Portfolio Three Updated February 2020

Portfolio three is 12 1/2 years old.  The beneficiary contributed $6500 and the trustee $13,200 for a total of $19,700.  The current value is $26,940 for a gain of $7240 or 37% which is 4.4% / year adjusted for the timing of cash flows.  See details here or at the links section.

This portfolio sold off individual stocks in late 2019 and moved into ETF’s for career reasons.  The ETF’s have been doing well since their purchase in late 2019.

There will be taxes for this portfolio tied to the sales of the individual stocks sold as well as the usual dividends earned.  These will be pulled off the 1099 for year end.

Portfolio 3 Updated December 2019

Portfolio three is 12 years old.  The beneficiary contributed $6500 and the trustee $13,000 for a total of $19,500.  The current value is $25,768 for a gain of $6,168 or 31%, which is 3.8% / year when adjusted for the timing of cash flows.  See the details here or go to the link on the right.

This portfolio recently changed from a stock portfolio to an ETF portfolio, like Portfolio 2.  We sold off the stocks and purchased ETF’s, including 52% in equities,  10% in gold, 28% bonds, and 10% cash (currently yielding 1.7%).

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.

Portfolio Two Updated May 2019

Portfolio Two is almost 15 years old.  The beneficiary contributed $7500 and the trustee $15,200 for a total of $22,700.  The current value is $40,221 for a gain of $17,521 or 77%, which is 6.9% / year when adjusted for the timing of cash flows.  Go here or to the link on the right for details.

Portfolio two has switched to ETF’s which mostly track the US and world wide markets.  This portfolio also has $12,932 in cash, which is almost 1/3 of the portfolio.

For this portfolio, the NASDAQ biotech index (IBB) is on watch.

Portfolio Two Updated December, 2018

Portfolio Two is over 14 years old.  The beneficiary contributed $7500 and the trustee $15,200 for a total of $22,700.  The current value is $38,227 for a gain of $15,527 or 68%, which is 6.3% / year when adjusted for the timing of cash flows.  Go here or to the link on the right for details.

Portfolio two has switched to ETF’s which mostly track the US and world wide markets.  This portfolio also has $12,568 in cash, which is almost 1/3 of the portfolio.  The portfolio is doing OK in the current market downturn.

Portfolio Two Updated July, 2018

Portfolio two is almost 14 years old.  The beneficiary contributed $7000 and the trustee $14,200 for a total of $21,200.  The current balance is $39,012 for a gain of 84% or ~8% / year when adjusted for the timing of cash flows.  You can see the detail here or at the link on the bottom.

This portfolio is unique because it has moved to ETF’s and ~ 25% cash position.  The ETF’s have been doing well, with a large position in VTI (total US market) and a split between VEU (all world non US) and HEFA (all world non US hedged against the US dollar to get local market performance).  There also is a small biotech position (IBB) and gold ETF position (IAU).

When we moved to ETF’s from individual stocks in 2016, we also purchased a 2 year CD which paid 1.55% interest, because our money market fund was essentially offering “zero” interest on our money and we wanted to keep about $10,000 or so in cash and yet get some sort of return on the money.  This CD recently redeemed into cash in the account.  We could buy a new CD, but we are currently getting 1.85% return in our money market so we can just leave it there because the 2 and 3 year CD’s aren’t offering much more than that, and interest rates seem more likely to go up than down.  Thus we are planning (for now) to just leave cash in the money market instead of buying a CD because the incremental interest is negligible.

I want to have the beneficiary contribute now and have the trustee match, make our investments for summer 2018, have everything clear, then move the fund out of UTMA status and to the beneficiary (like we did with Portfolio One).  Then we can give the (technically former) trustee “agency” capabilities so that we can still take advantage of my free trades (which apply to the accounts that are under me or I have agency capabilities for).

 

Basic Investing Plan Updated June 2018

This is an update to my “basic investing plan” to take into account market shifts.  As always do your own research and make your own investing decisions.

This is a plan for a reasonably sophisticated investor; the goals include:

  • Diversity among investing classes
  • A few representative investment choices to allow for differing levels of risk
  • Aiming for very low costs
  • International options
  • Taking into account the impact of currency risk (rise and fall of the US dollar)

Fixed Income:

In my prior plan I recommended brokerage CD’s.  At the time (near zero interest rates), these were the only (almost) risk-less options to get a return above zero.  However, short term interest rates have shifted and it is now a viable option to leave money in money market accounts which should yield near 1.75%.  The current yield curve (as of June 2018) looks like this:

  • Base rate (no CD, leave in money market) – 1.75%
  • 1 year CD – 2.30%
  • 2 year CD – 2.80%
  • 3 year CD – 3.00%
  • 5 year CD – 3.30%
  • 10 year CD – 3.40%

ETF Options:

ETF’s are recommended due to their (generally) very low annual expenses and their tax efficiency (they do not generate gains unless you sell them).  The following ETF’s are good considerations for any portfolio:

Vanguard – Total US stock market (VTI)  – Provides exposure to all classes of US public stocks (over 3000 stocks).  They are “market weighted”, meaning that you are investing money based on the relative value of each stock.  This means that the top tech stocks (Apple, Microsoft, Alphabet (Google), Amazon and Facebook) comprise over 10% of the total investment (as of year end 2017).
VTI Top Ten

Vanguard – All-world except US stock market (VEU) – Provides exposure to all major non-US stock markets.  This index is also market weighted, and includes stocks from Europe, Asia (including China) and other major markets.

VEU_Top_Ten

iShares – Large and Mid-Capitalization Non-US stocks, Hedged vs. US Dollar (HEFA) – moves in the US dollar can significantly impact the return of foreign ETF’s like VEU, above.  For instance, if the dollar rises 20% against a basket of foreign currencies over a period of time (which has happened multiple times, along with reversals), this rise could completely wipe out the underlying return of these stocks.  Essentially the VEU international ETF above is maybe half a bet on the US dollar vs. a basket of foreign currencies, and a bet on the underlying performance of these foreign stocks.  If you want to get the “pure” return of these assets, HEFA should be seriously considered for your portfolio.  This ETF has slightly higher expenses than the other ETF’s listed above, but this is due to the added hedge costs, and is still a reasonably 0.7%.

iShares – Gold Trust (IAU) – tracks the short term price of gold.  Can be viewed as a hedge against market volatility and (potentially) likely to hold its value in a time of inflation or a debased US currency.  Does not offer a return in terms of dividends or stock returns.

Grayscale – Bitcoin Investment Trust (GBTC) – as of mid June 2018, this is the only ETF (like) way to participate in the crypto space directly.  It has a 2% annual expense ratio.  This product trades like an ETF and can be bought or sold easily on an exchange.  There are unique tax implications to owning this investment – here is the document that they provided with 2017 taxes.  Not recommended unless you want to deal with additional complexity.