The time has come for my monthly portfolio update. At the end of every month, I will update my portfolio and comment on any changes. I do that for accountability and also so you may glean some ideas on how I allocate my capital. You have the opportunity to learn from what I do well so you can do the same, as well as what I do poorly, so you will not have to repeat my mistakes.
Follow my real-time portfolio here. Below is a snapshot of my stocks and ETFs portfolio as of 8/31/18:
My transactions in August are as follows:
Purchases
This month is one of heavy turnover. I needed to get rid of high dividend yielders in favor of zero and low dividend stocks. The main reason is that I have more than enough dividends from my taxable account to support all my expenses and more taxable dividends will only hurt me in the form of higher taxes. A secondary reason is that growth stocks with zero or low dividend payout are better long-term plays, and will probably be hurt less as interest rates continue to go up.
I bought a lot of zero and low dividend stocks trading at reasonable valuations: BIDU, BABA, TCEHY, LC, BRK.B, BIIB, DLTR, WB, AN. The first three stocks go by the acronym BAT (Baidu, Alibaba, Tencent), which is basically the Chinese equivalent of FANG (Facebook, Amazon/Apple, Netflix/Nvidia, Google) stocks in the US, the hottest and most promising tech stocks. Like Buffett, I am slowing warming up to tech stocks, but not quite at the point of embracing the currently sky high valuations of FANG stocks yet. The BAT stocks, on the other hand, have come down a bit from their highs and are more reasonably valued to warrant my endorsement now.
I also added to OMC, CBOE and initiated new position in VSEC, as they traded near 52-week lows.
I also initiated two new buys this month: FZILX and FZROX, the world's first two zero expense ratio mutual funds. I believe this is a big win for investors now that fund fees have finally come down to zero. See my take on this here.
While I am a big fan of no fee investing, I cannot go all-in on these two funds for a couple reasons. One is that they track indices of stocks that pay dividends around 2% for US stocks and 3% for foreign stocks, which is too high. Another reason is more practical. I have too much unrealized gains and cannot realistically switch to these zero expense funds without creating a big tax bill.
The small transaction amount buys are part of my monthly investment plans and DRIPs.
Sales
I sold a total of $58k stocks this month, probably the most you'll see for a while. I hate turnover, but as mentioned above, this was necessary to limit my tax liabilities and provide for greater growth for a healthier portfolio in the future. The sales also realized net gains about $6k, not good. I should have enough capital loss carryover to neutralize this though, to avoid a tax hit for this year.
I'll probably hold off further turnover to avoid realizing any more significant capital gains for now, until the next bear market, where, if thing go as badly as Jim Rogers recently predicted, I might even be able to harvest a lot of capital losses by selling dividend stocks and buy zero dividend stocks at multi-year lows.
Overall my purchases this month are up 1.09%. My timing was suboptimal this month, but hopefully over time it will even out.
Bonds: Most of my bonds are in Groundfloor limited recourse obligations (LROs), which are senior secured balloon loans for house flippers. I receive low double digit returns on these loans, which is pretty good, considering that most of these loans have a short term of one year or less. Most of the cash inflow this month was from adding to this account. I still have a little over 1k in LendingClub loans, which I'm slowly winding down (no new investments and withdrawing any cash from interest and principal repayments). I also started an investment of $2,400 in Upstart unsecured P2P loans in July 2018. I also hold a trivial amount in bond ETFs as part of a robo portfolio experiment with WiseBanyan.
Stocks: This is the bulk of my net worth, held in taxable accounts to fund my early retirement. Some are held in brokerage accounts while others are in direct stock purchase plans (DSPPs).
Tax-deferred retirement account: This is my retirement account associated with my work, not to be touched till after age 59 1/2. Currently it is invested all in an index fund that tracks the EAFE. I could also have invested in US stock indices and bonds, but these latter options offer poor return prospects compared to foreign stocks at this point, so I decided to keep it simple and just do 100% in EAFE for overall diversification, given that foreign stocks tend to be less tax efficient to hold in taxable accounts. EAFE again underperformed US stocks this month.
Roth IRA: This is currently all invested in IJR to keep things simple. IJR has been on a roll recently. I wished only I invested more in it. IJR is probably the best investment with all the desired characteristics: diversified, small cap, growth, quality, low cost.
