September 2007 Investment Portfolio Snapshot

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9/07 Portfolio Breakdown
Retirement Portfolio
Fund $ %
FSTMX – Fidelity Total Stock Market Index Fund $23,971 28%
VIVAX – Vanguard [Large-Cap] Value Index $14,273 16%
VISVX – V. Small-Cap Value Index $13,230 15%
VGSIX – V. REIT Index $8,100 9%
VTRIX – V. International Value $8,392 10%
VEIEX – V. Emerging Markets Stock Index $9,408 11%
VFICX – V. Int-Term Investment-Grade Bond $7,821 9%
BRSIX – Bridgeway Ultra-Small Market $2,015 2%
Cash none
Total $87,210
Fund Transactions Since Last Update
Bought $10,000 of FSTMX on 9/17/07 (240.327 shares)

Summary and Performance
This is my first update in almost 3 months (June update), as between the move and new jobs, there hasn’t been much activity to report. I finally managed to deposit some money and bought $10,000 more of a Total US Stock Market fund yesterday in a lump sum, despite some hesitation. It will be interesting to see what happens in the financial market today and the next few months.

I did manage to calculate my portfolio’s personal rate of return, which were 3.2% year-to-date, and 4.5% annualized for 2007. Positive returns came from the Emerging Markets and International stocks, while my REITs and US Small-Cap Value funds haven’t been doing so hot.

Why do I continue to neglecting my asset allocation? The reasons remain the same. The first part is that many of my intended moves might be considered performance-chasing, such as a desire for a larger international allocation and slightly more bonds. Sometimes it’s hard to tell if the change is actually warranted or if you’ve just been listening to too much CNBC or mainstream personal finance media. The second part is that I don’t want to be one that changes asset allocations every other week, so if I do change things I want to it with lots of research and justifications… and I’ve been a bit disinterested in reading about asset allocation recently.

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  1. While I do chasing lagging performance, we should all be chasing forward performance. Even Asset Allocation is about squeezing the best returns possible out of the portfolio. Though I agree it’s best to make moves only after a lot research has been done.

  2. I agree. I do wish more bloggers would include their IRR rate of return of their actual investment portfolios. I’d find that more interesting even than net worth updates. 🙂

  3. I computed my IRR by hand, and being a mathematician, I used continuous rates (it was before I realized I could do the calculation with a spreadsheet function). Annual rates are slightly higher than continuous rates. These returns are the computations I’ve done on my Roth IRA which contains the substantial portion of my retirement assets.

    These three years are rough estimates:
    Continuous rate of return for 1999: 6.10 per cent.
    Continuous rate of return for 2000: -19.56 per cent.
    Continuous rate of return for 2001: 8.45 per cent.

    Continuous rate of return for 2002: -8.00 per cent.
    Continuous rate of return for 2003: 17.78 per cent.
    Continuous rate of return for 2004: 9.60 per cent.
    Continuous rate of return for 2005: 6.23 per cent.
    Continuous rate of return for 2006: 11.40 per cent.

    5 year continuous rate of return: 8.46 per cent.
    Same return as annual rate: 8.83 per cent.

  4. Only because you asked (I was GONNA keep quiet; please note: I re-allocate no more than annually and re-balance no more than quarterly):

    Main Account (about 70% of total assets)
    August: -1.4%
    YTD: 11.5%
    Trailing 1-year: 21.8%

    This is exclusive of my wife’s portfolio (about 25% of total retirement assets), which is invested entirely in Vanguard’s Wellington Fund:
    August: 1.4%
    YTD: 6.6%
    T-12: 13.4%

    This is also exclusive of my current 401(k) (about 5% of total assets)
    August: -1.2%
    YTD: 6.5%
    T-12: 21.9%

    I consider my wife’s account the “core,” and all others to be “satellites”; that is, in a perversion of Modern Portfolio Theory, I combine the riskiest assets (with the lowest inter-correlations) I can find. As previously reported, my worst year was 2000, when performance was flat (something like 0.1% return).

    Unless you have a million bucks, I recommend just putting in Vanguard’s Wellington and forgetting about it.

    As an aside, I ran institutional money in a reasonably conservative and vanilla balanced-plus-marginal-risky-asset-allocation strategy for some local entities for years, and durned if I couldn’t beat that Wellington Fund! Set it and forget it.

    If that fund is too bland, do core+satellite, e.g., 75% Wellington and 5×5% in your fave five whack-o funds. That should keep you out of trouble.

    As for chasing forward performance: Japan and cash or cash equivalents continue to look pretty darn good… US, not so good…

  5. Hi Jonathon,

    I’ve been reading your blog for about a month now and really enjoy it. It’s making me want to start one of my own for the same purpose.

