September 2008 Investment Portfolio Update

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Given recent events, I suppose I should take a look at how my investments are doing. I am also planning to make some large-ish 401k contributions and need to figure out which asset classes to buy in order to rebalance my portfolio.

9/08 Portfolio Breakdown
Retirement Portfolio Actual Target
Asset Class / Fund % %
Broad US Stock Market 38.8% 34%
VTSMX – Vanguard Total Stock Market Index Fund
DISFX – Diversified Stock Index Institutional Fund*
DODGX – Dodge & Cox Stock Fund*
US Small-Cap Value 9% 8.5%
VISVX – Vanguard Small Cap Value Index Fund
Real Estate (REITs) 8.4% 8.5%
VGSIX – Vanguard REIT Index Fund
Broad International Developed 21% 25.5%
FSIIX – Fidelity Spartan International Index Fund*
VDMIX – Vanguard Developed Markets Index Fund
International Emerging Markets 6.5% 8.5%
VEIEX – Vanguard Emerging Markets Stock Index Fund
Bonds – Short-Term 9% 7.5%
VFISX – Vanguard Short-Term Treasury Fund
Bonds – Inflation-Indexed 8% 8.5%
VIPSX – Vanguard Inflation-Protected Securities Fund
Total Portfolio Value $105,654

* denotes 401(k) holding given limited investment options

Contribution Details
Throughout 2008, my wife has been making regular salary deferrals to her 401k, and has recently reached the annual $15,500 limit. I plan to start contributing to my Self-Employed 401k plan shortly.

YTD Performance
The 2008 year-to-date time-weighted performance of my personal portfolio is -27.9% as of 9/18/08. In fact, despite sizable additional contributions, my portfolio is down over $10,000 since my last update in April. Today might have been a bad day to run these numbers… 🙂

Although not necessarily a benchmark, the Vanguard S&P 500 Fund has returned -20.07% YTD, their FTSE All World Ex-US fund has returned –29.74% YTD, and their Total Bond Index fund is up 2.71% YTD as of 9/18/08. (My emerging markets fund is down nearly 40%!)

Rebalancing Details
First of all, I am not changing my asset allocation or moving into safer investments. In fact, I am doing the exact opposite and buying what has been dropping the most…

I am still following the general asset allocation plan outlined here, with a 85% stocks/15% bonds split [115-Age]. Here is an example of how we implemented the asset allocation across multiple accounts, although I’ve since moved some funds around.

So, it looks like I need to buy more Emerging Market and Broad International. I am now a bit overweight in Bonds and Broad US, so I need to sell those. Due to the limited index fund choices in my Fidelity Solo 401k account, I may start buying ETFs if I can justify the $10.95 commissions.

You can view all my previous portfolio snapshots here.

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  1. just a fyi, I thought the contrib limit for 2008 was $15,500 and not $15000. so your wife can contribute an additional $500…also, this sucks but I’m glad to see that I’m not the only portfolio down by double digits….!!

  2. Good catch, I meant $15,500.

  3. If your wife’s employer matches 401k contributions up to a certain percentage each pay period, it would be better to lower her contribution percentage so it is evenly spread out over the entire year. This will maximize the employer match. You don’t want to leave free money on the table!

  4. Just noticed my emerging markets was down over 40%. Time to buy more! My small cap is the most overweighted, so I will hold off on purchasing any more of that.

  5. Good post. I am glad that you are not in the panic mode and are planning to buy now that stocks are on sale!

  6. Down 27.9% since April. That is not so good. You should consider investing in Gold and Silver as inflation is just getting started.

  7. Stocks on sale… great way to look at it.
    Looks like the sale continues today.
    This reminds me that I need to chew over my splits and make a few decisions… just paid off a vehicle last month, and as I pile up the money I “borrowed” from myself, its time I stop hoarding it all in my e*trade checking account and start putting it to work.

  8. buy_and_hold says

    Bravo. I am going to stay put too. My resolve is tested but then I re-read your blogs and Four Pillars of Investing to keep me going. Jonathan I know you are not into market predictions and such but would you mind talking a bit on Lost Decade and if it were to happen to US equity market should one reduce the exposure to US equities. The reason I am drawing the parallel is because lost decade started with the exact same scenarios, real estate price collapse, bad debt, more write offs and subsequent credit market freeze. Japanese domestic equity market adjusted for inflation was almost flat for more than a decade.

