their existing customers, they typically pay their existing customers much lower than the highest rate available in the market.

Since CD’s are completely interchangeable, you can buy a CD from any bank. If the bank is taken over by the FDIC (Federal Deposit Insurance Corporation), you receive your money back plus accrued interest. During the last financial crisis many of my CD’s were redeemed by the FDIC in this manner.

You can select CD’s from the highest yielding bank. As long as the bank is insured by the FDIC and you are not past your insurance limit for that bank (typically $250k, although this can be higher if you look at joint minimums), you are completely insured by the Federal government and there is no risk of default as long as this program exists.

Here are the current yields for new issue CD’s. They will vary slightly but give a good idea of what you can receive over the next 5 years for no risk. New issues are bought at “par” or 100% of value.

CD yields

11/8/22 2.4% (5 years)

11/8/21 2.15% (4 years)

11/9/20 2% (3 years)

11/12/19 1.75% (2 years)

11/18 1.5% (1 year)

In these instances I am recommending “new issue” CD’s because if you buy an existing issue then it gets more complex. You will buy at some price other than 100% of par depending on interest rates and time outstanding and then you will potentially have gains or losses when or if you sell or hold to maturity. Since the differences are slight and the complexity is unneeded, I typically recommend buying new issues only.

If you need to sell the CD to raise cash for a purchase, you can sell them through the brokerage platform. You will receive a slightly higher or lower price depending on current interest rates vs. interest rates at the time you bought the CD. You will also receive a different amount based on accrued interest (because the purchaser will receive the payment, not you).

Stock Selections Completed, SNAP and the Summer Bull Market

We recently completed our stock buying for the fall of 2017.  We do the stock buying and matching in the fall so that beneficiaries can have the summer to make some money in order to do the match.

It is interesting that of the 6 stocks (and one ETF, IAU or gold) on the list, no one took Snapchat (SNAP).  This is interesting because while it is popular with many of the beneficiaries (they use it), they can segregate whether something is useful or whether it may be a good investment. I had Snapchat on the list because I felt that it had been beaten down by bad sentiment and poor results and because it was burning cash BUT that this also created the opportunity for a turn upward (may be at the bottom).  In the past I’ve been hesitant to put up stocks that are tied to products that the beneficiaries may use day to day because I didn’t want that to bias the selection process but it turns out I was wrong.

With Google Sheets it is much easier to track the portfolio real time.  I have a summary sheet set up like the picture in this post and I can just glance at it on my phone from the google sheets app.  I take snapshots of the values in each portfolio every month or so in order to see simple trends over time.

You can see our summer bull market in the results, although you need to mentally factor out the impact of $11,700 in contributions and $6000 in withdrawals across the period (net inflows of $5700).  Thus based on some simple math above, across the portfolio we saw an increase of $154,073 – $136,791 = $17,282 and then you take out the net inflows of $5700 to get a net increase of $11,582 divided by our base of $136,791 from about 6 months ago which is 8.4% and if you roughly double it (to get annual performance) you see annualized performance of roughly 17% in the portfolio during essentially the summer and most of the fall of 2017.

Stocks To Purchase By Account

Based on the situation in each account and the amount of cash available after contributions and sales each account has a number of different purchases to make:

Portfolio 1 – no purchases

Portfolio 2 – can invest $2500 in ETF’s (one of the current 4 in use) or the Gold ETF added.  Or leave it in cash

Portfolio 3 – 2 purchases

Portfolio 4M – 3 purchases

Portfolio 5D – 3 purchases

Portfolio 6 – 3 purchases

Portfolio 7G – 2 purchases

Portfolio 8K – 2 purchases