Portfolio Two Updated January 2017 – Tax Time

Portfolio 2 is our second longest lived fund, at over 14 years.  This fund has transitioned from individual stocks to an ETF and CD mix.  The beneficiary contributed $7000 and the trustee $14,000 for a total of $21,000.  The current value is $32,151 for a gain of $11,151 at 53% or about 5.5% / year when adjusted for the timing of cash flows.  You can see the spreadsheet supporting this at the link on the right or download it here.

The fund contains 4 ETF’s and one CD.  The $10,000 CD earns 1.55% and will redeem in July, 2018.  This investment is essentially risk free (if the issuer goes under the FDIC will pay out the accrued interest and return the principal).

The largest ETF is VTI, which covers the US stock market on a capital weighted basis (that is to say that the largest market capitalization stocks comprise a larger portion of the index).  Since we have had a rally in Technology (prior to the election) and financials and commodities (mostly since the election), this ETF has done well.

There are two non-US ETF’s, the VEU (all world non-US, unhedged) and HEFA (major non-US markets, hedged against the dollar).  Surprisingly, these two funds mostly performed alike in terms of returns, even though the dollar rose during this period.  This is something I will investigate further in the future when I have some more time.

The fourth ETF is IBB, a NASDAQ bi0technology ETF.  This one was kind of a bet on future growth since it had been pummeled in the period before we purchased it.

In general, these ETF’s are low expense and overall the portfolio has a decent yield at 1.9% comprised of dividends and interest on the 1.55% CD.  This is a nice cash addition in an era of zero yields on short term cash and when even some large issuances have negative yields over a ten year span (in Europe).

I noted that the ETF HEFA (the hedged fund) had a small capital gain.  This is rare for ETF’s (they are common for mutual funds).  Since it is immaterial it is listed as a dividend on the report.

Due to the fact that these trust funds are “subsidiaries” of my account, typically they don’t pay any fees on transactions for individual stocks (essentially zero expenses every year).  Since ETF’s do have expenses, this portfolio will incur implicit expenses (they come out of the returns of the ETF’s so you don’t see them directly).  About $70 in implicit expenses hit the portfolio during 2016 (the CD is free of all expenses).

Portfolio Two Updated October, 2016

Portfolio 2 has a value of $31,055.The beneficiary contributed $7000 and the trustee $14,000 for a total of $21,000. This portfolio has a $10,000 CD to provide stable value and 2 core ETF’s. This year a biotech ETF was added, as well.


Portfolio Two Updated March 2016 – Tax Time

Portfolio Two is our second longest lived portfolio, at 11 1/2 years old.  The beneficiary contributed $6500 and the trustee $13,000 for a total of $19,500.  The current value is $27,814 for a gain of $8,314 or 43%, for a rate of return of 5.2% adjusted for the timing of cash flows.  You can see the detail here or on the link on the right side of the page.

Portfolio Two is now unlike all the other portfolios.  Our goal is to have about 1/3 of the value in interest rate products (CD’s), about 1/3 in US stocks (VTI) and 1/3 in international stocks (VEU and HEFA).  This portfolio will invest only in CD’s and ETF’s going forward.  This is similar to the “basic investing plan” listed on the site header.

In 2015 we sold all the individual stocks in the portfolio, for a net long term gain of approximately $7300.  In the past, figuring out the cost basis for your stocks was difficult but today the brokerage firm put the cost basis on each of the sales along with the trade date (to determine whether it is a short or long term trade) which makes it easy to calculate (if a little bit tedious, unless you can download your brokerage account directly to your tax software).  It depends on how it comes out but we are hoping that this goes under the tax rate at 15% or about $1100 but it will depend on the net calculation and other earnings of the beneficiary and the parent.

Transition for Portfolio Two

Portfolio Two is transitioning to ETF’s and CD’s.  This is aligned with the “basic plan” that I refer to here.  The portfolio has $28,781 (all in cash) as of December, 2015.

At a high level our investments will consist of:

  • $10,000 in the lowest risk interest rate products (Federally insured CD’s bought through a brokerage, go here if you want to learn more)
  • $9000 low-cost ETF tracking the US stock market
  • $4500 low-cost ETF tracking the non-US stock market, unhedged
  • $4500 low-cost ETF tracking the non-US stock market, hedged

CD Investment:

In the old days you used to need to call a broker to buy a CD or physically visit a bank.  Now you can buy CD’s online through your brokerage account.  To avoid more complicated tax issues with gains and losses I am sticking to “new issue” CD’s which are always issued at par (100 cents on the dollar).  When you are buying existing CD’s (the secondary market) they have gains or losses implied as they do not sell for 100 cents on the dollar and this causes additional tax issues that aren’t significant but I want to keep this simple and at this purchase level it is easier just to buy new issues.  For each CD there is a minimum bid quantity – for the highest yielding 2-3 year CD selected below, the minimum bid quantity is 10 at $1000 or $10,000.