  9. It’s times like these I’m thankful for automatic contributions to my 401K and roth IRA every two weeks with automatic rebalancing set up.

    Bringing human uncertainty into the situation doesn’t help me.

  10. Hey Jonathon,

    Couple thoughts:

    1. I would recommend putting at least a small percentage of your assets in precious metals. Nothing crazy or anything, but 5% or so in physical silver and gold coins could be a nice hedge to your already large portfolio. I wouldn’t buy them all at once though, especially not now since its hard to find any coins.

    2. Take a serious look at putting some money into the Hussman Strategic Growth Fund (HSGFX). I think I may have mentioned it already to you in a comment a few months back. Since I got in it in April, its up about 7.5%. Unlike most funds that are up this year, this one isn’t a short fund, it simply hedges when the manager’s indicators tell him that the market is likely overpriced.

  11. Have you thought about allocating in ETF short fund?

  12. Sure, Curt, one might benefit by having a bit of silver and/or
    gold, but making it a major part of your portfolio? No, I don’t
    think so. No one knows the future, of course, but gold and
    silver pay no dividends, have to be stored, and are of questionable
    value in a ‘Mad Max’ world. (You think maybe the cycle gangs
    won’t try to steal your Krugerrands?) 😀
    Take a deep breath and buy more stocks, I agree….buy low,
    sell high, hard as it is…..

  13. Steve – Another good point, but unfortunately no match for us. 🙁

    Other asset classes – The only asset class I am considering adding is a commodities fund (~5%). It is more appealing now as they have cooled off a lot, with oil prices under $100/gal.

    Gold/silver? I don’t like them long-term. Rather have commodities as potential inflation hedge / portfolio diversifier.

    In Armageddon scenario, I say that guns, food, fuel, and human capital (friends/family) would be more useful than gold.

    Short fund? Definitely not long-term. 😉

    Hussman has made some good calls and seems like a well-reasoned fellow, but can he keep it up? Many others, like Bill Miller, haven’t. Not willing to bet on that, the odds just aren’t in his favor.

  14. Changed the portfolio chart to show both actual and target asset allocation percentages, for clarity.

  15. If you are interested in gold you can also buy the gold coin i.e. double eagle gold coin on ebay. Sometimes they can be had at slightly below par value (especially with the current microsoft live search discount)

    I like to hold on to the actual gold instead of the gold ETF.

  16. The thing I like about the Hussman Fund is that while it has handily outperformed the market since its inception in 2000, it actually did alot worse then the market from 2004-2007. While the market averaged about 10-15% a year, the fund was only up about 3-5%/ year.
    To me this was perfect because it showed that Hussman stuck to his philosophy, even when it wasn;t doing as well.

  17. Can you get the same type of asset allocation using lifecyle funds like the TIAA-CREF 2040 Lifecyle ? Is it fool hardy to invest solely in one lifecycle fund or to try it on your own and create your own set of different funds ? I have been making 100% of my contributions into the TIAA-CREF 2040 lifecycle fund.

  18. You may consider opening up a PMA account at Wells Fargo, which requires you to have at least 25k of total assets with them. You get 100 free trades a year, with which you can reallocate your assets using the less expensive ETFs.

    I don’t work for them.. just a satisfied customer.

  19. love your blog; agree you should not change anything at the moment but suggest you look into munis, which I perceive as a highly attractive and have been the main staple of my portfolio since the 1999 market rebound post Russia-crisis

  20. I’ve given up on bond funds. They’re not the same as buying corporate bonds or actual treasuries. My company’s 401k bond fund is a total sham. Unless your fund is providing more than 4.00% you may be better off just tossing a non-competitive bid for an old fashion 30 year T-bond at the next auction. Also, with today’s environment many AAA corporate bonds right now are paying a pretty nice coupon.

  21. Why would you make a huge investment into the 401K now? Isn’t it better to dollar cost average consideration current market conditions? Just looking out for you, and everyone else out there!

  22. I am actually reducing my 401K contributions! If the market is going down further 401K investing is not a good idea, despite tax and compounding benefits. Money market funds or just plain ol’ cash are a better idea right now!

  23. The benefits of contributing to the solo 401k are the tax deferrals. You DON’t have to put your money in a stock, bond, etc. .. you can have it sit in there money market default at your brokerage. By contributing 15,500 in 2008, you get quite the tax savings… So it is generally better to make the contributions if you need the deductions…

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