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I have to apologize slightly in advance for this week being a little heavy in “progress” posts, as it has has been my “catch up” week in evaluating my financial goals (published Monday), net worth progress (this post), and blogging/personal goals for 2012 (published Wednesday).
As I’ve mentioned before, the goal of this running net worth and asset allocation progress update series is twofold:
- 1) To share how I (as a fairly normal non-financial professional) approach various financial issues that come at me throughout life so that you can use my learnings to assist you in your financial decision making, and
- 2) To make me more accountable in sticking to my various financial goals that I set forth by periodically evaluating my status and making adjustments.
So, without further a due, let’s get started! As always, if you have any questions, please ask via email or commenting below!
Overall, the 1st half of 2012 has been going pretty well. I’ve been able to make a lot of progress towards my personal, professional, and financial goals (didn’t quite accomplish all of my blogging goals due to running short on time with my day job). And, while the market hasn’t been super-stellar, it has steadily increased a reasonable amount. So, I can’t complain too much.
With all of the up and down that has occurred, let’s take a look and see how it affected my net worth progress…shall we?
Liquid Net Worth Growth (not including condo nor blog/graduate fellowship unpaid income tax savings)
In October of 2011, I had to make a fairly significant change in how I calculate my net worth and asset allocation percentages each month. The change pertained to the cash I consistently save up throughout the year in a high interest online savings account (Dollar Savings Direct) in order to pre-pay self-employed or unpaid (from my graduate research fellowship) income tax to the government in the form of quarterly tax payments. What was happening was that the balance in this tax savings account (which was being counted in to the cash portion of my asset allocation) was becoming too large, and it started to skew my asset allocation calculations.
To remedy this, since October of 2011, I’ve started using a system of calculating my liquid net worth which includes all of my various equity and fixed income holdings but excludes 1) my equity and debt related to my condo and 2) the amount of savings I have accumulated so far during the year earmarked to pay the tax man. I’ve decided that doing the analysis in this fashion helps me remain more objective in making financial decisions without being influenced by assets that are needed for shorter-term living/tax expenses.
Keeping this important change in mind, let’s continue…
Overall Net Worth Growth
Important Note: In general, I operate on the belief that I shouldn’t compare, measure, and/or gauge my financial success based on the performance of any market index. In particular, this comparison should and is not used to make changes in my financial planning. Instead, as I mentioned above, I prefer to think of if I am/am not doing well by if I am meeting the specific financial goals I set out for myself. However, I still do think it is interesting to track how the market does, and for that reason, I include the S&P500 performance in my progress updates.
From 27-December-2011 (when the last portfolio update was computed – see link below for more information) to 11-June-2012, the S&P 500 index increased 3.45%. Not too bad I suppose!
My Personal Finance Journey – November-December 2011 Portfolio and Net Worth
During that time period (January-June 2012), my liquid net worth (excluding condo ownership and unpaid tax savings) increased 7.92%.
Overall, I am very satisfied with this result, as it reflects the hard work I have put forth so far this year towards my financial goal of maxing out my Roth IRA contributions ($5,000).
Condo Equity Growth
I now currently have 19.60% home ownership in my condo (up from 9.07% at the beginning of 2011), with this accounting for 28% of my real net worth (so net worth subtracting the condo loan – this is different from the net worth figure discussed above).
Permanent Portfolio Performance Update
In November 2011, I became fascinated/interested enough in Harry Browne’s Permanent Portfolio asset allocation strategy in order to give it a small trial run with my own money (less than 1% of my liquid net worth). As such, I’ve decided (for fun!) to start tracking the performance of my small ETF version of the Permanent Portfolio in order to compare it to how the market is doing.
While holding the Permanent Portfolio from 27-December-2011 to 11-June-2012, the Permanent Portfolio increased in value by 3.60%. During this same time period, the S&P 500 index increased by 3.45%. So, looks like it only performed slightly better during this time period.
We’ll continue to keep an eye on this portfolio in 2012 and beyond. Should be interesting to see what happens!
Update on Financial Goals for 2012
Overall, 2012 has been a good year so far. A big thanks to everyone’s help for keeping me motivated and accountable! Below is a short summary of some of the big progress I’ve made so far.
- I am well on my way to maxing out my Roth IRA for 2012, with over $4,000 contributed so far.
- Donated close to $1,500 on my own money to the Multiple Sclerosis Society. Raised ~$6000 towards my MS150 fundraising bike ride in early June.
- Saving money for and executing on my scheduled estimated quarterly tax payments.
Review of Current Asset Allocation (excludes condo and tax savings)
- Overall Fixed Income / Equity Allocation
- Currently, 29% of my net worth is invested in fixed income instruments (cash or bond funds), and 71% is invested in equity.
- This is 4% off from my targets for these categories of 25% (fixed income) and 75% (equity). So, while it is still within my +/- 5% allowable band limits, I will keep a close eye on this overall level in the coming months to increase the amount of equity holdings I have compared to fixed income to match my targets.
- Equity Allocation
- In the equity portion of my portfolio, 72% is invested in US Domestic Equities with the remaining 28% being held in international equities.
- This is almost perfectly aligned with my equity breakdown targets of 71% and 29%, respectively, for US Domestic and international holdings (only 1% off). No action needed at this time.
While the overall percentages for these categories look fairly good, a detailed look (table below) at the allocation breakdown reveals the real story and provides for better analysis of the current state.
Remember: in order to maximize the benefits of your asset allocation strategy, 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%) 9%
% non-inflat. Bond Funds (target 15%) 15%
% TIPS Bonds (target 5%) 5%
% International Equity (Target 11%) 9%
% International Emerging Markets (Target 11%) 10%
% Domestic Large Cap (Target 8%) 7%
% Domestic Small Cap (Target 8%) 9%
% Domestic Small Cap Value (Target 14%) 13%
% Domestic Large Cap Value (Target 13%) 12%
% REIT (target 10%) 10%
Analyzing my current asset allocation percentages, it appears that my current asset allocation is aligned with my target levels within the +/- 5% band limits. Because of this, no rebalancing action needs to be taken at this time. However, I will be keeping a close eye on the cash portion of my portfolio, since it is 4% above my target level.
My next moves for the July-August 2012 time frame will be to do the following:
- Contribute the remaining $800 to max out my Roth IRA contributions for 2012. Should be able to do that in July easily.
- Once I finish contributing to my IRA for 2012, my financial attention will then turn to the following question – Do I use my extra money to pre-pay large amounts on my condo home loan, OR start investing in my tax-deferred Individual 401(k) account?
- I still am not sure what is the best answer here. What are your thoughts?
- Use my 1% home value home maintenance fund to fix various small things that are broken around my condo after 2 years of use.
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These things include a closet door off the hinges, the light-switch in the bathroom not working all the time, and some pipes under the sink that need to be re-caulked. Once I get these things repaired, I will then need to replenish the depleted funds in the home maintenance account.
Wish List
- At some point, purchase the Vanguard Total Stock Mkt Idx (MUTF:VTSMX) to replace S&P 500 index fund, whenever more money is needed to increase my domestic large cap asset class holdings. This gives better, broader diversification to the US stock market.
How about you all? How did you progress with your net worth in January-June 2012? What are your thoughts about the strength of the market right now?
Do you think I should prioritize Individual 401(k) contributions ahead of pre-paying extra amounts of principal on my condo home loan for the rest of 2012 (see details listed above)?
Share your experiences by commenting below!
***Photo courtesy of http://www.flickr.com/photos/mplemmon/3203403862/lightbox/
