There are plenty of reasons NOT to do this, but I would expect that many personal finance bloggers do so to some degree. Definitely not all, but the number is surely non-zero. Even respected professionals such as Teresa Lo advise against it for most people. However, the opportunity is just too good to pass up. This is the first of potentially many instances in which I plan to do this over the coming years.
To start, due to the almost 20% bounce off recent market lows, my 401(k) is has gained slightly over $5000 in value. Not a huge amount, true, but hardly non-trivial. So it seemed like a good time to lock in some of these gains. I am a believe that we have not seem the bottom of this bear market, and this is simply a violent bear market rally. As well, the numbers I've seen in my 401(k) strongly suggest that to me.
I started by rebalancing completely out of my employer's equity fund. I have been greatly disturbed that my employer pays 401(k) contributions as equity. I already draw my paycheck from this company. Being doubly long by holding such a significant amount of equity (about 6.37% of the total value of the account) on top of my income is a worrisome state. Thankfully, I was able to sell all of my current holdings, which are up 10.7% since the last time I updated my asset allocation spreadsheet. Future contributions will still be made in stock, but this I can't stop so there's no sense in worrying about it.
Next, I liquidated all holdings, both equity and fixed income. With the exception of the bond funds, all of the holdings are up double digits in the last few weeks. (I last updated my spreadsheet earlier this month.) I think a decline is imminent across most equity markets worldwide, and I want to accumulate as much dry powder as possible for future deployment. Hopefully, I will lock in significant gains and more importantly, avoid the downside after this rally fizzles out.
For the record, the holdings in my 401(k) were up as follows: US small cap equities up 16.66%; emerging market equities up 13.06%; international mid-cap equities up 12.38%; US large cap equities up 15.39%; US large cap equity index up 14.85%; international large cap equity index up 16.57%; US real estate up 20.27%.
Anyway, we'll see how this works out. I don't anticipate significant upside movement on any of my holdings, and if I'm able to avoid the next leg down, then I'll have the resources to acquire even larger blocks of shares on the way back up. Mind you, I think it will be a long way back up, several years in the making, but I'd like to take a value investing approach to this, while exercising some downside risk mitigation.
Wish me luck!
Showing posts with label Net Worth. Show all posts
Showing posts with label Net Worth. Show all posts
Friday, March 20, 2009
Yielding to Logic
That's what I have done with my latest transfer of funds.
How so?
Some of you will recall a plan I outlined almost exactly one year ago. That plan involved paying off my AmEx at a slower rate while I amassed my emergency savings. Now I am ending that plan and focusing on reducing the balance on my card.
So you may be asking what has changed since then?
First and foremost, I achieved my savings goal for 2008. I currently have $20,142 in emergency funds. While I will not completely terminate my Direct Deposit into that account, I am turning down the savings rate to about $150/month from $1000. The remaining funds will be divided among a savings account for travel expenses and for paying down my card.
Second, the return of principal I expected last year never materialized. Thus, due to fees, the AmEx balance has grown much faster than I originally expected or intended. That was a failure of management on my part. I needed to pay closer attention to this situation, and adjust my plan as soon as the payment clearly was not going to be made. This mistake is a learning experience and will not be repeated.
Third, as will soon be detailed, my trading adventures recently have been a less successful than expected. Thus, paying off the card has a higher ROI than shorting AXP or riding the volatility of FAZ. (I have been positive on my AXP shorts, but I haven't had the funds to control enough shares to make huge returns. FAZ, on the other hand, has stopped me out more times than I care to count.)
Fourth is the emotional and psychological component. In the year since that last blog post, the balance on the AmEx has grown pretty steadily. Even after I moved to my current apartment and stopped paying my rent on my card, I just have not been able to pay down the balance as quickly as originally anticipated. That outstanding balance is an albatross around my net worth. At this point, with other goals accomplished, it is now time to address this situation. As I previously mentioned, money is an emotional topic, and how each of us manages our finances is very personal. This charge card balance has finally reached a point of personal pain for me, and now is the time for salve.
By transferring out of my investment account so that I can use the funds to pay down the AmEx balance. While once upon a time, I had it under control, it has become abundantly clear that I am doing more harm than good but allowing this balance to continue living. The rate at which it is accumulating interest is overwhelming my ability to service the debt at a level I feel comfortable with. (To be sure, I could continue doing what I am doing, and technically it would not be hard, but I hate the feelings associated with it. Psychosomatic? Probably.)
Fifth, having a written goal to pay off the card has focused my mind. While it will not be a simple process, if I am going to achieve this goal by year end, I have to commit myself to it. That means doing everything I can to allocate the necessary funds. Some of that will likely come from additional income. Some of those funds will come from re-allocating income from my job, and part of it will come from reducing the balance against which fees are assessed. No matter how this comes together, I MUST perform activities which support this goal given its importance to me.
I have already transferred half of my cash balance from my trading account back into my checking account. From there, it will be applied against my AmEx balance; that transaction should complete today, Friday, 20 March 2009. Along with the coming shift to reduced savings, I estimate that I should have this card paid down before the end of August. I think I can probably be even more aggressive, but there's no sense in creating suffering just to serve a goal. This single payment will reduce my outstanding balance by 46%.
On top of re-arranging my income stream to pay down the card, there are a few places where "found money" comes into play. I have a 5 year, $1000 CD coming due this month. When it does, I will transfer those funds into my checking account and then make an additional payment to my AmEx. I also expect to be repaid about $1600 that I lent to a friend last year. That money can either augment the savings I am assembling for travel spending later this year or, depending on the potential cost of those trips, I may just apply the money to the AmEx.
A bonus to this entire scenario is that I will probably earn enough Membership Rewards points to pay for at least one of the flights I am preparing for. That takes some of the edge off of the pain of scraping together the almost $22,000 that I owe. That alone is a huge win.
Anyway, that's the plan which has been put into action. I'll keep you updated on the progress.
Until next time...
How so?
Some of you will recall a plan I outlined almost exactly one year ago. That plan involved paying off my AmEx at a slower rate while I amassed my emergency savings. Now I am ending that plan and focusing on reducing the balance on my card.
So you may be asking what has changed since then?
First and foremost, I achieved my savings goal for 2008. I currently have $20,142 in emergency funds. While I will not completely terminate my Direct Deposit into that account, I am turning down the savings rate to about $150/month from $1000. The remaining funds will be divided among a savings account for travel expenses and for paying down my card.
Second, the return of principal I expected last year never materialized. Thus, due to fees, the AmEx balance has grown much faster than I originally expected or intended. That was a failure of management on my part. I needed to pay closer attention to this situation, and adjust my plan as soon as the payment clearly was not going to be made. This mistake is a learning experience and will not be repeated.
Third, as will soon be detailed, my trading adventures recently have been a less successful than expected. Thus, paying off the card has a higher ROI than shorting AXP or riding the volatility of FAZ. (I have been positive on my AXP shorts, but I haven't had the funds to control enough shares to make huge returns. FAZ, on the other hand, has stopped me out more times than I care to count.)
Fourth is the emotional and psychological component. In the year since that last blog post, the balance on the AmEx has grown pretty steadily. Even after I moved to my current apartment and stopped paying my rent on my card, I just have not been able to pay down the balance as quickly as originally anticipated. That outstanding balance is an albatross around my net worth. At this point, with other goals accomplished, it is now time to address this situation. As I previously mentioned, money is an emotional topic, and how each of us manages our finances is very personal. This charge card balance has finally reached a point of personal pain for me, and now is the time for salve.
By transferring out of my investment account so that I can use the funds to pay down the AmEx balance. While once upon a time, I had it under control, it has become abundantly clear that I am doing more harm than good but allowing this balance to continue living. The rate at which it is accumulating interest is overwhelming my ability to service the debt at a level I feel comfortable with. (To be sure, I could continue doing what I am doing, and technically it would not be hard, but I hate the feelings associated with it. Psychosomatic? Probably.)
Fifth, having a written goal to pay off the card has focused my mind. While it will not be a simple process, if I am going to achieve this goal by year end, I have to commit myself to it. That means doing everything I can to allocate the necessary funds. Some of that will likely come from additional income. Some of those funds will come from re-allocating income from my job, and part of it will come from reducing the balance against which fees are assessed. No matter how this comes together, I MUST perform activities which support this goal given its importance to me.
