My Current Asset Allocation and Net Worth Growth – August 2010

So, the past few weeks have been quite crazy. I have gotten all moved in to my new condo in Virginia, and will start graduate school on August 23. It is definitely fast approaching to say the least!

As is usually the case with buying a new home and moving, my finances have been all over the map towards the end of July. However, yesterday, I was finally able to sit down after the fires had died down and assess where I stood financially.

Let’s take a look….

Net Worth Growth (not including condo)

From July 14 (when the last portfolio update was published – see link below for more information) to August 11, the S&P 500 index went down 1%.

My Personal Finance Journey – July 2010 Portfolio and Net Worth

During that time period, my net worth (excluding condo ownership) decreased 4.31%. This decrease is due to the fact that I am not counting my home equity in my overall net worth / asset allocation calculations. The reasoning for this was discussed in a previous post at the following link – How Does Home Ownership Fit in to Your Overall Asset Allocation?.

Condo Equity Growth


Since I am not counting the home equity in my condo as part of my asset allocation, I need to add a new section to these monthly portfolio reviews to account for this important aspect.

Currently, I have 7.62% home ownership in my condo (up from 0% last month), with this accounting for 56% of my real net worth (so net worth subtracting the condo loan – this is different from the net worth above).

Update on Financial Goals for 2010

I have now achieved the following financial goals in 2010:

• Achieved my short term target net worth for this year.
• Contributed the maximum contribution level of $5000 allowed for my Roth IRA for the year 2010 (and 2009 as well).
• Eliminated all significant holdings in individual stocks from my portfolios.
• Eliminated the actively managed Vanguard Short-Term Investment-Grade Fund (MUTF: VFSTX) and replaced it with the following short-term bond index fund – Vanguard Short-Term Bond Index Fund (MUTF: VBISX).
• Successfully purchased a condominium to live in for graduate school. Yah!!!
• Initiated Rollover IRA to Vanguard from my Fidelity 401k from my previous employer.
• Purchasing a TIPS inflation protected mutual fund.

For a detailed list of my short term, mid term, and long term financial goals, click on the link below:

My Personal Finance Journey – Financial Goals

Review of Current Asset Allocation (excludes condo)

• Overall Fixed Income / Equity Allocation
• Currently, 24% of my net worth is invested in fixed income instruments (cash or bond funds), and 76% is invested in equity.
• This is almost perfectly aligned with my targets for these categories of 25% (fixed income) and 75% (equity).

• Equity Allocation
• In the equity portion of my portfolio, 64% is invested in US Domestic Equities with the remaining 36% being held in international equities. 
• This is significantly off from my equity breakdown targets of 71% and 29%, respectively, for US Domestic and international holdings, and will have to be corrected through rebalancing actions when I roll over my 401k holdings to a Vanguard IRA (more detail below).

While the overall percentages for these categories may not be 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%) 8%
% non-inflat Bond Funds (target 15%) 16%
% TIPS Bonds (target 5%) 0%
% International Equity (Target 11%) 19%
% International Emerging Markets (Target 11%) 9%
% Domestic Large Cap (Target 8%) 12%
% Domestic Small Cap (Target 8%) 16%
% Domestic Small Cap Value (Target 14%) 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. Fortunately, due to my current situation of rolling over my Fidelity 401k to a Vanguard IRA, I will be able to remedy most, if not all, of these discrepancies. Yah!!! Finally, the time has come!

• TIPS Bonds –
• During the roll-over to a Vanguard IRA, I selected to place the equivalent of 4% of my net worth in to the TIPS mutual fund. This will satisfy this category of my asset allocation.

• International Equity and Small Cap Equity –
• As you can see from the %’s above, I have 8% of my net worth too much invested in international and small cap equity funds.
• To remedy this, I will exchange 8% of my net worth out of these types of funds to the small cap value, large cap value, or REIT category. Problem solved!

• Small Cap Value and Large Cap Value Equity –
• I currently need 7% and 6% more worth of my net worth in large cap value and small cap value equity funds, respectively, to be aligned with my asset allocation targets.
• In order to gain this alignment, I simply instruct Vanguard to purchase this much of these respective mutual funds during the roll over. Easy as could be!

My next moves for the August/September 2010 time frame will be to do the following:

• Sign up for a biweekly home loan payment plan.
• Set up accounts for making home ownership automatic – automatic deductions for loan repayments, real estate taxes, maintenance reserve funds, insurance, etc.
• Begin to set up a will (since I don’t have one right now and it’s something that everyone needs if you have any kind of assets).

Wish List

• 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.
• Purchase more microloans in developing countries as part of my “making a difference” life value in my Purpose Focused Financial Plan.