    I wanted to say that I would recommend looking for sectors that have underperformed lately and rotate into them.

    Also one Fund that I’ve been very interested in is the Hussman Strategic Growth Fund. Since it started in 2000 it is up 151% vs about 11% for the S&P, but in the last 3-4 years it has actually lagged the market, so I think its primed to do very well. The fund manager, John Hussman, uses hedges when he thinks that the market is overvalued, so the fund is well insulated from big drops. In fact its largest drawdown to date has been about 7%.

    Of course, do your own due diligence. His website is and he has a weekly column he writes about what he’s thinking that is very interesting.

  6. Don – Thanks for the numbers. Mind sharing your investment strategy style or asset allocation? I’m also an asset allocation junkie 😉 Adds some depth to those performance numbers.

    Bosh – Interesting numbers and thoughts! I hear lots of good stuff about Wellington. Is it still open? I wonder how big it is…

    Aurelien – Thanks for the kind words. I am aware of the Hussman Fund. I like the way he thinks, but as with all active funds, I just don’t trust any of them enough to maintain their integrity/focus/skill/voodoo for the next 40-60 years. I may consider some similar strategy for my “Explore” money…

  7. I am also a performance chaser. I never day trade, but I will tweak my portfolio as often as need to maximize my rate of return. My strategy is based on the premise that world markets as a whole generally move together. I simply place my assets at the leading edge of the upside. I’m currently up 19% for the year. I’m 60% invested in southeast Asia funds (FSEAX) and 20% invested in Latin America (FLATX). The remaining 20% is cash, awaiting the next opportunity.

    My next targets will be undervalued emerging markets such as S. Korea and Taiwan.

    I will gradually build a position soon in an SnP index fund to diversify.

  8. I ran this down about a year ago for someone who was interested. I was surprised to find I had less foreign exposure than I desired. I’ve since made some changes to it, but it should give a pretty good idea of the portfolio that generated the results you see above.

    10% stock (75% domestic / 25% international)
    10% socially responsible equities (0-15% foreign)
    60% socially responsible balanced (40% bonds and income / 60% stocks)
    5% foreign stock (EAFE index)
    10% real estate
    5% guaranteed annuity

    So I guess that comes to:
    61% stocks
    24% bonds and income investments
    10% real estate
    5% guaranteed

    with between 7.5% and 14.4% of my total portfolio in foreign stocks

    My average expense ratio is: 0.4405%

    One thing to note about the 10% real estate. That is actually the TIAA Real Estate annuity, a very good account and seemingly less risky than a lot of the other kinds of real estate investments I’ve come across.

    Recently I’ve been ditching my socially responsible equities and increasing my foreign exposure. I’m not sure social responsibility is as easy as a label might have you believe. Is Microsoft a socially responsible company? Is nuclear energy a socially responsible endeavor (maybe)? Is there really something evil about guns, or not?

    Cigarettes are evil. But I guess I’d still be willing to profit from them.

  9. In my opinion, entities interested in socially responsible investing are better off earning the highest returns possible and then putting those extra dollars to socially responsible use.

  10. Jonathan,

    The retirement portfolio you have, is it with multiple brokerages? IMO, your portfolio is too diversified. Two overlapping Mutual Funds from Fidelity and Vanguard really stick out. I’d put more money into those Vanguard funds..

    my retirement portfolio only consists 4 funds..

  11. Nice job on the timing the market with your lump sum 😉

  12. In terms of socially responsible investing, check out the terrific article in the most recent Atlantic Monthly. An interesting perspective.

  13. “Nice job on the timing the market with your lump sum ;)”

    Now, I wish I sold at the end of today. See, it’s a scary door to open. I’m sure the roller coaster ain’t over anyhow.

  14. My IRR:

    1996: 22.7%
    1997: 18.6%
    1998: 16.2%
    1999: 18.2%
    2000: -1.0%
    2001: -3.9%
    2002: -15.4%
    2003: 28.3%
    2004: 10.6%
    2005: 7.0%
    2006: 19.1%
    2007: 3.8%
    Overall: 9.9%

    1996-2005, my portfolio was random fund picks. No rhyme or reason other than picking a bunch of funds that had done well in the previous 5 years. Goes to show how just being in the market — even with poor fund picks — is the most important thing.

    2006, I made a switch to index funds with an asset allocation similar to yours but with more slice & dice. And only after a year, I’ve already reached the limits of being able to manage it. Selling off X in one account and buying it back in another to free up the optimal space for Y — my brain gets into total twisters thinking about all the permutations.