I have already transferred half of my cash balance from my trading account back into my checking account. From there, it will be applied against my AmEx balance; that transaction should complete today, Friday, 20 March 2009. Along with the coming shift to reduced savings, I estimate that I should have this card paid down before the end of August. I think I can probably be even more aggressive, but there's no sense in creating suffering just to serve a goal. This single payment will reduce my outstanding balance by 46%.
On top of re-arranging my income stream to pay down the card, there are a few places where "found money" comes into play. I have a 5 year, $1000 CD coming due this month. When it does, I will transfer those funds into my checking account and then make an additional payment to my AmEx. I also expect to be repaid about $1600 that I lent to a friend last year. That money can either augment the savings I am assembling for travel spending later this year or, depending on the potential cost of those trips, I may just apply the money to the AmEx.
A bonus to this entire scenario is that I will probably earn enough Membership Rewards points to pay for at least one of the flights I am preparing for. That takes some of the edge off of the pain of scraping together the almost $22,000 that I owe. That alone is a huge win.
Anyway, that's the plan which has been put into action. I'll keep you updated on the progress.
Until next time...
Saturday, March 07, 2009
Net Worth Update - 07 March 2009
I apologize for the delay in posting this, but life has a way of catching up with you. Ya know?
As of 7 March 2009, my net worth is $57276.53. In a word, it sucks. However, there has been progress on various fronts.
First, I've been able to build my emergency account back up to $20111.07 from close to $15000. Those funds were transferred into my brokerage account for trading purposes. Now that I'm back over 20K, I will redirect the $1000 that I currently Direct Deposit into that account toward my American Express debt. Paying down the AmEx to $0 is one of my goals for 2009. (And no, I was not extended the offer to cancel my card and pay off all of the debt in one shot.)
Second, if not for the need to put $999.37 worth of work into my almost 10 year old car, my balance would be less than $20K. Such is life! However, it is thrilling to really make some progress on cutting that balance down. Once I start moving funds away from the emergency savings account and toward that goal, the balance should decrease even faster. Just thinking about it is energizing (but that could also be the feeling of my body burning more fat *shrug*)!
Third, I'm getting back into the mode of reducing unnecessary expenses. My total food expenditures for February 2009 came to. I think I ate out twice, and both of those were with friends whom I hadn't caught up with in a while. (In one case, said friend is recently unemployed so I picked up the tab. In the other case, we split the bill.) I recently canceled my Zagat.com subscription because I hadn't used it since I signed up (again) in April 2008. I'm considering dropping my WSJ.com subscription and possibly my Barrons.com subscription. I love Barron's, even more than WSJ.com, but I read neither as much as I used to. I may keep Barron's and dump the WSJ since I despise the re-designed WSJ.com site. This is pretty much what I expected once Dow Jones was acquired by News Corp. I will also be canceling 2 domain name registrations with Network Solutions. These are names that I will no longer use for a business idea that I am no longer interested in pursuing. Thus, I'll let those expire at year end. Since the majority of the current calendar year is already accounted for, I hope to find another way to monetize those domain names via domain parking or some other means
Fourth, I underspent most of my targets, with the exception of food costs. (Quelle surprise!) I only spent $126.65 on gasoline against an expense target of $400; $56.01 on medical expenses, against a target of $75; $21.60 on entertainment (a lift ticket for snowboarding) against a target of $100; and $1315.84 on rent and housing costs, against a target of $1369. Food, on the other hand, hit me for $610.99, against a target of $500 per month.
In the coming months, I'll spend some time balancing my food expenses against all the other priorities I have. Key among them will be saving for both emergencies and fun, as well as food costs. Having food at home and cooking has been very kind to me, though. Once I get a acclimated to cooking, I expect that my food costs will moderate and possibly decrease. We will see.
I also anticipate moving back to the same city that I lived in prior to moving to my current apartment. In doing so, I look forward to a reduction in my insurance costs. All of my insurances increased noticeably - car, renter's and the personal articles insurance policy on my laptop. I guess that has to do with moving into a "less safe" county. Too bad it also happens to be the wealthiest (by income) predominantly Black county in the entire nation. So very sad. I hope, with the current state of the economy and the number of empty residential properties on the market, that I can find a reasonable rent in downtown Silver Spring. I think my historically good (and improving) credit, solid income, and increased supply of rental units and moderate to decreased demand for said units will work in my favor.
Overall, my goals are coming together. I attribute some of this to posting my goals around my apartment. The above blog post is taped to the wall above the head of my bed, on my refrigerator door, and on the mirror of my bathroom.
Anyway, that's a small peek into my current financial situation. I like how things are progressing. I'll keep you posted as the situation develops, so keep reading and commenting.
Until next time...
As of 7 March 2009, my net worth is $57276.53. In a word, it sucks. However, there has been progress on various fronts.
First, I've been able to build my emergency account back up to $20111.07 from close to $15000. Those funds were transferred into my brokerage account for trading purposes. Now that I'm back over 20K, I will redirect the $1000 that I currently Direct Deposit into that account toward my American Express debt. Paying down the AmEx to $0 is one of my goals for 2009. (And no, I was not extended the offer to cancel my card and pay off all of the debt in one shot.)
Second, if not for the need to put $999.37 worth of work into my almost 10 year old car, my balance would be less than $20K. Such is life! However, it is thrilling to really make some progress on cutting that balance down. Once I start moving funds away from the emergency savings account and toward that goal, the balance should decrease even faster. Just thinking about it is energizing (but that could also be the feeling of my body burning more fat *shrug*)!
Third, I'm getting back into the mode of reducing unnecessary expenses. My total food expenditures for February 2009 came to. I think I ate out twice, and both of those were with friends whom I hadn't caught up with in a while. (In one case, said friend is recently unemployed so I picked up the tab. In the other case, we split the bill.) I recently canceled my Zagat.com subscription because I hadn't used it since I signed up (again) in April 2008. I'm considering dropping my WSJ.com subscription and possibly my Barrons.com subscription. I love Barron's, even more than WSJ.com, but I read neither as much as I used to. I may keep Barron's and dump the WSJ since I despise the re-designed WSJ.com site. This is pretty much what I expected once Dow Jones was acquired by News Corp. I will also be canceling 2 domain name registrations with Network Solutions. These are names that I will no longer use for a business idea that I am no longer interested in pursuing. Thus, I'll let those expire at year end. Since the majority of the current calendar year is already accounted for, I hope to find another way to monetize those domain names via domain parking or some other means
Fourth, I underspent most of my targets, with the exception of food costs. (Quelle surprise!) I only spent $126.65 on gasoline against an expense target of $400; $56.01 on medical expenses, against a target of $75; $21.60 on entertainment (a lift ticket for snowboarding) against a target of $100; and $1315.84 on rent and housing costs, against a target of $1369. Food, on the other hand, hit me for $610.99, against a target of $500 per month.
In the coming months, I'll spend some time balancing my food expenses against all the other priorities I have. Key among them will be saving for both emergencies and fun, as well as food costs. Having food at home and cooking has been very kind to me, though. Once I get a acclimated to cooking, I expect that my food costs will moderate and possibly decrease. We will see.
I also anticipate moving back to the same city that I lived in prior to moving to my current apartment. In doing so, I look forward to a reduction in my insurance costs. All of my insurances increased noticeably - car, renter's and the personal articles insurance policy on my laptop. I guess that has to do with moving into a "less safe" county. Too bad it also happens to be the wealthiest (by income) predominantly Black county in the entire nation. So very sad. I hope, with the current state of the economy and the number of empty residential properties on the market, that I can find a reasonable rent in downtown Silver Spring. I think my historically good (and improving) credit, solid income, and increased supply of rental units and moderate to decreased demand for said units will work in my favor.
Overall, my goals are coming together. I attribute some of this to posting my goals around my apartment. The above blog post is taped to the wall above the head of my bed, on my refrigerator door, and on the mirror of my bathroom.
Anyway, that's a small peek into my current financial situation. I like how things are progressing. I'll keep you posted as the situation develops, so keep reading and commenting.
Until next time...
Thursday, November 06, 2008
Paying Yourself First
So I finally received my Federal tax refund earlier this week. I think it actually came yesterday, IIRC. $2484. Not bad. So I deposited it along with $15 that I have saved in the last week.
