My Year-End Current Asset Allocation and Net Worth Growth – November-December, 2011

To remedy this, this month, I’ve started 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 accumulated so far 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.

1. If you have a business in its first year of profitability, be sure to pay the quarterly estimated taxes throughout the year. Do not wait until tax time to “settle up,” as this can incur penalties on the unpaid taxes. 
2. If you have multiple sources of income, make sure to take ALL of them in to account in figuring how much you need to have saved up for tax payments. 

Keeping this important change and lessons learned about estimated unpaid taxes in mind, let’s continue…

From 19-October-2011 (when the last portfolio update was published – see link below for more information) to 27-December-2011, the S&P 500 index . Overall, in 2011, the S&P 500 index increased 0.69%. Not bad, but not good either!

My Personal Finance Journey – July-October, 2011 Portfolio and Net Worth

During that time period (October-December 2011), my liquid net worth (excluding condo ownership and unpaid tax savings) increased 8.06%. As far as the 2011 year overall goes, my liquid net worth increased 8.94%. 

We’ll continue to keep an eye on this portfolio in 2012. Should be interesting to see what happens!

• Have contributed the maximum allowed by law for 2011 to my Vanguard Roth IRA ($5000).
• Have rebalanced my mutual fund portfolio to maintain my asset allocation target %’s (75% equity, 25% fixed income overall). 
• Have donated $1,300 to Multiple Sclerosis Foundation in 2011 (5% of income) and passed my target fundraising amount of $5000 for my MS 150 ride that took place June 11-12, 2011. I will most likely be shooting for raising $7500 for 2012. Rock n’ Roll!
• Saved 33% of self-employment income from my blog in order to pay taxes for the 2011 year.
• Have accumulated 1% of my condo value for home maintenance repair expenses that randomly pop up. I read a post a while back discussing that 1% is probably not the best ultimate goal to save for, but it is a start for me to feel pretty secure in being able to fix things that go awry. 

Review of Current Asset Allocation (excludes condo and tax savings)

• Overall Fixed Income / Equity Allocation
• Currently, 27% of my net worth is invested in fixed income instruments (cash or bond funds), and 73% is invested in equity.
• This is only 2% off from my targets for these categories of 25% (fixed income) and 75% (equity) and well within my +/- 5% allowable band limits. So, all looks good here!

• 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 perfectly aligned with my equity breakdown targets of 71% and 29%, respectively, for US Domestic and international holdings.

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%) 14%
% TIPS Bonds (target 5%) 4%
% International Equity (Target 11%) 9%
% International Emerging Markets (Target 11%) 11%
% Domestic Large Cap (Target 8%) 7%
% Domestic Small Cap (Target 8%) 9%
% Domestic Small Cap Value (Target 14%) 14%
% Domestic Large Cap Value (Target 13%) 13%
% REIT (target 10%) 9%

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.

Looking back at all of 2011, it appears that I only needed to rebalance one time during the entire year, despite the fact that I analyze my portfolio for if I need to rebalance once per month. This is a very good sign because it tells me that I am keeping a watchful eye on my portfolio without being overall active (which can trigger short term capital gains and/or trading commission fees if you’re not careful).


My next moves for the January-February 2012 time frame will be to do the following:

• First, I will need to review/update my life values, life dreams, and short/mid/long term financial goals for the 2012 year before knowing exactly how to take action during 2012. Keep an eye out for that post on the way soon!
• However, one decision I’ll be facing during the first few months of 2012 that I could use some input from you all on is the following: 
• Which account should I prioritize funds to first – my Roth IRA or the Individual 401(k) that I opened at the end of 2011? 
• Both accounts are located with Vanguard and have the same investing options available (same mutual funds offered). 
• However, if I make contributing to the Individual 401k (specifying the contributions as 2011 contributions) a higher priority, I could significantly reduce my tax liability for 2011. 
• If I put off contributing to the Roth IRA until after tax time, I’ll most likely still have time/funds to max out the account before tax time for 2012 rolls around. So, I’m thinking I should proceed first with the Individual 401k.
• What’s you all’s take on this? 

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.