Portfolio One Updated December 2019

Portfolio One is over 18 years old.  The current value is $53,357.  The beneficiary contributed $3000 (net of withdrawals) and the trustee contributed $18,000 for a total of $21,000 and a gain of $32,357.  This is a return of 154%, or 7.2% / year adjusted for the timing of cash flows.  A summary is on the links to the right or here.

There are 17 stocks in the portfolio and generally doing well given that the markets have been going up in 2019.  Right now the portfolio is holding $10,179 in cash which currently yields about 1.7% in investment income, as well.

Consolidated Portfolio View, December 2019

Trust fund performance December 2019

We run eight portfolios that range in age from 4 to 18 years.  The portfolios are primarily invested in individual US and world-wide stocks, with approximately 17% of the $203,475 in cash / bonds.

The 8 portfolios combined have grown about 18% during the year 2019 (not including additional contributions).

This is a bit lower than the 29% return for VTI (a proxy for the US market) and 21% return for VEU (a proxy for the non-US market) weighted for cash (since we have 17% cash & bonds, we are only 83% in the market),  but reasonably competitive.  An average benchmark for us (split between US and non-US) and weighted for equity participation would be about 20%.

Don’t forget dividends… often when people look at market performance they focus on the share prices and not the total returns.  Our portfolio in total across all 8 beneficiaries returns about $4000 / year in dividend and interest income or a 2% yield.  While this seems small in a time of rising markets, dividends & interest are a substantial component of total market earnings over time.

These results have been satisfying but our eyes are substantially on the long term.  The markets have been moving up but they could turn and as such we will remain watchful.

Portfolio One Updated October, 2019

Portfolio One is our longest lived fund, at 18 years.  The beneficiary contributed $3000 (net of withdrawals) and the trustee $18,000 for a total of $21,000.  The current value is $50,749 for a gain of $29,749 or 146%, which is 6.8% / year adjusted for the timing of cash flows.  You can see a summary at the link on the right or here.

Right now the portfolio has 20% cash and 18 individual stocks, which are doing well.  To date, dividends have contributed $8,171 to our returns which is 27% of our total returns.  Often dividends are ignored when you just look at price trends but they are significant in the longer term.

ETF Portfolios and Fall 2019 Selections

We have two ETF portfolios because it is difficult for these beneficiaries to hold individual stocks because of their professions.  We moved Portfolio 2 to ETF’s several years ago and just sold the individual stocks in Portfolio 3 so that we can invest for Fall 2019 in “ETF mode”.

Portfolio two has the following ETF’s:

• VTI – the Vanguard all US market ETF
• VEU – the Vanguard all non-US market ETF
• HEFA – the “hedged” non-US market (so that it is not exposed to changes in currency rates)
• IAU – the ETF that tracks the price of gold
• Cash – the remaining dollars (40%) are in the Vanguard money market (VMMXX), which currently returns 2% / year

The decision for Fall 2019 is whether to keep this high cash allocation or to increase the allocation for equities.

Option One – keep current allocation

Option Two – add a bond ETF.  Bond ETF’s go up when interest rates go down (as they have been doing).  We could put $5000 in BND (Total bond market ETF)

Option Three – add $5000 to VWO which is the Emerging Markets ETF (broad) from Vanguard

Option Four – add an additional $5000 to VTI, which is the US stock market ETF

Options Two – Four can all be done since there is $17,367 in cash.

Portfolio Three:

Portfolio Three has $24,561 in cash.  We need to set up ETF’s for this portfolio and can broadly follow the same model as portfolio two.

Base model:

• VTI – US market -30% of investment
• VEU / HEFA – 15% each (non US markets, with half hedged) for a total of 30%
• IAU – optional, could be 10%
• Cash or BND – could be 30%

These percentages could be changed as needed.

Stock Selections for 2019

This year we will have two lists of stock selections.  The first list will be a small list of new selections for 2019, split between US and foreign companies.

The second list will have stocks that are from existing portfolios to choose from, splits between US and foreign companies, if the individual portfolio doesn’t already have these stocks (we want diversification until you get to 15 or so stocks).

