My Current Asset Allocation and Net Worth Growth – May 2010

From April 7th (when the last portfolio update was published – see link below for more information) to May 4th, the S&P 500 index went down 1.33%.

My Money Blog – April 2010 Portfolio and Net Worth

During that time period, my net worth increased 5.24%. 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
• Have accumulated 82% of the cash towards my down payment target for a condo purchase this fall

Currently, 31% of my net worth is invested in fixed income instruments (cash or bond funds), and 69% 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.

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.

% Cash (money market target 5%)      15%
% non-inflat Bond Funds (target 15%) 15%
% TIPS Bonds (target 5%)                  0%
% International Equity (Target 11%)    12%
% International Emerging Markets (Target 11%) 7%
% Domestic Large Cap (Target 8%)    20%
% Domestic Small Cap (Target 9%)     10%
% 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.

• 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 fund due to the fact that you have to have $3000 to purchase it with Vanguard.
• 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, no further action can be taken.
• Domestic Large Cap Value – Since this is held in a taxable account, I cannot sell my holdings to contribute funds to it. I will have to wait until new funds can be added to increase the allocation %.

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.

Towards the end of March, I began moving money from the S&P500 fund to a domestic small cap fund in my 401k. This progress can be seen by the fact that the domestic small cap funds now make up 10% of my net worth, up from 6% at the beginning of March. Since the proportion has now passed my domestic small cap allocation target of 9%, I will stop this transfer activity.

My next moves for the May/June time frame will be to do the following:

• 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. I have already accumulated approximately 82% of the cash I am targeting for my down payment.
• Get pre-approved for a home mortgage loan
• 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)
• 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.