Let’s start with the tools and a high level review of my portfolio.
Table of Contents:
My Investment Tools
Each month I use two tools to check everything from my asset allocation to investment fees. The tools are Personal Capital and Morningstar Monitor.
Personal Capital offers an easy way to monitor both your asset allocation and portfolio performance. Starting with the first, here’s my asset allocation according to Personal Capital:
My asset allocation is within my planned range, with roughly 25% in bonds and cash and 75% in equities. One interesting note is that my investments include 1% in cash. Mutual funds often hold some amount of cash to pay redeeming shareholders. The asset allocation tool at Personal Capital will show you just how much. A little cash is understandable, but we don’t invest our money in stock and bonds funds to have it sit in cash. As a result, you’ll want to keep an eye on this part of your allocation. If it gets much above 1 or 2%, you’ll want to understand which fund(s) is holding the cash and why.
In my case, most of it comes from more than half comes from the Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX). How do I know? In Personal Capital I just click on that asset class and it drills down to the specific funds that hold cash. Another reason I love Personal Capital.
Now to the performance of my portfolio. I look at performance in two ways: (1) my entire portfolio; and (2) the individual stocks that I own. What’s interesting is that my individual stocks have been beating the market this year, while my overall performance has lagged. That’s not entirely surprising in that my overall portfolio includes 25% in bonds. when the S&P 500 is up, you should expect such a portfolio to lag the market.
For the month of August 2014, my overall performance underperformed the market by over 1%:
My individual stocks on the other hand were up 4.91%, beating the market by nearly 1%. Year-to-date my individual stocks are also beating the market (12.5% vs. 9.74% as of 9/20/14).
With Morningstar you can drill down further into your portfolio. Here’s some of the great information you’ll get if you use Morningstar’s Portfolio Monitor:
Fees: My total weighted average expense across all my investments is 0.19%. It’s low because most of my funds are low cost index funds and because my individual stock investments have no expense ratio.
Total Return: Morningstar provides further detail about my returns.
You can see that data for my portfolio begins in January 2014, which is when I uploaded my portfolio into Morningstar. Interestingly the performance numbers are slightly different than what Personal Capital reports. Morningstar’s performance tracking is more accurate, but it also takes a lot more work to keep your portfolio updated.
Note too the “Total Return” and “Personal Return.” Total Return is your return assuming you held your existing portfolio throughout the time period under measurement. Personal Return takes into account your buying and selling. For me they are nearly identical as I rarely sell. The 1-year return numbers vary significantly, but that’s because my portfolio was entered into Morningstar eight months ago.
Reinvested Dividends: If you reinvest dividends and interest automatically, it’s easy to forget about them. That’s a fine approach. But I like to see how much is being reinvested each month. In August I had $572.81 reinvested.
Valuation Data: Finally, you can keep track of valuation metrics across your entire portfolio. The Portfolio Monitor shows you your P/E and P/B, as well as your ROA (Return on Assets) and ROE (Return on Equity). My portfolio’s forward P/E is 14.93 and and P/B is 1.73. These numbers reflect my focus on value investing.
Things I Learned This Month
With investing you never stop learning (or at least you shouldn’t). I’m no exception. Here are a few things I’m focusing on with my portfolio.
Asset Allocation with Individual Stocks
If you own individual stocks, how should you factor them into your overall asset allocation? This is question I’ve been asking myself for some time. Since all of my stock investments are large U.S. companies, I’ve simply included them in that asset class. The problem is that their value has grown so much that they now represent 100% of that asset class. I’m not comfortable with that.
My plan is to include them in the equity portion of my asset allocation, but not specifically U.S. large cap equities. The result will be “over weight” on U.S. large cap equities, but I’m fine with that. These stocks have less market risk than an S&P 500 index funds, but obviously more business risk. They also all have significant overseas operations, so the approach still gives me significant diversification.
Should my portfolio include commodities?
My current portfolio includes 5% commodities. While many “experts” recommend exposure to commodities, I think less and less of this strategy. While it does add diversification, it adds it with an asset class that has mediocre long term results. So I plan to remove them from my asset allocation and instead increase my exposure to emerging markets.
One mistake I made was holding commodities in a retirement account. Because commodities don’t earn interest or dividends (another reason I’m not a fan), there’s no reason to hold commodities in a tax-advantaged account. My investment in DBC should have been in a taxable account.
At the start of the year I invested $1,000 on both Lending Club and Prosper. So far the returns have been quite good, with over 6.6% from Lending club and 4% from Prosper. As I’ve warned in the past, p2p investing comes with significant risk. I mitigate those risks by focusing on high grade loans.
Grow Your Dough Update
I’ve been in a friendly competition this year with some other personal finance bloggers. We each invested $1,000 at the start of the year. I opened my brokerage account at OptionsXpress because of its $100 cash bonus (I don’t include the bonus in my returns). I then used them money to buy one share of Apple (pre split), one share of Tesla, and 8 shares of AT&T. The results have been excellent, with returns over 32% so far.
Here are the standings:
|Blogger||Return as of August 2014|
|Robert Berger (Dough Roller)||$1,326.68|
|Joe Saul-Sehy (Stacking Benjamins)||$1,153.27|
|Tom Drake (Canadian Personal Finance)||$1,149.02|
|Miranda Marquit (Planting Money Seeds)||$1,115.79|
|Larry Ludwig (Investor Junkie)||$1,110.69|
|John (Frugal Rules)||$1,089.33|
|LaTisha (Young Finances)||$1,089.17|
|Julie Raines (Working to Live Differently)||$1,049.59|
|Luke Landes (Consumerism Commentary)||$1,031,81|
|Paula Pant (Afford Anything)||$1,021.28|
|Dough Nordman (The Military Guide)||$1,018.92|
|Glen Craig (Free From Broke)||$985.32|
|Robert Farrington (The College Investor)||$962.42|