Home: Home value is from Zillow's Z-estimate, taken at the end of each month. Apparently my home value dropped another 2.92% this month, now dropping below my purchase price a few months ago. Unfortunately, my property tax assessors thinks my home is worth more than that, even after I appealed their initial (ridiculously high) assessment and they relented somewhat.
Gold: I currently have 10.77 troy oz of gold coins as part of my coin collection. Each month I multiply that by the spot gold price. I do not plan on adding to this any time soon, unless gold breaks below $800, then I will likely add some. If below $500, I will almost certainly add some. I do not plan on ever selling though.
Other non-current assets: None at the moment to be conservative. I could include assets like furniture, car, clothes, books, stamps, coins, etc. However, since these assets are not income-producing and can also be a liability as some of them require cash expenditure to replace them, I choose not to include them here.
Current liabilities: These are accounts I owe and due within 12 months. I took advantage of interest free loans from 0% APR promo credit card offers.
Student loan: This is loan I took out for college, now consolidated at a low 2.5% fixed interest rate. I had a variable interest rate until I consolidated my student loans last year and locked in a fixed 2.5% rate for 10 years in a graduated repayment plan. I am certainly in no hurry whatsoever to pay it back given such low interest rates. Stocks are expected to generate much higher returns. The extra leverage this affords helps to grow my money faster. My currently monthly payment is only $35.70, of which the cash (outflow) shown is applied toward principal which lowers the loan balance.
Other non-current liabilities: None at the moment.
Net worth: Overall, my net worth increased 1.79% to $1,414,183.67, due to net cash inflow (0.85%) and investment gain (0.94%). While I have now met my goal of $1,400,000 for 2018 set at the beginning of this year, the return is quite disappointing compared to the S&P500 this month.
Follow my real-time portfolio here. Below is a snapshot of my stocks and ETFs portfolio as of 8/31/18:
This month is one of heavy turnover. I needed to get rid of high dividend yielders in favor of zero and low dividend stocks. The main reason is that I have more than enough dividends from my taxable account to support all my expenses and more taxable dividends will only hurt me in the form of higher taxes. A secondary reason is that growth stocks with zero or low dividend payout are better long-term plays, and will probably be hurt less as interest rates continue to go up.
I bought a lot of zero and low dividend stocks trading at reasonable valuations: BIDU, BABA, TCEHY, LC, BRK.B, BIIB, DLTR, WB, AN. The first three stocks go by the acronym BAT (Baidu, Alibaba, Tencent), which is basically the Chinese equivalent of FANG (Facebook, Amazon/Apple, Netflix/Nvidia, Google) stocks in the US, the hottest and most promising tech stocks. Like Buffett, I am slowing warming up to tech stocks, but not quite at the point of embracing the currently sky high valuations of FANG stocks yet. The BAT stocks, on the other hand, have come down a bit from their highs and are more reasonably valued to warrant my endorsement now.
I also added to OMC, CBOE and initiated new position in VSEC, as they traded near 52-week lows.
I also initiated two new buys this month: FZILX and FZROX, the world's first two zero expense ratio mutual funds. I believe this is a big win for investors now that fund fees have finally come down to zero. See my take on this here.
While I am a big fan of no fee investing, I cannot go all-in on these two funds for a couple reasons. One is that they track indices of stocks that pay dividends around 2% for US stocks and 3% for foreign stocks, which is too high. Another reason is more practical. I have too much unrealized gains and cannot realistically switch to these zero expense funds without creating a big tax bill.
The small transaction amount buys are part of my monthly investment plans and DRIPs.
Sales
I sold a total of $58k stocks this month, probably the most you'll see for a while. I hate turnover, but as mentioned above, this was necessary to limit my tax liabilities and provide for greater growth for a healthier portfolio in the future. The sales also realized net gains about $6k, not good. I should have enough capital loss carryover to neutralize this though, to avoid a tax hit for this year.
I'll probably hold off further turnover to avoid realizing any more significant capital gains for now, until the next bear market, where, if thing go as badly as Jim Rogers recently predicted, I might even be able to harvest a lot of capital losses by selling dividend stocks and buy zero dividend stocks at multi-year lows.
Overall my purchases this month are up 1.09%. My timing was suboptimal this month, but hopefully over time it will even out.