(On an unrelated note, my personal saving has really declined recently. I haven't carried as much cash in the last few months, and in the interest of fitness, I have stopped eating as much junk food, especially from vending machines. So I guess the drop in cash saving is a positive sign. I did increase my automated saving recently, however, to $700 per pay period. That's effectively 30% of my monthly net income.)
Anyway, I decided to take a bit of time this morning to do some saving. Of the almost $2500 I deposited on Wednesday, $1250 was transferred to my brokerage account so that I can re-balance my Satellite Portfolio. Another $500 was transferred to my emergency savings account, which replaces $500 I transferred out a few weeks ago as an insurance policy on some upcoming spending. Depending on how my automated payments on my secondary credit card go, I may transfer another $500 over there and really be $500, not just at break even.
*shrug*
So $1750 has been allocated to savings of some sort out of almost $2500. I think that's respectable. The additional $500 may be icing or, even more likely, I will put it against my accumulated debt on my primary card. (The secondary card is now encased in ice. More on that in my October update.)
Whatever is left from the $2500 will be used to fund my snowboard. I estimate about $249 left over, all told.
The whole point here is that you must pay yourself first. It feels great, and that should be enough reason for anyone to do it. Second, you can't help others (if you are so inclined) if you yourself need help. Eliminating your debt, having your retirement saving locked up, having an investment program, and emergency savings is all about positioning yourself to do with your time - your life - that which is important to YOU. Money is the tool to that end. Whatever is left, and there should be something left, do with as you please. That's the payoff for successfully completing the other phases. Indeed, you need to build that into the overall picture so that you have a bit of motivation.
Its like working out. I work out to improve and show respect for my body. Your body is a loaner that is taken if you don't treat it right. However, we all have something we like which is diametrically opposed to a fitness goal. It may be food in general, or a specific cuisine, beer or other alcoholic beverages, or laziness. So you have to build your program to take these factors into account. Your financial program should never feel like punishment, otherwise you will subvert yourself in rebellion. That serves NO ONE, least of all YOU. Build in the slack. You should enjoy everything, both the act of saving and investing, accumulating and growing your wealth, along with the act of spending what you have accumulated on those things that are important to you. (Things that are NOT important to you should ruthlessly and efficiently be cut out of your life, with extreme prejudice.)
Also, every victory should be celebrated. Why? Because it represents CHOICE. A choice to do something that supports the achievement of your goal. (You do have written goals, with deadlines and implementation plans, right?) You have chosen your goal over other available options. Celebrate the process of moving closer to your goals all the time!
So how are you paying yourself first? And how are you rewarding yourself for doing so?
(On an unrelated note, my personal saving has really declined recently. I haven't carried as much cash in the last few months, and in the interest of fitness, I have stopped eating as much junk food, especially from vending machines. So I guess the drop in cash saving is a positive sign. I did increase my automated saving recently, however, to $700 per pay period. That's effectively 30% of my monthly net income.)
Anyway, I decided to take a bit of time this morning to do some saving. Of the almost $2500 I deposited on Wednesday, $1250 was transferred to my brokerage account so that I can re-balance my Satellite Portfolio. Another $500 was transferred to my emergency savings account, which replaces $500 I transferred out a few weeks ago as an insurance policy on some upcoming spending. Depending on how my automated payments on my secondary credit card go, I may transfer another $500 over there and really be $500, not just at break even.
*shrug*
So $1750 has been allocated to savings of some sort out of almost $2500. I think that's respectable. The additional $500 may be icing or, even more likely, I will put it against my accumulated debt on my primary card. (The secondary card is now encased in ice. More on that in my October update.)
Whatever is left from the $2500 will be used to fund my snowboard. I estimate about $249 left over, all told.
The whole point here is that you must pay yourself first. It feels great, and that should be enough reason for anyone to do it. Second, you can't help others (if you are so inclined) if you yourself need help. Eliminating your debt, having your retirement saving locked up, having an investment program, and emergency savings is all about positioning yourself to do with your time - your life - that which is important to YOU. Money is the tool to that end. Whatever is left, and there should be something left, do with as you please. That's the payoff for successfully completing the other phases. Indeed, you need to build that into the overall picture so that you have a bit of motivation.
Its like working out. I work out to improve and show respect for my body. Your body is a loaner that is taken if you don't treat it right. However, we all have something we like which is diametrically opposed to a fitness goal. It may be food in general, or a specific cuisine, beer or other alcoholic beverages, or laziness. So you have to build your program to take these factors into account. Your financial program should never feel like punishment, otherwise you will subvert yourself in rebellion. That serves NO ONE, least of all YOU. Build in the slack. You should enjoy everything, both the act of saving and investing, accumulating and growing your wealth, along with the act of spending what you have accumulated on those things that are important to you. (Things that are NOT important to you should ruthlessly and efficiently be cut out of your life, with extreme prejudice.)
Also, every victory should be celebrated. Why? Because it represents CHOICE. A choice to do something that supports the achievement of your goal. (You do have written goals, with deadlines and implementation plans, right?) You have chosen your goal over other available options. Celebrate the process of moving closer to your goals all the time!
So how are you paying yourself first? And how are you rewarding yourself for doing so?
Monday, October 27, 2008
Oh Well
I was so looking forward to making a rebalancing buy in my trading account today, but my cash balance conspired against it. No matter. Next week will give me an opportunity to rebalance for November.
I did pick up some additional PMF at $12.30 per share. I'll be slowly buying into that over the coming weeks as well.
I know I've been delinquent for the last week, but I'll be updating over the course of the week. There's a lot of catching up to do regarding the last 2 months, and lots of stuff to share with you all.
Later.
I did pick up some additional PMF at $12.30 per share. I'll be slowly buying into that over the coming weeks as well.
I know I've been delinquent for the last week, but I'll be updating over the course of the week. There's a lot of catching up to do regarding the last 2 months, and lots of stuff to share with you all.
Later.
Wednesday, August 27, 2008
Quick Apology
Yes, I've been out of it. No, I have no excuse. Don't need one. Its called life. I can happily report that I have successfully moved most of my personal belongings into my new, $416/month cheaper, apartment. There will be more discussion of this in the near future, and its impact on my overall finances. I may also finish my July update, as a few surprises popped up recently which modified the picture but not in an overwhelming way. Or I may just continue forward with the August snapshot. Who knows!?!?
Anyway, I will write again soon. Now, its time to go home, where I have no Internet connectivity, to read documentation and source code for the FIX protocol and watch the end of "Wall Street". (There will be a review coming as well. I've seen the damn movie too many times to not analyze it on this blog.) Depending on how much this caffeine continues powering me, I may work on valuing some multi-unit properties I'm considering putting an offer in on. We'll see!
Cheers!
Anyway, I will write again soon. Now, its time to go home, where I have no Internet connectivity, to read documentation and source code for the FIX protocol and watch the end of "Wall Street". (There will be a review coming as well. I've seen the damn movie too many times to not analyze it on this blog.) Depending on how much this caffeine continues powering me, I may work on valuing some multi-unit properties I'm considering putting an offer in on. We'll see!
Cheers!
A Response to Teresa Lo
If you've been following things around here for a while, you'll recall that back in April I wrote a post which was effusive in its praise for Teresa Lo's series on building your own investment portfolio. Little did I know that Teresa would comment on that very post. I was honored.
In her comment, she asked me
to which I had no response at the time. There were some other matters that had my attention, so I never really gave the question extensive thought. What I did know was that I liked the satellite portfolio that Teresa describes in the series. So much so that I planned to copy it outright. (What was that about great artists stealing?) While I would imagine that any portfolio that InvivoAnalytics constructs for a client would have slightly different components, the overall idea and simplicity of this portfolio is ideal. I know that I have too many components to my current portfolio, and while I like them all, there has to be a better way.
First, I have liquidated all the holdings in my taxable account. As I've previously stated, I use the aggressive allocation from 401khelp.com for my 401(k). So this interpretation of the satellite portfolio will truly be the "explore" portion of my overall investment holdings, while the "core" remains in my 401(k).
So, to answer the question, I return to the original inquisitor...I have purchased a subscription to InvivoAnalytics.com's Portfolio Strategy service!
