Portfolio Three Updated February 2018, and It’s Tax Time

Portfolio three is 10 1/2 years old.  The beneficiary contributed $5500 and the trustee $11,000 for a total of $16,500.  The current value is $23,251 for a gain of $6751 or 41%, which is 5.6% / year when adjusted for the timing of cash flows. Click here for details or use the link on the right.

During 2017 there were no sales and there was dividends of approximately $322.  The portfolio is generally doing OK and has bounced back from the recent market activity.

Portfolio Two Updated February 2018, and It’s Tax Time

Portfolio Two is our second longest lived portfolio, at 13 1/2 years.  This portfolio is unique because the individual stocks have been sold off and replaced with ETF’s and a CD.  See the details here or at the link on the right.

The beneficiary has invested $7000 and the trustee $14,200 for a total of $21,200.  The current value is $38,428 for a gain of $17,228 or 81%, which is 7.7% a year when adjusted for the time value of cash flows.

Walking through the detailed transactions often helps you to find items you’ve overlook – we noted that the biotech ETF IBB had a stock split (3-1) in December 2017 so I have been understating the value of this portfolio by almost $2000 since that time on my consolidated view.

There were no stock sales last year so the only tax impacted item is dividends which were approximately $632 during 2017.

The portfolio is doing well.  It is interesting to see that the VEO ETF has returned 33% including dividends since we’ve owned it but the HEFA ETF has returned 19% including dividends… the difference is due to the 10% or so fall in the US dollar vs a basket of other world wide currencies.  HEFA is hedged so you get returns in original currencies while VEO also includes the net effect of the dollar on returns (which magnified returns in this case).


Portfolio One Updated February 2018 – And It’s Tax Time

Portfolio One is our longest lived portfolio, at over 16 1/2 years.  The Portfolio began right after 9/11.

The beneficiary has contributed $2000 (net of withdrawals) and the trustee has contributed $16,000 for a total of $18,000.  The current value of the portfolio is $43,441 for a gain of $25,441 or 141%, which is 7.2% / year adjusted for the time value of cash flows.

Portfolio One is the most advanced in that 1) I’ve transferred the account over to the beneficiary 2) I have switched to an “agent” mode where I can still make transactions like buys or sells (and this still benefits from my free commissions) 3) the beneficiary is starting to “draw down” some of the assets from the portfolio in order to fund purchases (capital assets and the like).

Go here for a summary of Portfolio One or click on the link on the right.

There were three sales last year (BOX, KO, TATA) and one purchase (NVDA).  Generally the portfolio has done well, although we (obviously) sold far too earlier on AMZN and MSFT.  The three sales had a net long term gain of $948, which will be subject to capital gain taxes.

It is important to recognize the positive impact of dividends on a portfolio like this – to date it has earned $6894 in dividends and $805 in 2017.  When you just look at stock prices against original purchase cost you miss the significant impact (over time) of dividends.  One of the major purposes of going through all this work on the portfolio is to align dividends with the stocks that drove the dividends, to see total returns.

The portfolio is generally doing OK; like everyone else we had a scare when the stocks went down in early 2018 but they’ve (mostly) come back since then.  In an earlier post we discussed moving some of the funds into cash / gold to reduce overall portfolio risk.  This is still being considered.

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)