Here is how my assets, liabilities, and net worth have changed over the past month:
Cash: Most of this sits in my savings and brokerage accounts, with a little bit in checking account just enough to pay the bills. My cash balance built up this month as I did not invest all my cash inflow as I anticipated. I need to continue buying stocks aggressively to reduce cash drag. Halving my current cash balance will still leave me with a comfortable cash cushion for emergencies.
Bonds: Most of my bonds are in Groundfloor limited recourse obligations (LROs), which are senior secured balloon loans for house flippers. I receive low double digit returns on these loans, which is pretty good, considering that most of these loans have a short term of one year or less. Most of the cash inflow this month was from adding to this account. I still have a little over 1k in LendingClub loans, which I'm slowly winding down (no new investments and withdrawing any cash from interest and principal repayments). I also started an investment of $2,400 in Upstart unsecured P2P loans in July 2018. I also hold a trivial amount in bond ETFs as part of a robo portfolio experiment with WiseBanyan.
Stocks: This is the bulk of my net worth, held in taxable accounts to fund my early retirement. Some are held in brokerage accounts while others are in direct stock purchase plans (DSPPs).
Tax-deferred retirement account: This is my retirement account associated with my work, not to be touched till after age 59 1/2. Currently it is invested all in an index fund that tracks the EAFE. I could also have invested in US stock indices and bonds, but these latter options offer poor return prospects compared to foreign stocks at this point, so I decided to keep it simple and just do 100% in EAFE for overall diversification, given that foreign stocks tend to be less tax efficient to hold in taxable accounts. EAFE again underperformed US stocks this month.
Roth IRA: This is currently all invested in IJR to keep things simple. IJR has been on a roll recently. I wished only I invested more in it. IJR is probably the best investment with all the desired characteristics: diversified, small cap, growth, quality, low cost.
Home: Home value is from Zillow's Z-estimate, taken at the end of each month. Apparently my home value dropped another 2.92% this month, now dropping below my purchase price a few months ago. Unfortunately, my property tax assessors thinks my home is worth more than that, even after I appealed their initial (ridiculously high) assessment and they relented somewhat.
Gold: I currently have 10.77 troy oz of gold coins as part of my coin collection. Each month I multiply that by the spot gold price. I do not plan on adding to this any time soon, unless gold breaks below $800, then I will likely add some. If below $500, I will almost certainly add some. I do not plan on ever selling though.
Other non-current assets: None at the moment to be conservative. I could include assets like furniture, car, clothes, books, stamps, coins, etc. However, since these assets are not income-producing and can also be a liability as some of them require cash expenditure to replace them, I choose not to include them here.
Current liabilities: These are accounts I owe and due within 12 months. I took advantage of interest free loans from 0% APR promo credit card offers.
Student loan: This is loan I took out for college, now consolidated at a low 2.5% fixed interest rate. I had a variable interest rate until I consolidated my student loans last year and locked in a fixed 2.5% rate for 10 years in a graduated repayment plan. I am certainly in no hurry whatsoever to pay it back given such low interest rates. Stocks are expected to generate much higher returns. The extra leverage this affords helps to grow my money faster. My currently monthly payment is only $35.70, of which the cash (outflow) shown is applied toward principal which lowers the loan balance.
Other non-current liabilities: None at the moment.
Net worth: Overall, my net worth increased 1.79% to $1,414,183.67, due to net cash inflow (0.85%) and investment gain (0.94%). While I have now met my goal of $1,400,000 for 2018 set at the beginning of this year, the return is quite disappointing compared to the S&P500 this month.
Below is a chart of my net worth since I started tracking on a monthly basis. Due to my aggressive stock allocation, my net worth has mostly mirrored the stock market, which has essentially been going up in a straight line, except for a sharp run-up in January this year, followed by a correction in February, then a gradual recovery starting in March. Right now, the decade-old bull market appears to have resumed its upward trajectory.
My monthly performance against the S&P 500 is shown below:
What a difference a month makes! This month was the worst relative performance so far this year, underperforming the market by a whopping 232 basis points. Last month I was winning, but this bad month has put me almost 200 basis points behind. Now my portfolio has to work much harder to play catch up. I have been hurt by the significant underformance of foreign stocks this month, which I'm hoping will make a comeback for the rest of the year.
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