One reason I started this blog is to provide the motivation for monthly performance tracking. At the end of each month I’ll calculate returns for the overall portfolio, its main components, as well as comparing with investible benchmarks. For this purpose my portfolio “inception” date is 8/1/2016 and this is my first monthly summary.
Return Calculation Methodology
The returns are calculated using the Simple Dietz method, net of any flows. The basis (denominator) for the calculation is the portfolio value at the end of the previous month + half of the net flow. Monthly figures are geometrically linked to calculate the long term time-weighted returns. From time to time, I’ll also calculate money-weighted returns.
The first column “Passive” refers to the passive portion of the overall portfolio. It’s similar to a typical Boglehead portfolio with the exception of the precious metals (PM) component, which is why I also calculate the returns for “Passive w/o PM” in the 2nd column. The next column is returns from the active portion of the overall portfolio. The active portion further consists of: another PM slug, a dividend growth stock (DGI for dividend growth investing) slug, closed-end fixed income funds, stocks in my employer, and some growth stocks – a real smorgasbord. Of these, DGI is a long term focus that I plan to grow to at heast half of the active portfolio. It’s broken out in the 4th column. The next column, “Total”, is returns for the overall portfolio. Returns on the emergency fund is generally taken to be zero. Lastly, I use SPY and AGG as investible benchmarks of stocks and bonds. The 60/40 and 75/25 allocations of SPY/AGG are calculated in the final two columns. Note for DGI and the index ETFs, dividend payments are treated as net disbursements.
Discussion of Monthly Results
I realize there isn’t much context to the return figures before details of the actual holdings are revealed. They will come in due time. For now, this post serves as record keeping for what happened. August was the worst performing month so far in 2016 where I was up around 15% overall. My timing for startig this blog was impeccable it seems. There were a few things of note:
- Additions to the passive portfolio consisted of contributions to my 401K and HSA.
- The PM portion in the passive portfolio is 95% physical gold and silver bullion, with the rest in miners. My plan is to sell off the miners in PM_passive gradually. Some trimming did take place last month and the proceeds went into VEMAX, one of the out-performers. This has been part of the rebalance plan.
- There has been a sector rotation out of the dividend-paying, defensive names since July and my DGI suffered in that overall environment. Additionally, notable loss came from HSYdue to MDLZ withdrawing its takeover bid, although totally expected.
- Unrelated to DGI, PM is also facing its first meaningful retreat since taking off in January. There were some minor position adjustments in both PM_passive and PM_active. Current overall, passive, and active PM allocation targets remain at 15-20%.
- The August loss of -1.13% makes it by far the worst month this year. Daily loss of 0.3-0.5% has not been common for the overall portfolio but occurred a couple times at the end of the month when PM and DGI suffered losses in concert.
Plan and Forecast
- Further volatility is expected from now till January 2017 in the greater context of a multi-year uptrending market.
- No change in the passive portfolio, maintain monthly contributions. Re-balance at year end.
- Earmark some year-end bonus for annual 529 plan contributions (not part of the overall portfolio).
- Raise cash in the active portfolio by reducing stock in my employer (below 10% of active portfolio), and take profit in short term trading positions.
- Be more selective about option premium selling.
- Keep an eye out on DGI candidates, especially the “forever” names.
- Look to buy back some miners in PM_active.