New Selections for 2019 – US:

1. OTKA (OKTA) – OKTA is a software provider of access and authentication solutions for businesses.  OKTA pays no dividends.  It has been on a great run and is used by many major corporations.  It recently went down about 25% from all time highs which is a better price point to purchase.  A new competitor, PING, recently went public and saw its valuation go up, as well (OKTA’s market cap is about 10x bigger)
2. Abbvie (ABBV) – Abbvie is a pharmaceutical company with a high dividend of almost 6% whose stock price went down almost by half after a recent merger, although it recently recovered some of the loss.  This also may be a good price point to purchase the stock.
3. Starbucks (SBUX) – Starbucks is an iconic US brand.  The stock pays a modest dividend of 1.6%.  They are focused on profitable growth.

New Selections for 2019 – Non US

1. BHP (BHP) – BHP is an Australian natural resources (mining / commodities) giant with a high 5.2% dividend.  They are diversified and well run (some competitors like VALE have had significant challenges recently)
2.  Accenture (ACN) – Accenture is a world wide consulting and outsourcing company headquartered in the Bahamas with a modest 1.5% dividend.  About half their revenues are from North America.  They are well run and a leader in the consulting space

Stocks in US Portfolio to Consider (if not owned already):

• American Electric Power (AEP) – Utility with 2.8% dividend
• CME Group (CME) – futures exchange with combined dividends and special dividends more than 3% annually
• Facebook (FB) – software company with excellent stock performance even after all the publicity.  Paying a few billion for Instagram may be one of the best purchases ever
• Gold ETF (IAU) – gold does not pay a dividend but the price of gold has recently started rising with risk and high levels of debt behind major countries
• Coca Cola (KO) – Coke pays a 2.9% dividend and is well run and focused on profits
• Mastercard (MA) – Mastercard benefits from the rise in mobile payments and move away from checks and cash, and pays a very small 0.5% dividend
• Procter & Gamble (PG) – Procter and Gamble owns and manages many brands and has a solid 2.5% dividend
• PayPal (PYPL) – PayPal has done well since its split from EBAY (pays no dividend)

Non US Stocks in Portfolio to Consider (if not owned already):

• Alibaba (BABA) – Chinese ecommerce giant (no dividend)
• Taiwan Semiconductor (TSM) – Taiwanese chip builder with high 3.6% dividend
• Unilever (UL) – European company that owns and manages brands with a good 3% dividend

Stock Selections per Portfolio:

• Portfolio One – to discuss (significant amounts in cash)
• Portfolio Two – ETF’s and cash, to discuss (40% cash now)
• Portfolio Three – will move away from stocks and into ETF’s.  Will discuss between VTI (US), VEU (Non US), HEFA (Non US hedged), cash, and IAU (Gold)
• Portfolio Four M – 3 stocks
• Portfolio Five D – 4 stocks
• Portfolio Six – 3 stocks
• Portfolio Seven G – 2 stocks
• Portfolio Eight K – 2 stocks

September 2019 Overview

We are about to select stocks for 2019.  I just took a bit to update the portfolios that we keep in a consolidated Google Sheets document with the latest stock sales and cash updates and tied them out to the brokerage statements.

2018-9 have been choppy years with ups and downs (up about 15% for US markets over the last 18 months or so), but we’ve generally done OK as you can see below (I will calculate performance for each portfolio adjusting for the timing of cash flows after purchasing the 2019 stocks).

These numbers also reflect the $10,500 in contributions that we just made (7 beneficiaries contributed $500 each and the trustee $1000 each for a total of $10,500 – with one more to go).

Capital Gains

Under certain circumstances we need to sell individual stocks and move into ETF’s.  If you are at an accounting or auditing firm, they often make you sell stocks of companies that they are auditing and generally ask a lot of questions if you say that you have stocks at all.  Thus it is easier to sell them and go with ETF’s during that period.

When you sell stocks, you typically have to pay tax on your gains.  Long term gains / losses are for stocks that are held > 1 year and short term gains / losses are for stocks that are held less than < 1.

After the 2017 tax changes, there is very favorable treatment for capital gains when you have a low income.  If you have less than $39,375 in income, you have a long-term capital gains tax rate of zero (short term gains and losses are taxed at a different rate, closer to “ordinary income”).

We have these portfolios starting while the beneficiary is in jr. high onward.  Thus we have an opportunity to sell off the stocks with no capital gain taxes paid, which essentially “re-sets” the basis on the amounts invested.  This is very valuable.  The portfolio in question has over $4400 in gains and would have owed perhaps $1000 in taxes under previous methods; instead, the tax bill is zero.