Now, this may seem like a cop out, but I considered the following factors. First, I was planning to use the same investments anyway. Two, Teresa and Pete have put in the time and effort to come up with the algos to perform the asset allocation, rebalancing, and other processes which I would otherwise have to implement manually, and their processes are targeted at the same ETFs. Third, I'm busy. I am working on several projects outside of my investing, some of which I've talked about on this blog. There is just not enough time, and consequently not enough value I could add with the time available, to make the investment pay off. The work has already been done, so I should use it. Fourth, I didn't have to pay directly out of my pocket; I was able to pay with blog earnings. Its a minor point, but anything that reduces the friction in this kind of decision is "A Good Thing".
So Teresa, I think you already know the answer to the question by now.
That said, here's the breakdown from Monday:
Also keep in mind that these are not core retirement portfolio holdings and allocations. InvivoAnalytics.com has services for a core portfolio which is designed to be implemented within your primary retirement account, primarily targeted at 401(k)s. As I have mentioned before, I use the aggressive asset allocation from 401khelp.com in my 401(k), with a few tweaks for a more defensive posture in this market (primarily, more international exposure for a greater risk/return profile, more cash, so I have some dry powder, and less real estate exposure for obvious reasons). If you're looking for a core 401(k) asset allocation from Invivo, the Strategic Performance Portfolio is NOT it.
Part 8 of Building You Investment Portfolio discusses some of the details of how the dynamic algorithm works (at a high level).
(Yes, those numbers change every week, so while you're getting a free ride for this past Monday, by next Monday the numbers will be different. You shouldn't buy in the middle of the week anyway, but wait until the next allocations come out next Monday. However, you have to be a subscriber to find out what those will be!)
So all of that said, thank you again Teresa for coming up with these model portfolios and giving me time back to generate alpha in other ways!
Until next time...
In her comment, she asked me
Now that you've decided to reduce the number of asset classes, I was wondering how you plan to allocate the funds? Do you use a certain formula?
to which I had no response at the time. There were some other matters that had my attention, so I never really gave the question extensive thought. What I did know was that I liked the satellite portfolio that Teresa describes in the series. So much so that I planned to copy it outright. (What was that about great artists stealing?) While I would imagine that any portfolio that InvivoAnalytics constructs for a client would have slightly different components, the overall idea and simplicity of this portfolio is ideal. I know that I have too many components to my current portfolio, and while I like them all, there has to be a better way.
First, I have liquidated all the holdings in my taxable account. As I've previously stated, I use the aggressive allocation from 401khelp.com for my 401(k). So this interpretation of the satellite portfolio will truly be the "explore" portion of my overall investment holdings, while the "core" remains in my 401(k).
So, to answer the question, I return to the original inquisitor...I have purchased a subscription to InvivoAnalytics.com's Portfolio Strategy service!
Now, this may seem like a cop out, but I considered the following factors. First, I was planning to use the same investments anyway. Two, Teresa and Pete have put in the time and effort to come up with the algos to perform the asset allocation, rebalancing, and other processes which I would otherwise have to implement manually, and their processes are targeted at the same ETFs. Third, I'm busy. I am working on several projects outside of my investing, some of which I've talked about on this blog. There is just not enough time, and consequently not enough value I could add with the time available, to make the investment pay off. The work has already been done, so I should use it. Fourth, I didn't have to pay directly out of my pocket; I was able to pay with blog earnings. Its a minor point, but anything that reduces the friction in this kind of decision is "A Good Thing".
So Teresa, I think you already know the answer to the question by now.
That said, here's the breakdown from Monday:
- VXF - 16.88%
- EEM - 14.18%
- GSG - 9.92%
- FXF - 28.13%
- TLT - 30.89%
Also keep in mind that these are not core retirement portfolio holdings and allocations. InvivoAnalytics.com has services for a core portfolio which is designed to be implemented within your primary retirement account, primarily targeted at 401(k)s. As I have mentioned before, I use the aggressive asset allocation from 401khelp.com in my 401(k), with a few tweaks for a more defensive posture in this market (primarily, more international exposure for a greater risk/return profile, more cash, so I have some dry powder, and less real estate exposure for obvious reasons). If you're looking for a core 401(k) asset allocation from Invivo, the Strategic Performance Portfolio is NOT it.
Part 8 of Building You Investment Portfolio discusses some of the details of how the dynamic algorithm works (at a high level).
(Yes, those numbers change every week, so while you're getting a free ride for this past Monday, by next Monday the numbers will be different. You shouldn't buy in the middle of the week anyway, but wait until the next allocations come out next Monday. However, you have to be a subscriber to find out what those will be!)
So all of that said, thank you again Teresa for coming up with these model portfolios and giving me time back to generate alpha in other ways!
Until next time...
Thursday, July 31, 2008
Beautiful Day
So I just ran the preliminary numbers for July and things look good. Entertainment kicked me in the ass, but I saw more movies this month than in the entire rest of the year combined. Add in the costs for Projekt Revolution, and I took a big L in this category. However, not all is bad. My calculations are based on a rent payment of $2150 (even though my portion is only $1650; the rest is paid by my roommate). So if we consider that I spent $229.91 on entertainment this month, and subtract out the $500 difference between my rent charge on my credit card and my actual portion, we find that I am really up $270.09.
Not too shabby.
As well, running calculations for my food expenses (overshot my budget of $600 by $48.38 although some of that probably should fall under entertainment), medical expenses (only charged $14.10 against a budget of $75) and fuel expenses (charged $257.84 against a budget of $700) yields a savings of $454.68. That figure includes subtracting out the food overage from the medical and transportation budget savings. This amount has now been transferred to my emergency account, for use on my trip to Trinidad for Carnival next year. I think I've covered over 50% of the expected expenses for that trip in the last 2 months of savings. Its a very nice feeling.
I'll have more on this later, but right now, I'm off to the movies. :)
Cheers!
Not too shabby.
As well, running calculations for my food expenses (overshot my budget of $600 by $48.38 although some of that probably should fall under entertainment), medical expenses (only charged $14.10 against a budget of $75) and fuel expenses (charged $257.84 against a budget of $700) yields a savings of $454.68. That figure includes subtracting out the food overage from the medical and transportation budget savings. This amount has now been transferred to my emergency account, for use on my trip to Trinidad for Carnival next year. I think I've covered over 50% of the expected expenses for that trip in the last 2 months of savings. Its a very nice feeling.
I'll have more on this later, but right now, I'm off to the movies. :)
Cheers!
Thursday, July 17, 2008
Financial IQ Test Score
64.
That's including the bonus point. Not nearly as good as I thought, but it shows me what I need to work on. Credit/debt, shopping, and financial planning would appear to be my weak points. Time to get to work, it is.
I encourage everyone to roll on over to Moolanomy and take the test. I printed it out to make it easier to record my results next to each question. Do whatever works for you, but then turn that knowledge into action!
Until next time...
That's including the bonus point. Not nearly as good as I thought, but it shows me what I need to work on. Credit/debt, shopping, and financial planning would appear to be my weak points. Time to get to work, it is.
I encourage everyone to roll on over to Moolanomy and take the test. I printed it out to make it easier to record my results next to each question. Do whatever works for you, but then turn that knowledge into action!
Until next time...
Wednesday, July 16, 2008
Trading Up
Well, it took me forever and a bloody day, but I finally got my options application in to the mail today. Yay me! We'll see whether I get approved. Cross your fingers. Since I don't plan to write any options, and especially not puts, I think it should be ok.
I'm also looking to lighten up some of my funds today or tomorrow. We'll see how things look near the close. I plan to close out my TREMX, PRMSX and RPIBX, as I prepare to trade into Teresa Lo's satellite portfolio (with a few minor differences).
Anyway, more on this to come. I need to go sleep!
I'm also looking to lighten up some of my funds today or tomorrow. We'll see how things look near the close. I plan to close out my TREMX, PRMSX and RPIBX, as I prepare to trade into Teresa Lo's satellite portfolio (with a few minor differences).
Anyway, more on this to come. I need to go sleep!
