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From May 4th (when the last portfolio update was published – see link below for more information) to June 3rd, the S&P 500 index went down 8.76%.
During that time period, my net worth decreased 3.51%. While this is not stellar, it is beating the market!
I have now achieved the following financial goals in 2010:
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Achieved my short term target net worth for this year
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Contributed the maximum contribution level of $5000 allowed for my Roth IRA for the year 2010 (and 2009 as well)
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Eliminated all significant holdings in individual stocks from my portfolios
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Have accumulated ~80% of the cash towards my down payment target for a condo purchase this fall.
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Am under contract with a condo to purchase this fall and am on track to close end of July, 2010.
For a detailed list of my short term, mid term, and long term financial goals, click on the link below:
My Money Blog – Financial Goals
Currently, 33% of my net worth is invested in fixed income instruments (cash or bond funds), and 67% is invested in equity. This is undoubtedly off of my targets of 25% and 75%, respectively, for these categories. The cash portion of my net worth has increased significantly since I am building up funds for a down payment for the condo I want to purchase this fall.
Furthermore, in the equity portion of my portfolio, 72% is in US Domestic Equities with the remaining 28% being held in international equities. This is just slightly off of my equity breakdown targets of 71% and 29%, respectively, for US Domestic and international holdings.
While the overall percentages for these categories are not ideal, a detailed look (table below) at the allocation breakdown reveals the real story and provides for better analysis of the current state.
Remember: a red flag goes off if your current % allocation in a category is greater than +/- 5% off of the target allocation. This is my trigger that I need to rebalance that aspect of my portfolio.
% Cash (money market target 5%) 16%
% non-inflat Bond Funds (target 15%) 17%
% TIPS Bonds (target 5%) 0%
% International Equity (Target 11%) 12%
% International Emerging Markets (Target 11%) 7%
% Domestic Large Cap (Target 8%) 19%
% Domestic Small Cap (Target 9%) 9%
% Domestic Small Cap Value (Target 13%) 8%
% Domestic Large Cap Value (Target 13%) 6%
% REIT (target 10%) 6%
The components of my portfolio highlighted in red above are outside of the 5% safety band, and therefore, need to be analyzed for reallocation. Unfortunately, due to my current situation of saving up money for a mortgage down payment, it may just not be possible to satisfy all requirements at this time.
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Cash – As I have mentioned several times, I expected that this would be high due to accumulating funds for a down payment. No action can be taken.
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TIPS Bonds – Since I have no extra cash right now (due to cash accumulation above), I cannot purchase this mutual fund due to the fact that you have to have $3000 to purchase it with Vanguard. It is not available as an ETF with Vanguard either (I wish it was).
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Domestic Large Cap – Unfortunately, this is being held in my 401k account, and therefore, has a greatly reduced selection of index funds from which to choose.
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Because of this, the only options available to me are to exchange funds from this mutual fund to 1) an international equity fund, 2) a small cap index fund, or 3) a bond fund.
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Because I have 33% of my net worth currently held in fixed income instruments (and the stock market currently is going down anyways), I want to work towards decreasing my exposure to bond funds slightly.
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In order to do this, I performed the following actions in my 401k account – 1) Changed my future investment selections to 100% of funds going towards purchasing the Small Cap index fund, 2) Exchanged $1500 from the bond fund to the small cap index fund, and 3) Exchanged $3000 from the S&P500 index fund to the small cap index fund.
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Domestic Large Cap Value – Since this is held in a taxable account, I cannot sell my holdings to exchange money to this mutual fund. I will have to wait until new funds can be added to increase the allocation %. However, I did add a large cap value ETF to my taxable Vanguard account that I can begin funding whenever I get additional money coming in. This is good news.
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In addition, since my Emerging Markets exposure is currently 7% (4% lower than the target 11%), I exchanged $1000 in my Roth IRA from International index mutual fund to the Emerging Markets index mutual fund.
Note: as mentioned before, I currently have a VERY large percentage of my portfolio in Domestic Large Cap stocks. This is due to the fact that I was contributing 100% of my 401k contributions purchase S&P500 index fund shares for 1.5 years.
My next moves for the June/July time frame will be to do the following:
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Since I am looking at buying a condo/townhouse in the summer/fall time frame, I will be trying to build up cash reserves in my high yield savings account for the down payment and closing costs. I have already accumulated approximately 80% of the cash I am targeting for my down payment.
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Obtain condo insurance – including flood, earthquake, dwelling, personal property, title, and liability insurance.
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Find an attorney to help in the closing/settlement process of buying my condo.
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Include my condo equity and debt in my net worth calculations.
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Sign up for a biweekly home loan payment plan
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Set up accounts for making home ownership automatic – automatic deductions for loan repayments, real estate taxes, maintenance reserve funds, insurance, etc.
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Increase my Small Cap Value allocation target to 14% (from 13%), and decrease my Small Cap allocation target to 8% (from 9%).
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I also just realized that the short term bond fund that I have been using for about a year with (Vanguard Short-Term Investment-Grade Fund – MUTF: VFSTX) Vanguard is in fact AN ACTIVELY MANAGED FUND. This is a big error on my part for not realizing this!
- Vanguard Short-Term Bond Index Fund (MUTF: VBISX) – To remedy the situation, I sold my holdings of the actively managed fund and moved them all to this indexed short-term bond fund also offered by Vanguard! Never let your guard down!
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Wish List (since most of my extra cash this month is being used to save for down payment, I will not have as much extra to play around with as normal – so these may or may not happen)
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Purchase an inflation adjusted bond mutual fund (TIPS)
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Begin contributing to the large-cap value funds in my taxable Vanguard mutual fund account.
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At some point, purchase the Vanguard Total Stock Mkt Idx (MUTF:VTSMX) to replace S&P 500 index fund. This gives better, broader diversification to the US stock market.
Keep on learning!
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