Man, you wanna talk about a post that is overdue!
So how did I do in 2007?
In a word - crappy.
So let's take a look at where I am now. Most of this is relevant because I added some of these positions, or wrote off others, in the waning days of 2007. Until the recent re-balancing, nothing much had moved in my portfolio in a while.
The first major change is that I took on some debt. Technically, its not mine, I am just the co-signer. However, it would be a bit dishonest to leave it off entirely, since in the worst case scenario, I am responsible for paying back $35,000 USD in debt being used to fund a friend's college education. Its a real leap of faith, and I know all the arguments against co-signing on any one's behalf. I've watched my father perform many acts of financial bravery (stupidity?) helping out various siblings over the course of my lifetime. However, this person was in a very tight squeeze with no other options, and I decided to step up and lend my credit to their situation. Hopefully, I won't get screwed. Either way, $35,000 is a significant hit to a low six figure net worth, so as you can imagine, I am now back under $100,000 in net worth. That is counting the nearly $11,000 that is yet unspent, and hopefully will remain that way. In a pinch, being able to pay that back immediately will be useful. Now I need to find a good high yield savings account for that money. The FOMC cuts have seriously put a damper on my savings yield.
:(
On the plus side, I should be able to eliminate the vast majority of my almost $12,000 in credit card debt in a few weeks. Its about that time for 2007's bonus to be paid, and since I don't yet have that new job I've been searching for, I'll be collecting from my current employer. That will be a significant boost to the net worth position. Most of that debt was incurred on a spending spree starting back in October 2006, and most of it was spent trying to cheer myself up from the rather disgustingly painful year of 2007. While some of that spending did lead to some decent memories, as is the case for most shopping-as-therapy, there is nothing substantial to show for it. Some of it also represents other investments, such as Gold level membership in the DC Real Estate Investors Association (DC REIA) and payment for credit management services from Success Credit Services. So not all of it represents feckless, reckless spending, just *most* of it. There won't be any more of that in 2008. (And since I have (had?) a legitimate interest in a real estate investment company, both of those will be deductible, un-reimbursed expenses for 2007!)
Obviously, with the market turmoil of the past few weeks, my 401(k)'s have taken it in the ass. We're not talking about balls deep, like the Nasdaq plunge of 2000 - 2002 (78%), but the head is securely in. The flip side is that this same turmoil made for some great entry points (no pun intended) for the closed end municipal bond fund, emerging market bond fund and emerging market equities fund that I picked up last week. I'm a bit overweight in all 3 categories now, but I will just bulk up in other asset classes over the coming weeks and months to re-establish balance. I still have a hole in the international fixed income allocation, but I think my next target is commodities. I am severely underweight my target exposure to commodities. I plan to get some metals and agricultural exposure. I think I'm a bit light on cash as well after the most recent purchases, so I'll work that back up. Thankfully, my emergency fund has been rebuilding all along - slowly.
I'm still overweight Japan. I know you're probably wondering "Why Japan of all places?" but I think there are some good value opportunities in Japan. Nothing is guaranteed, of course, and it could end up becoming (being?) a value trap. However, we're looking long term here, and I am clipping a small coupon along the way. Value investing + dividend investing = better downside protection + increased total return. This weighting will re-balance as I direct funds into other assets over time. Of course, my 401(k) contributions do a lot of the heavy lifting in this arena automatically.
My CD ladder is still chugging along at sucky rates of return. 1 more rung expires in a few weeks, and that money will either get directed toward some commodity investments or paying down the remainder of the credit card balance. Most likely, the latter.
I've turned down the contribution rate on the 401(k) to 10% from maxed out so I that have a bit more funds available to handle this debt, and eventually, possibly move out of my current apartment. I'm not sure how that will work out quite yet, but if I do move out, then I want to be able to get a new apartment for myself (alone) while (somehow) handling my responsibility to cover the expenses of this current apartment. This stems from some of those same personal issues from last year. That one is still up in the air, so I won't get into too much detail as yet. Hopefully, it won't come to that since it will have dramatic impact on my savings rate until September. That would be most unfortunate given my aggressive savings goals for this year. I'm not sure about subletting, but it is an option I could and should discuss with my roommate if things come to that.
Update: As of right now, moving out appears highly unlikely. I've got a nice Mexican standoff with my roommate.
Overall, we're copacetic. While this new debt is a bitch, most other things are in good order and silently plugging away. The high yield savings account will get a reprieve, as I expect to tap it less for emergency funds. I won't be taking any trips anytime soon; I don't think I've scheduled to take any this year. The 401(k), while not building as aggressively, will still be putting away a significant percentage of my pre-tax earnings. I'll re-balance regularly, as usual, to take advantage of extreme valuation swings, like those we've seen in Treasuries since the middle of last year.
My current allocations are 20% US small cap equities, 15% international mid cap equities, 8.5% US large caps, 10% international small caps, 7.5% US fixed income, 5% international large cap equities, 7% emerging market equities, 5% international and emerging market fixed income, 5% US inflation protected fixed income, 9% commodities, 2.5% REITs (real estate securities - I could go higher here since I don't own any real estate for personal or business reasons but I've been a bit overweight for years), 3% cash and 2.5% municipals. I know its very diverse and seemingly unwieldy, but I've designed the portfolio to scale; I want it to be prepared to be BIG even though right now it is small.
So the net worth tally is, as of this writing, on 21 Feb 2008, $82334.94. That is a decrease of 13.33% from my first net worth post of last year. Completely unacceptable! You've seen my ideas for recovering from this cock-up, but I'll recap here: [1] new, better paying job, [2] rein in spending, especially trivial spending related particularly to travel, and [3] stop performing acts of financial bravery/stupidity on behalf of others. I can definitely get back above $100,000 in net worth this year, but it will require commitment and focus.
Until next time...
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