Tuesday, July 08, 2008
Preliminary June Analysis
Since I had some time before going to sleep, I figured I'd try to throw together some quick and dirty reports about June's financial performance. So far, things look good. I spent $405.84 on food, when my budget allows for $600. I spent $201.04 on gas, which is WAY beneath my ceiling of $794.62. If not for the Misc category, which blew a complete hole in my numbers, things would look great. Add to that the fact that I will be moving next month, so by September my rent will drop from $1650 per month to $1234 for my own 2 bed/1 bath apartment, and I'd say things are in excellent shape.
Anyway, I plan to work with the numbers a bit more and get a better idea on what worked and what didn't. My new diet seems to have had a very positive impact on my finances, if I had to take a guess from these numbers. I front load carbohydrates and finish the day with a salad. Even with a pre-packaged salad, I'm not loading up on sugar-laden food which becomes fat while I sleep. Those pre-packaged salads cost only a few dollars as well, so I can buy a bunch of them for work and still leave room in my budget for eating out the rest of the week (if I choose). Sweet!
Anymore, more to come. Until next time...
Anyway, I plan to work with the numbers a bit more and get a better idea on what worked and what didn't. My new diet seems to have had a very positive impact on my finances, if I had to take a guess from these numbers. I front load carbohydrates and finish the day with a salad. Even with a pre-packaged salad, I'm not loading up on sugar-laden food which becomes fat while I sleep. Those pre-packaged salads cost only a few dollars as well, so I can buy a bunch of them for work and still leave room in my budget for eating out the rest of the week (if I choose). Sweet!
Anymore, more to come. Until next time...
Sunday, July 06, 2008
Heads Up
I know I've been off my game recently. However, I do have a new update coming soon. Now that the first half is done, its time for a quarterly wrap up and some other activities. Also, there is a big position sale in my future. Gotta love tax loss selling! I don't see Japan going anywhere significant anytime soon, so...
Stay tuned!
Stay tuned!
Sunday, June 15, 2008
It's Official!
My $20,000 savings goal has officially been accomplished! The latest account balance is $20,275.82 after my latest direct deposit (at a rate of $250 every pay period) and $51.65 in interest.
Gawd, saving money is addictive!
I'm preparing my next credit card payment for this week, and it will be substantially bigger than usual. I love progress! I'm happy. (I'd be happy without this, but there are just 2 more things to be be happy about.)
Until next time, cheers!
Gawd, saving money is addictive!
I'm preparing my next credit card payment for this week, and it will be substantially bigger than usual. I love progress! I'm happy. (I'd be happy without this, but there are just 2 more things to be be happy about.)
Until next time, cheers!
Tuesday, May 27, 2008
Net Worth Update
I haven't done one of these recently, so let's get caught up...
First, I've been re-working my asset allocation to be in line with Teresa Lo's satellite portfolio from her series on building your own investment portfolio. I'll have more to say on that shortly, along with my response to her comment, I promise!
Since I should officially achieve my goal of $20,000 in emergency savings by the middle of June, I will be adjusting my Direct Deposit into that account to a slower rate of accumulation. I have explained why I spent so much effort building up that account in a previous post, so I won't rehash it here. However, with this change, I will refocus my efforts on paying down the credit card debt which has been dogging me since last year. It feels great to finally attack this issue, but I absolutely wanted to make sure I was positioned in case of an emergency. I've dipped into my emergency funds for non-emergency situations a bit too often in the last year.
Since I decreased my withholding a few weeks ago as well, this latest change means that I can ratchet up my 401(k) contributions again. That holds benefits on 2 fronts. First, I'll reduce my adjusted gross income (AGI) which will reduce my overall taxable income while allowing me to take home more money with every paycheck. Second, I'll still be able to maintain some accruals to my emergency account, just at a slower pace, so that I can focus on the debt re-payment. I also get the benefit of freeing up some capital to direct into my self-directed Roth IRA. I'm going to have to give some thought as to what I'll do with that account. I had considered doing tax lien and tax sale investments, but we'll see. I'm not sure at this point.
(As an aside, I just received an e-mail reminder to increase my 401(k) contribution amount to 15% in 2 days. For this, I love technology!)
The one blemish on this record was alluded to in my most recent post, that being the need to buy my way out of the horribly flawed real estate partnership to which I belong. If I do have to put up money to get out of this albatross of an investment, I am prepared to put up as much as $10,000. On further thought, I may be able to put up even more IF it guarantees certain outcomes, such as refinancing the loan which is in my name. That house actually has a tenant in it now (its the only occupied house in the portfolio) so there should be coverage on the note. If I can force a refinance of the mortgage into the LLC's name, thus clearing me, I could put more funds into the LLC. As long as I can get out of this situation once and for all, I'll be happy. You will continue to hear more about this in the coming weeks. I set a deadline to be out of this position by the end of June.
I expect to take a potentially significant hit to my net worth due to the real estate partnership unwind, but my psyche will thank me for it. Doing so will also help me accomplish one more of my 2008 goals. Honestly, the best part is that I probably CAN pull that off and not be too terribly hurt by doing so. I have to be grateful for having the resources to do that, should the situation actually come to that. Thank God for a good job with good income from a solid, large company!
(Wow, did I really say that? I guess I did.)
Anyway, that's the story. Not exactly pretty, but it could be a lot worse. So now for the numbers...
My current net worth works out to $75,271.80. That includes a writedown to $0 of the real estate investment and the $35,000 in student loans I co-signed for. Actually, my investments, both in my taxable account and my 401(k), have done fairly well this year. I have unrealized gains of 29.48% on PRMSX, 10.96% on TREMX, 2.87% on PMF, and 2.7% on RPIBX. All of those are held in my taxable brokerage account. As for the 401(k), it is a bit difficult to calculate the change in individual positions. Its down 4.9% on the year, but I doubt much of that is due to the foreign equities even though they make up 47.1% of my 401(k).
Long ago, I wrote down the value of my car to $5000, and added $50 for the value of my old laptop. I may need to drop that back to $0 again though, in the pursuit of intellectual honesty. I'll check eBay first. My CC debt has been on the rise, although as I said, there will be immediate moves to reverse that. The CC debt is in the neighborhood of $15,000 currently. My brokerage account, as noted, has performed rather well. Once I start re-balancing into the positions in my re-designed portfolio, I plan to sell off large chunks of the existing holdings. I'll end up paying short term capital gains taxes, but I'll gain simplicity. As well, those gains will be heavily offset by previous investment losses and the continuing losses on the real estate partnership.
Anyway, that's everything I can think to mention, at least regarding the net worth situation. If anyone has questions or concerns, or anything was unclear, feel free to post in the comments.
Until next time, all...cheers!
First, I've been re-working my asset allocation to be in line with Teresa Lo's satellite portfolio from her series on building your own investment portfolio. I'll have more to say on that shortly, along with my response to her comment, I promise!
Since I should officially achieve my goal of $20,000 in emergency savings by the middle of June, I will be adjusting my Direct Deposit into that account to a slower rate of accumulation. I have explained why I spent so much effort building up that account in a previous post, so I won't rehash it here. However, with this change, I will refocus my efforts on paying down the credit card debt which has been dogging me since last year. It feels great to finally attack this issue, but I absolutely wanted to make sure I was positioned in case of an emergency. I've dipped into my emergency funds for non-emergency situations a bit too often in the last year.
Since I decreased my withholding a few weeks ago as well, this latest change means that I can ratchet up my 401(k) contributions again. That holds benefits on 2 fronts. First, I'll reduce my adjusted gross income (AGI) which will reduce my overall taxable income while allowing me to take home more money with every paycheck. Second, I'll still be able to maintain some accruals to my emergency account, just at a slower pace, so that I can focus on the debt re-payment. I also get the benefit of freeing up some capital to direct into my self-directed Roth IRA. I'm going to have to give some thought as to what I'll do with that account. I had considered doing tax lien and tax sale investments, but we'll see. I'm not sure at this point.
(As an aside, I just received an e-mail reminder to increase my 401(k) contribution amount to 15% in 2 days. For this, I love technology!)
The one blemish on this record was alluded to in my most recent post, that being the need to buy my way out of the horribly flawed real estate partnership to which I belong. If I do have to put up money to get out of this albatross of an investment, I am prepared to put up as much as $10,000. On further thought, I may be able to put up even more IF it guarantees certain outcomes, such as refinancing the loan which is in my name. That house actually has a tenant in it now (its the only occupied house in the portfolio) so there should be coverage on the note. If I can force a refinance of the mortgage into the LLC's name, thus clearing me, I could put more funds into the LLC. As long as I can get out of this situation once and for all, I'll be happy. You will continue to hear more about this in the coming weeks. I set a deadline to be out of this position by the end of June.
