My Current Asset Allocation and Net Worth Growth – July 2010

For me, July is a big month! It is my last month in the working world before going back to graduate school this coming fall. As such, I thought it would be fitting to include the cute school bus graphic above! Enjoy!

Let’s get started with the monthly review…

Net Worth Growth

From June 3rd (when the last portfolio update was published – see link below for more information) to July 12, the S&P 500 index went down 2%.

My Personal Finance Journey – June 2010 Portfolio and Net Worth

During that time period, my net worth increased 2.35%. While this is not stellar, it is beating the market!

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).
• Have accumulated 100% of my cash target to go towards my down payment for a condo purchase at the end of this month.
• Downpayment funds have been transferred from my online high yield savings account to my checking account.
• Am under contract for a condo to purchase this fall and am on track to close end of July, 2010.
• Have obtained title and condo insurance for my condo purchase.
• Found an attorney to assist with my condo settlement and title insurance processing.

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

• Overall Fixed Income / Equity Allocation
• Currently, 32% of my net worth is invested in fixed income instruments (cash or bond funds), and 68% 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 am purchasing at the end of this month.

• Equity Allocation
• In the equity portion of my portfolio, 71% is invested in US Domestic Equities with the remaining 29% being held in international equities. This is exactly in line with my equity breakdown targets of 71% and 29%, respectively, for US Domestic and international holdings.

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%) 17%
% non-inflat Bond Funds (target 15%) 15%
% TIPS Bonds (target 5%) 0%
% International Equity (Target 11%) 12%
% International Emerging Markets (Target 11%) 8%
% Domestic Large Cap (Target 8%) 16%
% Domestic Small Cap (Target 8%) 14%
% Domestic Small Cap Value (Target 14%) 7%
% Domestic Large Cap Value (Target 13%) 6%
% REIT (target 10%) 5%

• 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.
• TIPS Bonds –
• Since I have no extra cash right now (due to cash accumulation above), I cannot purchase this mutual fund due to Vanguard’s $3000 minimum purchase requirement.
• It is not available as an ETF with Vanguard either (I wish it was).
• 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.
• 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.
• Because I have 32% 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.
• In order to improve my situation, I exchanged all of my 401k’s domestic large cap funds in to an international index mutual fund. While this is not ideal, I would prefer to have additional funds invested more aggressively internationally than in an S&P500 fund.
• Domestic Small Cap, REIT, & Domestic Small Cap Value –
• No action can be taken at this time due to tax consequences and insufficient funds stemming from my impending condo purchase.
• 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.

My next moves for the July/August 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.
• Open up a Traditional IRA / Rollover IRA to convert from my current employer’s 401k.

Wish List

Note: 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.

• Purchase an inflation adjusted bond mutual fund (TIPS)
• Begin contributing to the large-cap value funds in my taxable Vanguard mutual fund account.
• 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.

How about you all? How did you fare in the month of June/July in the stock market?

How often do you all create financial goals and track them? Monthly? 2X per year? 1X per year?

My Personal Finance Journey
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