Goldman Sachs bank USA CD 1.55% due 7/6/2018 paid out semi annual (audited by PWC).  Thus it is a CD that will pay back the $10,000 in 2 1/2 years from now.  Here is the link to a page that shows which external firm audits each entity.

The CD is semi-annual so it pays 1.55% * 10,000 / 2 = $78 every 6 months, or $155 / year.

There are no expenses (on buy, sell) and no fees with this holding.  By contrast a money market fund pays about 0.2% (or $20) after fees.

If we need cash we can sell this in the secondary market and there will be a small gain or loss depending on how interest rates have moved since the purchase date, and likely a bit of slippage in the buy / sell.  If for some reason the bank goes bankrupt (highly unlikely since this is Goldman Sachs) the government will pay back our $10,000 and accrued interest through the last date.  This did happen to me back in the 2008-9 time frame when a number of banks were taken over by FDIC as they became insolvent and deposits were guaranteed.


We will put half the remaining in US stocks and half in foreign stocks.  The US stock will be in the Vanguard ETF VTI.   Vanguard is audited by PWC.

VTI has a yield of 1.91% (dividends).  We will invest $9000 in this fund.  It has an expense ratio of 0.05%.

We will put half the remaining in an overseas stock fund.  We will put $4500 in VEU which is the Vanguard all-world index except the USA.  It is not hedged.  The yield is 2.96% and fees are 0.14%.

Will put the other $4500 remaining in a hedged overseas stock fund.  We will put put $4500 in HEFA which is an overseas ETF that is owned by Blackrock (iShares).  It has a yield of 2.35% and fees of 0.36%.

Blackjack (iShares) is audited by Deloitte and Touche.

Portfolio Two Updated October 2015

Portfolio Two is our second longest portfolio, at 11 years.  The beneficiary contributed $6000 and the trustee contributed $12,000 for a total of $18,000.  The current value is $28,334 for a gain of $10,334 or 57%, which works out to about 6.8% / year across the life of the portfolio.  You can download the detail here or utilize the links on the right side of the page.

This portfolio has been buoyed by two star performers, Amazon (AMZN) and Facebook (FB).  Both of those stocks have moved up substantially recently and account for half the total gain.

Poor performers are TransAlta (TAC), which was hammered by the drop in the Canadian dollar and the collapse of the commodity markets, and Wynn (WYNN) resorts which was hurt badly by changes in Chinese policy that limit gambling and especially “high roller” VIP gambling in Macau.

We will likely sell off all these stocks and move into cash and then ETF’s, likely following the approach listed in this post titled “Investing – Basic Plan” of low-cost ETF’s and CD’s purchased through a brokerage.  At approximately $28,000, the portfolio would likely be about $10,000 5 year CD (at around 2% / year) and $9,000 of VTI (Vanguard total stock market) and $9,000 of VEU (Vanguard total stock market ex-USA).  There would be about $6900 in net taxable gains that would need to be paid and the trustee / their parents need to decide who is going to pay this amount (if the rate was 15%, this would be about $1035 in taxes).  If the taxes were paid out of this distribution, then we would be re-investing just under $27,000.  This portfolio has unique reasons for doing the sell-off and re-investment into ETF’s that we don’t plan to repeat with other portfolios unless it is necessary.

Portfolio Two Updated March, 2015 – and It’s Tax Time

Portfolio 2 is our second longest portfolio, at 10 1/2 years. The beneficiary contributed $5500 and the trustee $11,000 for a total of $16,500. The current value is $24,497 for a gain of $9,397 or 57% or 7.4% across the life of the fund. Go here for details or download the spreadsheet from the link on the right.

During 2014 we sold 4 stocks; 2 are near their sales price, Urban Outfitters went up about 20% since then, and Yandex halved in price. So we are about even on that.

During 2014 the portfolio generated $449 in dividends; that’s a yield of about 1.9%. That’s pretty good when you consider that cash yields pretty much zero nowadays.

For stocks on watch – we still have TransAlta (Canadian utility) which has a high dividend and also some stocks that have had big gains, such as Toyota Motor and of course Facebook. Statoil and the 2 Canadian banks also have hit problems due to the commodity price crash (especially oil) and the rise of the US dollar which makes holding stocks denominated in Canadian dollars and Norwegian Kroner less valuable.

Performance Update for January, 2015

There has been a lot of activity in the markets.  I updated the google finance accounts where I track performance for the individual funds 1-6.  We set up stop losses and about half of them were triggered overall by the rout in the oil market and also the recent fall in Chinese stocks.  I created graphs of performance since last September (when I set up in google finance) marked against VTI which is a Vanguard ETF that mimics the US market performance and VEU which is a Vanguard ETF that mimics the non-US market performance.  Generally since our funds as a rule of thumb are about half US and half non US we’d be about in the middle.  But this is a rule of thumb and varies depending on the specific stocks and their unique performance in each portfolio.

Portfolio One

Portfolio 1

Portfolio Two

Portfolio 2

Portfolio Three

Portfolio 3

Portfolio Four

Portfolio 4M

Portfolio Five

Portfolio 5D

Portfolio Six

Portfolio 6