I expect to take a potentially significant hit to my net worth due to the real estate partnership unwind, but my psyche will thank me for it. Doing so will also help me accomplish one more of my 2008 goals. Honestly, the best part is that I probably CAN pull that off and not be too terribly hurt by doing so. I have to be grateful for having the resources to do that, should the situation actually come to that. Thank God for a good job with good income from a solid, large company!
(Wow, did I really say that? I guess I did.)
Anyway, that's the story. Not exactly pretty, but it could be a lot worse. So now for the numbers...
My current net worth works out to $75,271.80. That includes a writedown to $0 of the real estate investment and the $35,000 in student loans I co-signed for. Actually, my investments, both in my taxable account and my 401(k), have done fairly well this year. I have unrealized gains of 29.48% on PRMSX, 10.96% on TREMX, 2.87% on PMF, and 2.7% on RPIBX. All of those are held in my taxable brokerage account. As for the 401(k), it is a bit difficult to calculate the change in individual positions. Its down 4.9% on the year, but I doubt much of that is due to the foreign equities even though they make up 47.1% of my 401(k).
Long ago, I wrote down the value of my car to $5000, and added $50 for the value of my old laptop. I may need to drop that back to $0 again though, in the pursuit of intellectual honesty. I'll check eBay first. My CC debt has been on the rise, although as I said, there will be immediate moves to reverse that. The CC debt is in the neighborhood of $15,000 currently. My brokerage account, as noted, has performed rather well. Once I start re-balancing into the positions in my re-designed portfolio, I plan to sell off large chunks of the existing holdings. I'll end up paying short term capital gains taxes, but I'll gain simplicity. As well, those gains will be heavily offset by previous investment losses and the continuing losses on the real estate partnership.
Anyway, that's everything I can think to mention, at least regarding the net worth situation. If anyone has questions or concerns, or anything was unclear, feel free to post in the comments.
Until next time, all...cheers!
Thursday, April 17, 2008
Latest News
This is just a quick update since I haven't been posting as regularly as I was last week. There has been some news, but I have been so busy working out and just enjoying life that I haven't been here to report too much.
First, the self-directed Roth IRA did get opened as previously mentioned!
I've made some changes to my withholding as well, so that I can put more capital to work in my portfolio and paying down my debt. We'll see exactly how that works out. I think I have enough deductions that I can probably decrease the withholding even more. After I see the impact of this most recent change, I'll adjust accordingly. I definitely want to increase the 401(k) contributions so that I can take advantage of the AGI decrease. That is literally my favorite reason for contributing to my 401(k)! Tax deferred growth is all good and fine, but along with the losses in my business interests and the carryover investment losses I have, keeping the AGI down has the most impact on my annual tax bill.
(There are so many great ways to not pay any more taxes than absolutely necessary! I think I've spoken on this before. People need to pay attention to this more carefully.)
Now that the self-directed Roth is open, I am working on adding options trading to my brokerage account. I don't see myself opening a futures trading account until I have at least $50,000 US to fund it with. That's a bit of an aggressive goal for this year, given the others I've already set, so I think that will show up on next year's list.
Anyway, that's it. Good stuff happening here, but the weather is so nice (at least here in the DC metro), you REALLY need to get outside and experience it if you haven't. Summer looks like it'll be a warm one. Got those natural gas futures ready?
Until next time, boys and girls...
First, the self-directed Roth IRA did get opened as previously mentioned!
I've made some changes to my withholding as well, so that I can put more capital to work in my portfolio and paying down my debt. We'll see exactly how that works out. I think I have enough deductions that I can probably decrease the withholding even more. After I see the impact of this most recent change, I'll adjust accordingly. I definitely want to increase the 401(k) contributions so that I can take advantage of the AGI decrease. That is literally my favorite reason for contributing to my 401(k)! Tax deferred growth is all good and fine, but along with the losses in my business interests and the carryover investment losses I have, keeping the AGI down has the most impact on my annual tax bill.
(There are so many great ways to not pay any more taxes than absolutely necessary! I think I've spoken on this before. People need to pay attention to this more carefully.)
Now that the self-directed Roth is open, I am working on adding options trading to my brokerage account. I don't see myself opening a futures trading account until I have at least $50,000 US to fund it with. That's a bit of an aggressive goal for this year, given the others I've already set, so I think that will show up on next year's list.
Anyway, that's it. Good stuff happening here, but the weather is so nice (at least here in the DC metro), you REALLY need to get outside and experience it if you haven't. Summer looks like it'll be a warm one. Got those natural gas futures ready?
Until next time, boys and girls...
Friday, April 04, 2008
Thoughts on Portfolio Reconstruction
I recently finished reading Teresa Lo's excellent series on building your own portfolio. Now I find myself rethinking my portfolio's construction even more intently than I already have been.
Its not that I think my portfolio is poorly constructed, but it is an amateur's portfolio. I know it has weaknesses, the biggest of which (in my opinion) is the number asset classes. It really is too many. As Teresa excerpted from David Swensen's book, Pioneering Portfolio Management, a theoretical ideal floor may be 10% of assets per class. I have experienced this problem within my asset allocation, and it has irritated the hell out of me. Many of my re-balancings tend to be done outside of the portfolio entirely, mostly because I want to invest more in the under-performing or under-invested classes. As many of my asset classes stand, they are underrepresented within the portfolio, which dilutes their impact. So reducing the number of represented asset classes would tend to simplify the entire process.
The other big problem I find myself facing is that I like the "core and explore" approach, with alpha overlays on top of a core portfolio. However, I've never been quite sure what the complexion of the core portfolio should be. All I've known, in the back of my head, is that I have too many asset classes which I consider core which really aren't. In fact, I'd go so far as to say that most of them have been considered "core". Teresa's series really covers this issue well, and I must say it was a breath of fresh air for this amateur.
The "money shot", so to speak, is part 4 of the series. However, part 4 cannot be taken in a vacuum, so I recommend starting at the beginning and working your way through. It won't take very long.
I think Teresa's series is the best prose, short or long form, that I have read on the subject to date. That's why InVivo Analytics is joining my recommended blog list immediately. I mean, I've caught some of her work from the powerswings.com site, but this series sold me completely. Simply explained, well reasoned, quantitative, and with solid results. I also am totally on board with the idea of frequent re-balancing. The average investor who knows little about investing (and is happy as such) can keep the annual re-balancing schedule. I, however, find various asset classes going way over their target allocations far to frequently. I also like to capture those moves to my advantage, and the only way to do so is frequent re-balancing. The best example I can give of the benefit of frequent re-balancing has been performance in my old 401(k) due to the recent run-up in Treasury prices (a so-called Flight to Quality). I used this opportunity to let go of a nice sized piece of my Treasury allocation, and the resultant strength in the remaining asset classes has helped keep my old 401(k) buoyant. (Even though no new funds have been added in 2 years, that account keeps growing steadily. The only explanation I can come up with for its performance is the regular re-balancing. Good asset allocation probably plays a role as well, but it is still a bit too diversified.)
Now, there are some other things out there I plan to read. For starters, Investopedia has a guide to portfolio construction. And it goes without saying that reading Swensen's book moved up several notches on my to do list. But for the money and time, Teresa Lo has the best practical guide to portfolio construction I've seen. She put into words things I could only say I've assumed or "felt" (that is, instinctively known).
I think that, with a little bit of effort, I can come up with a suitable re-balancing model that will work for me. Having direct access to Teresa's model doesn't interest me beyond the educational value. The theory is well established with me, so its not a matter of implementation, and every implementation will vary because every investor has different goals.
Now to formalize what I've learned in the last few hours! Woo hoo! There will be more on this topic in the future.
Until next time...
Note: The above link to Pioneering Portfolio Management is a sponsored link. Yes, I'll be rewarded if you purchase via that link. I think I get 1/200th of a cookie or something like that.
