Archives for December 2014

I don’t always check my portfolio performance, but when I do, I do it at the end of the year. Here are the trailing 1-year returns for select asset classes as benchmarked by passive mutual funds and ETFs. Return data was taken from Morningstar after market close 12/29/14.

Stocks. The Total US Stock Market (VTI) went up nearly 15%, while the rest of the world’s markets (VXUS) dropped around 3%. Europe specifically struggled, and Emerging Markets (VWO) only eeked up 1.5% total return. US REITs (VNQ) went on a tear, up 32%.

Bonds. The Total US Bond Market (BND) went up ~6%, even though most market pundits thought rates would go up in 2013. Short-Term Treasuries (SHY) were mostly unchanged, while Long-Term Treasuries (TLT) shot up 27%. Inflation-linked TIPS (TIP) inched up 3%.

Gold (GLD) had its gyrations but ended the year with very little change, down ~3% over the past year.

In the end, nothing really went down that much and a few things did really well. It was another year where half of the predictions were wrong, and new predictions will no doubt sprout up soon. Business Insider has a hilarious post on completely meaningless market phrases that sound smart. On that note, my official position will be “cautiously optimistic” for 2015.

The overall asset allocation of my personal portfolio hasn’t changed much since my October 2014 update, but I’ll probably do a final update once the year is officially over. Some quick calculator work indicates the overall 2014 return to be roughly 7%.

Here is an interesting chart comparing the correlation of various asset classes to the S&P 500 over the last 5 years. Chart is from Richard Bernstein Advisors, found via The Reformed Broker.

A negative correlation between two asset classes means that they tend to move in opposite directions. While long-term US Treasury bonds have been the most strongly uncorrelated, it is also worth noting that intermediate-term US Treasuries (5-7 years) were nearly as uncorrelated. Of course, this is the past and correlations can and will change.

Still, this would seem like good news for people who hold a “total” bond fund like the Vanguard Total Bond Market Index Fund (VBMFX, BND) or iShares Barclays Aggregate Bond Fund (AGG) as these contain ~70% US government bonds and have an intermediate average maturity. You want your bonds to serve as a hedge against stock movements, and they did over the past 5 years while still maintaining positive returns (~4% annualized for AGG, ~15% annualized for S&P 500).

(Updated. Lending Club ended their first day of trading at $23.43 a share, up 57% from their IPO price. With roughly 361 million outstanding shares, LC is roughly a $8.5 billion dollar company! I have updated the post to include the rest of the IPO documents and process. I ended up selling my 100 shares for roughly a $800 gain during the first day of trading. Details and rationale below.)

LendingClub connects individual borrowers with individual lenders, and I’ve been writing about them since 2007. They successfully had their IPO on Thursday, December 11th, 2014 and they actually set aside a few shares for individual investors. Usually you’d either need serious cash or insider access. If you were an investor at LC by 9/30/14 you should have gotten an e-mail asking if you were interested.

I participated in this IPO for a few reasons:

• I’ve been a lender on LendingClub since 2007 and have been following their progress since.
• I have never participated in an IPO before, and am curious about the process.
• I view this investment as purely speculative. It is not an investment, it is a gamble!
• I can commit as little as $250 and up to about $5,000 (details below). I can choose a number that will keep my interest but it won’t break the bank either way.

I’ve documented the process below:

11/17/2014. I got an e-mail with the subject “Lending Club IPO – Directed Share Program (DSP)” telling me that I was eligible to participate and that I had to opt-in to sharing my information with Fidelity Investments. Here is a screenshot:

I clicked, and then was instructed to wait. (More below)

[Read more…]

Whenever Vanguard founder Jack Bogle speaks, I listen. He has spent more time thinking about how to help the average investor than I have been alive. I found this recent Bloomberg interview covered a lot of topics regarding portfolio construction. Here are my notes, I have paraphrased what is not in quotes:

• “The best thing you can do for yourself is to make your choice [of a long-term strategy], keep it simple and stick with it.”
• The traditional 60/40* balanced fund is still a fine, simple choice for a portfolio. He prefers that over a target-date fund. (*60% stocks, 40% bonds)
• For the stocks portion, a traditional total US stock market fund is fine. You can add a little international stock exposure, but you don’t need it. The long-term returns for foreign companies will likely be similar but with increased currency risk.
• For the bond portion, a traditional total bond fund is fine. Higher yield won’t come without higher risks.
• Even if valuations are currently high on a relative basis, you should take the long-term view and invest now.
• “Financial planners and advisers need to sell their value as keeping their clients from doing the wrong thing at the wrong time.” That is their value-add, and it can be significant.

Keep in mind these are Bogle’s opinions and not necessarily my own.