    So I’ve already decided to move to a simpler approach: hold more safe classes in order to concentrate risk in fewer equity classes. Just waiting for next year to spread out the capital gains taxes before the full switch. It’ll be about 2010 or 2011 before all the classes finish migrating to their final most tax-efficient account positions.

  15. I just started Atlantic’s “The Conscientious Investor” by…HENRY BLODGET… disgraced internet guru (politely described as “a former stock analyst.” Does NO ONE have a memory anymore?


    Rats–subscriber only. Will have to wait until I swing by the library.
    Never mind: g-d love g–gle: (figure out the other pages for yourself).

    Not impressed with Henry: he is a fairly good writer, intellectually facile, but seems to seek resurrection in a field in which he was, really, never very good (he should have stuck with journalism). His politics seem to get in the way (is he trying to “look good” as he praises Al Gore?).

    Sorry: I am a free-marketeer AND a traditional liberal/libertarian: ppl should be reasonably free to do what they will with their lives and bodies; jumping on the judgmental bandwagon (“ooh, look at me, *I* drive a Prius AND I am a Conscientious Investor”) is a bit too much self-back-pattery for me…

  16. MossySF – Thanks for the numbers. I think this is the order of many analytical people who discover Modern Portfolio Theory:

    1) Sell off their active funds and go passive.
    2) Maybe buy a Target Retirement fund.
    3) Devise a highly “optimized” slice-and-dice portfolio and implement it.
    4) Realize it’s too much trouble and that mean-variance optimization just isn’t an exact science.
    5) Pull back into something more simple, with maybe 6 asset classes.

    Or maybe it’s just me.

  17. I have six months before i collec social security(age 64) I have 73k in a trp account rollover split among several stocks. 90 k in a trp mutual fud account. (5k in the 2010 retirement fund, 20 k in the cap appreciation.)the rest in newa, and small cap value. looking for a less risk allocation to place the funds and secure income/ and some growth. will welcome all suggestions,

  18. sorry my keys were stuck. the 5 should be 55k, and new era is the mutual along with the mid cap value. total number is 164k. looking for growth /income. once again sorry for the spelling

  19. This is a great allocation – you have some of everything – even micro caps.

    I personally do not have any bonds and have a larger percentage in emerging/International. But that’s because I have a high risk tolerance and don’t need bonds until I reach my 40’s.

    It’s fabulous that you can dump extra money into your 401(k) as profit sharing. My husband is able to do that with his company also, but it has to be 22k (they mandate how much it has to be because he’s an owner, etc.). It helps us out a lot, since we each contribute the 15,500 in our regular 401(k)’s.

    Not many can do this, so I hope you continue to take advantage of this.

  20. anyone have thoughts on putting larger amounts into international funds – be they index or active manage?

    i read articles every day in the daily WSJ and some other publications stating anywhere from 30-50%.

    i only have 15-20% and am wondering if i wouldnt be chasing performance if i move money out of my sp500% into an international fund?


  21. IndyX,
    How about this one…I’m 100% invested in international funds…particularly in the emerging Asian funds. I plan on diversifying over time, but I’ve been enjoying spectacular returns for the last year or so…up nearly 50% so far. It is chasing performance I think…with some logic. Asia is where the world’s primary growth center will be..

  22. I get annoyed when the financial press divides the market into just “large” cap and “small” cap. Don’t forget the MID cap! They tend to get pull from either small cap (like the past few years) or large cap (like now). Check out VMVIX (or better, VIMSX).I prefer the Morningstar 9-box style grid (which Vanguard does allow you to match up to:

    Also, with that in mind, it is often good to get the “blend” fund/etf/stock in your investments (middle style box that is mix of value and growth characteristics). I see you have 31% in Value stocks which is currently lagging the mkt (though they were on a run for the prior 3-4 yrs). There is no growth in your mix other than what is part of the Total Stock Mkt (which is about 1/3 of that fund; so your value boxes outweigh your growth by some 4:1). I try to set up my investments to balance some in all 9 style boxes (though I’m favoring growth in general and the large caps these days with my new $$).

  23. I was curious why you are not using ETF’s? Also, do you not hold fixed income for some reason?

  24. US equity is < 40% currently of the global equity pool.
    Compared to most recommendations up to end of 2007,
    you’re overweight in US domestic.

    international real estate, and emerging market bonds
    are two asset classes you might want to think about.

    actually, us equity has fallen from 35% to 28% when
    I check the recent numbers. So, it might make sense
    to tilt towards domestic if you think there’s going to be
    a revert to the mean.

    check out

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