Its not that I think my portfolio is poorly constructed, but it is an amateur's portfolio. I know it has weaknesses, the biggest of which (in my opinion) is the number asset classes. It really is too many. As Teresa excerpted from David Swensen's book, Pioneering Portfolio Management, a theoretical ideal floor may be 10% of assets per class. I have experienced this problem within my asset allocation, and it has irritated the hell out of me. Many of my re-balancings tend to be done outside of the portfolio entirely, mostly because I want to invest more in the under-performing or under-invested classes. As many of my asset classes stand, they are underrepresented within the portfolio, which dilutes their impact. So reducing the number of represented asset classes would tend to simplify the entire process.
The other big problem I find myself facing is that I like the "core and explore" approach, with alpha overlays on top of a core portfolio. However, I've never been quite sure what the complexion of the core portfolio should be. All I've known, in the back of my head, is that I have too many asset classes which I consider core which really aren't. In fact, I'd go so far as to say that most of them have been considered "core". Teresa's series really covers this issue well, and I must say it was a breath of fresh air for this amateur.
The "money shot", so to speak, is part 4 of the series. However, part 4 cannot be taken in a vacuum, so I recommend starting at the beginning and working your way through. It won't take very long.
I think Teresa's series is the best prose, short or long form, that I have read on the subject to date. That's why InVivo Analytics is joining my recommended blog list immediately. I mean, I've caught some of her work from the powerswings.com site, but this series sold me completely. Simply explained, well reasoned, quantitative, and with solid results. I also am totally on board with the idea of frequent re-balancing. The average investor who knows little about investing (and is happy as such) can keep the annual re-balancing schedule. I, however, find various asset classes going way over their target allocations far to frequently. I also like to capture those moves to my advantage, and the only way to do so is frequent re-balancing. The best example I can give of the benefit of frequent re-balancing has been performance in my old 401(k) due to the recent run-up in Treasury prices (a so-called Flight to Quality). I used this opportunity to let go of a nice sized piece of my Treasury allocation, and the resultant strength in the remaining asset classes has helped keep my old 401(k) buoyant. (Even though no new funds have been added in 2 years, that account keeps growing steadily. The only explanation I can come up with for its performance is the regular re-balancing. Good asset allocation probably plays a role as well, but it is still a bit too diversified.)
Now, there are some other things out there I plan to read. For starters, Investopedia has a guide to portfolio construction. And it goes without saying that reading Swensen's book moved up several notches on my to do list. But for the money and time, Teresa Lo has the best practical guide to portfolio construction I've seen. She put into words things I could only say I've assumed or "felt" (that is, instinctively known).
I think that, with a little bit of effort, I can come up with a suitable re-balancing model that will work for me. Having direct access to Teresa's model doesn't interest me beyond the educational value. The theory is well established with me, so its not a matter of implementation, and every implementation will vary because every investor has different goals.
Now to formalize what I've learned in the last few hours! Woo hoo! There will be more on this topic in the future.
Until next time...
Note: The above link to Pioneering Portfolio Management is a sponsored link. Yes, I'll be rewarded if you purchase via that link. I think I get 1/200th of a cookie or something like that.
Wednesday, April 02, 2008
Balance Sheet Adjustment
So before I go to bed tonight, I just want to briefly touch on some balance sheet updates I'm preparing to make.
First is the self-directed Roth IRA that I am planning to open for 2007. I should probably bump this priority up since 15 April is right around the corner. I figure I'm going to have to do an extension anyway, and I definitely won't owe this year. However, once I leave my current employer, I plan to roll over my old 401(k) accounts into this Roth IRA. We don't know what the future holds tax-wise. (I do believe that the Roth will probably lose its tax advantaged status at some point, personally.) So for now, its the best bet considering that almost any position I take in the future will likely offer a 401(k). Between the 401(k) and the Roth IRA, with its immense flexibility for contributions, its really a handy combination of abilities. I also plan to investigate the Roth 401(k) a bit more closely, but I don't see as many advantages there just yet so that's a much lower priority option.
I've also finally re-obtained the forms to add equity options trading to my brokerage account. This is so long overdue that I'm somewhat upset with myself. However, as I touched on in a previous post, adding options trading and possibly some futures trading will give my portfolio a bit of extra bit of alpha while helping to hedge some of the weakness in my other accounts. We're not swinging for the fences here, just looking to add a few points on the upside. And we're definitely not looking to pick up nickles in front of steamrollers. I'll re-focus on this after I get the self-directed Roth IRA setup, as that is a bit more pressing.
So that's it. A few small things that will hopefully allow me to tweak the composition of my asset mix and add some alpha. Nothing major, at least not yet. Of course I'll keep you posted on how things unfold.
And I didn't get those re-balancing trades done today. From around 2:30 PM EDT until 11:00 PM, I was knocked out. I blame the melatonin and the Simply Sleep that I took. I needed the rest anyway. So I guess I'll get up around 5:30 AM to work out and get started on my day. Which means, it is now time to go.
Later!
First is the self-directed Roth IRA that I am planning to open for 2007. I should probably bump this priority up since 15 April is right around the corner. I figure I'm going to have to do an extension anyway, and I definitely won't owe this year. However, once I leave my current employer, I plan to roll over my old 401(k) accounts into this Roth IRA. We don't know what the future holds tax-wise. (I do believe that the Roth will probably lose its tax advantaged status at some point, personally.) So for now, its the best bet considering that almost any position I take in the future will likely offer a 401(k). Between the 401(k) and the Roth IRA, with its immense flexibility for contributions, its really a handy combination of abilities. I also plan to investigate the Roth 401(k) a bit more closely, but I don't see as many advantages there just yet so that's a much lower priority option.
I've also finally re-obtained the forms to add equity options trading to my brokerage account. This is so long overdue that I'm somewhat upset with myself. However, as I touched on in a previous post, adding options trading and possibly some futures trading will give my portfolio a bit of extra bit of alpha while helping to hedge some of the weakness in my other accounts. We're not swinging for the fences here, just looking to add a few points on the upside. And we're definitely not looking to pick up nickles in front of steamrollers. I'll re-focus on this after I get the self-directed Roth IRA setup, as that is a bit more pressing.
So that's it. A few small things that will hopefully allow me to tweak the composition of my asset mix and add some alpha. Nothing major, at least not yet. Of course I'll keep you posted on how things unfold.
And I didn't get those re-balancing trades done today. From around 2:30 PM EDT until 11:00 PM, I was knocked out. I blame the melatonin and the Simply Sleep that I took. I needed the rest anyway. So I guess I'll get up around 5:30 AM to work out and get started on my day. Which means, it is now time to go.
Later!
Income Statement Adjustment
Man, have I been busy!
So in the spirit of my dedication to being wealthy, I have spent time over the last 2 days normalizing my life.
First, I updated my spreadsheet with new net worth information. Things are progressing steadily there, although as I write this, I get the feeling I won't be able to re-balance and execute trades before the end of today's trading. Oh well.
I then adjusted my 401(k) contributions. While not changing the percentage this time, I changed the elections to be a bit more aggressive. While I'm well aware of Warren Buffett's admonitions that future earnings on equities will likely be in the mid to low single digits annually for some time, I think this holds less overseas. Thus, I increased the money market contribution to 15% (so I have some more dry powder); moved 20% to the emerging markets option (401khelp.com's recommendation); moved 20% to the international company index fund (401khelp.com recommended 30%); moved 20% to the small company fund and 20% to the large company index fund. I can't remember 401khelp.com's suggestions on those but I believe I'm in line with them. They recommended 10% in the REIT selection, while I ratcheted down from 10% to 5% there. (That's where the money market increase came from.) We'll see how this goes. All of this year's performance has come from contributions, both individual and employer. I'm down a bit over $2000 just on market performance.
I also checked my pay stub and found that my next check will be a bit larger due to the reduced 401(k) contribution. Most of this will either end up directed into a new savings account for investment, or toward my credit card debt. Even after all of this, my spreadsheet is showing $500 which is unallocated and basically unaccounted for.
I also restarted tracking my expenses in my spreadsheet again. I'd been off this through February and March, to my chagrin as I now have catching up to do. This will show me if I really have that extra $500 every month; I expect to fill in March just to get a recent baseline. If I do, I'll apply most of it to the credit card (maybe 80%) and the remainder to savings or fun. Most likely it will be fun since I have a bunch of plans for enjoying the summer with my friends and family.
