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 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.
- 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 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 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 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).
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 Two is our second longest lived portfolio. This portfolio has been converted to ETF’s and a CD. Beneficiary investment is $6500, trustee investment is $13,000 for a total of $19,500. Current value is $34,290 for a gain of $14,790 or 76%, which is 7.8% over the life of the fund annualized. Go here or to the link on the right for the portfolio detail.
This portfolio is different from the others in that there is a 1.55% CD for $10,000 and the rest are ETF’s. The largest ETF is VTI (US total index) with VEU (all world ex US) and HEFA (non US, hedged). We also have a small position in IBB for biotech. All seem to be doing well.
It is a symptom of ZIRP that our CD returns less than the US or European stock funds, which are around 2.5% / year.
Portfolio Two is 12 1/2 years old. The beneficiary contributed $6500 and the trustee $13,000 for a total of $19,500. The current value is $33,334 for a gain of $13,834 which is 71% or 7.4% / year when adjusted for the timing of cash flows. You can see the portfolio detail here or go to the links on the right.
This portfolio is different than the other portfolios because it has shifted to ETF’s and CD’s. The ETF’s are broadly tied to the US and non-US stock indexes. There is also a CD that returns 1.55% / year for $10,000 in the portfolio.
Since markets have gone up over the last year, this portfolio has done well (it tracks the market). All of the ETF’s are near 100% of their 52 week high, which means that they are at or near their highs and the indexes have been rising continually over this time period.
Unlike the other portfolios, which are invested in individual stocks, these ETF’s do have annual expenses. You can’t “see” the expenses because you receive the returns “net” of expenses, but this is disclosed. Over the 1 1/2 years that we’ve had this portfolio the low cost ETF’s cost $86, which is very low for a portfolio of over $30k. If you go back ten or fifteen years ago mutual funds would routinely cost 2% or more each year which would be $600 / year on a portfolio of this size. It is a testament to the efficiency of ETF’s (which drove competition in the mutual fund markets, mutual fund expenses have been driven down proportionally, as well) that these sorts of rock bottom expenses are now commonplace if you know where to look.
In a technical note, the CD does fluctuate in value (a bit), but I record it at cost ($10,000) since we intend to hold it to maturity. The cost fluctuations thus do not matter.
Finally, in another note, when I moved this portfolio over to Google Sheets, I noticed that I had been overstating the contributions in the “cash flows” calculation since 2012. Thus the recorded return since inception now looks higher. The value of the fund was always correct it was just the calculation of total gains to date that was incorrect.