The extra $500 in monthly income is a bit unnerving, however. I say that because I feel as though I'm on the edge financially, or at least closer than I'd like to be. Maybe that's because of my aggressive savings goal due to my underfunded emergency savings account. However, I think the bigger concern is that I haven't tracked expenses for the last 2 months so I'm just nervous about how much I may be overspending. It's all in your head, right?
There will be a few other changes coming, so stay tuned...
So in the spirit of my dedication to being wealthy, I have spent time over the last 2 days normalizing my life.
First, I updated my spreadsheet with new net worth information. Things are progressing steadily there, although as I write this, I get the feeling I won't be able to re-balance and execute trades before the end of today's trading. Oh well.
I then adjusted my 401(k) contributions. While not changing the percentage this time, I changed the elections to be a bit more aggressive. While I'm well aware of Warren Buffett's admonitions that future earnings on equities will likely be in the mid to low single digits annually for some time, I think this holds less overseas. Thus, I increased the money market contribution to 15% (so I have some more dry powder); moved 20% to the emerging markets option (401khelp.com's recommendation); moved 20% to the international company index fund (401khelp.com recommended 30%); moved 20% to the small company fund and 20% to the large company index fund. I can't remember 401khelp.com's suggestions on those but I believe I'm in line with them. They recommended 10% in the REIT selection, while I ratcheted down from 10% to 5% there. (That's where the money market increase came from.) We'll see how this goes. All of this year's performance has come from contributions, both individual and employer. I'm down a bit over $2000 just on market performance.
I also checked my pay stub and found that my next check will be a bit larger due to the reduced 401(k) contribution. Most of this will either end up directed into a new savings account for investment, or toward my credit card debt. Even after all of this, my spreadsheet is showing $500 which is unallocated and basically unaccounted for.
I also restarted tracking my expenses in my spreadsheet again. I'd been off this through February and March, to my chagrin as I now have catching up to do. This will show me if I really have that extra $500 every month; I expect to fill in March just to get a recent baseline. If I do, I'll apply most of it to the credit card (maybe 80%) and the remainder to savings or fun. Most likely it will be fun since I have a bunch of plans for enjoying the summer with my friends and family.
The extra $500 in monthly income is a bit unnerving, however. I say that because I feel as though I'm on the edge financially, or at least closer than I'd like to be. Maybe that's because of my aggressive savings goal due to my underfunded emergency savings account. However, I think the bigger concern is that I haven't tracked expenses for the last 2 months so I'm just nervous about how much I may be overspending. It's all in your head, right?
There will be a few other changes coming, so stay tuned...
Monday, March 31, 2008
On Why I Have Not Yet Purchased a House
I'm not sure how I originally came across this article, probably from a blog I was reading the other day, but it was a must read. So once I finally got around to it, all I can say is that I've found my long lost brother!! Finally, a short but thorough explanation of the myths around home buying. I just have to comment on these points, and this post will become an eternal reference for anyone that tells me to buy a house. That way I can avoid telling them to fugg off.
Let's look at #1 and #3 together. I swear that so few people actually do the math on owning a house. I actually sat down and created a simple model, based on a rough estimate of costs for my parent's house. While it was not perfect -- no model is -- it gave (and continues to give) me a good sense of how all the pieces fit together. That is why I refuse to buy a house until the cost of owning, on a monthly basis, is within 10% of my complete rental expense. (That might be too tight a window, but I'm open to re-considering it.)
Continuing with this thought, I really don't see how so many people missed the fact that increasing home prices would lead to increased tax assessments. We can forget the fact that assessments generally occur at intervals of 2 - 3 years for most jurisdictions. (I know there's got to be a jurisdiction somewhere that assess annually but I don't know of any off of my head.) Even if you own your house outright, the taxes have to be paid every year. There's no escaping that; its a fixed. (Fixed in that its not going away, although clearly the assessment can change or be challenged. Go Larry Ellison!)
Myth #5 really pisses me off. Unfortunately, I'm going to paraphrase Robert Kiyosaki here, because this is one area where I agree with him. Your own house is a liability. Nothing more. It surely is not an investment. Now, the house may be the largest "asset" that most people own, and ever will own, but a house is not an investment. I'd be hard pressed to even count it for most purposes, once you consider the illiquidity of a house, but I guess we can let that one slide for accounting purposes. At no point, and in no way, should a house be considered an investment if YOU live in it. Its shelter. Like any other purchase, it should be evaluated based on its cost effectiveness at providing that. Now, if you have the incremental income or marginal wealth to afford the excess cost of the more expensive house, by all means, go for it. I would. But if you just need a place to live, then a house should considered purely on that merit.
Finally, myth #2. I'm not sure which myth I hate the most, but it probably is this one. The mortgage interest deduction is a DEDUCTION. Its not a credit! That means you have to spend more to increase the amount of the deduction, as the deduction is calculated by multiplying your marginal rate times the amount of the mortgage interest you paid. To put what the author said in a different way, how much money are you saving if you pay $1.00 to make $0.30 (or $0.38 even)? If you can't figure out THAT math, you deserve to be broke.
Whew! Such an emotional topic. It really shouldn't be. Either the numbers make sense or they don't, and they haven't made sense in a long time - at least since 2002 if not longer. So now, when some bonehead tells me to buy a house, I can point them here. Yay!!!
A house is to be lived in. Whatever you do in the location you call home, that's fine. But please do not confuse that structure to be an investment, or even a good deal. When the total cost annually -- principal, interest, taxes, insurance (so-called PITI), maintenance, and utilities -- is reasonably close to the cost of renting -- in my case, rent, a parking space, and utilities -- then I'll jump in with both feet, but not a moment sooner.
Let's look at #1 and #3 together. I swear that so few people actually do the math on owning a house. I actually sat down and created a simple model, based on a rough estimate of costs for my parent's house. While it was not perfect -- no model is -- it gave (and continues to give) me a good sense of how all the pieces fit together. That is why I refuse to buy a house until the cost of owning, on a monthly basis, is within 10% of my complete rental expense. (That might be too tight a window, but I'm open to re-considering it.)
Continuing with this thought, I really don't see how so many people missed the fact that increasing home prices would lead to increased tax assessments. We can forget the fact that assessments generally occur at intervals of 2 - 3 years for most jurisdictions. (I know there's got to be a jurisdiction somewhere that assess annually but I don't know of any off of my head.) Even if you own your house outright, the taxes have to be paid every year. There's no escaping that; its a fixed. (Fixed in that its not going away, although clearly the assessment can change or be challenged. Go Larry Ellison!)
Myth #5 really pisses me off. Unfortunately, I'm going to paraphrase Robert Kiyosaki here, because this is one area where I agree with him. Your own house is a liability. Nothing more. It surely is not an investment. Now, the house may be the largest "asset" that most people own, and ever will own, but a house is not an investment. I'd be hard pressed to even count it for most purposes, once you consider the illiquidity of a house, but I guess we can let that one slide for accounting purposes. At no point, and in no way, should a house be considered an investment if YOU live in it. Its shelter. Like any other purchase, it should be evaluated based on its cost effectiveness at providing that. Now, if you have the incremental income or marginal wealth to afford the excess cost of the more expensive house, by all means, go for it. I would. But if you just need a place to live, then a house should considered purely on that merit.
Finally, myth #2. I'm not sure which myth I hate the most, but it probably is this one. The mortgage interest deduction is a DEDUCTION. Its not a credit! That means you have to spend more to increase the amount of the deduction, as the deduction is calculated by multiplying your marginal rate times the amount of the mortgage interest you paid. To put what the author said in a different way, how much money are you saving if you pay $1.00 to make $0.30 (or $0.38 even)? If you can't figure out THAT math, you deserve to be broke.
Whew! Such an emotional topic. It really shouldn't be. Either the numbers make sense or they don't, and they haven't made sense in a long time - at least since 2002 if not longer. So now, when some bonehead tells me to buy a house, I can point them here. Yay!!!
A house is to be lived in. Whatever you do in the location you call home, that's fine. But please do not confuse that structure to be an investment, or even a good deal. When the total cost annually -- principal, interest, taxes, insurance (so-called PITI), maintenance, and utilities -- is reasonably close to the cost of renting -- in my case, rent, a parking space, and utilities -- then I'll jump in with both feet, but not a moment sooner.
Subscribe to:
Posts (Atom)