At long last, 2020 is over! Dr. Fauci says we could potentially be looking at a somewhat normal life by the fall. (meh) In the meantime, we have my monthly updates to get us through.
It is time for my monthly savings and investing journal update. Let us examine the State of my Stash…
THIS MONTH
As a reminder, I ended November at about $308,000.
I continued the somewhat increased savings in December, saving about $5,000. I’ve written about this before, but I try to automate as much of my savings as I can. I basically save first and then deal with the consequences.
I don’t really budget, but I do sort of monitor my spending on mint and really as a result of having to deal with expenditures from the funds remaining after I save. This year, I wanted to max out my 401(k), available 457, HSA, and save a little bit more. I didn’t quite get the funds in those particular accounts but I did meet my savings goal (detailed below).
I have also started doing sort of spending audits just to check where my money went on a more detailed level. I plan to do one of those for the second half of 2020 in a separate post soon. I will also combine this with a total net worth estimate update. As a reminder, the figures I track in this post are just liquid investments/marketable securities.
With the savings and market gains in December, I ended up with around $320,000 in the relevant investment accounts.
CURRENT PORTFOLIO
I am still the owner of a good chunk of foreign stocks. See Media Pin of the Week – More GMO, Weekly Media Pin – Grantham on Graham, Best Foreign Value Factor ETFs, Resource Roundup: More CAPE, and Foreign Value Factor ETFs Update. This weighting is nothing crazy; about a 30% overall allocation to foreign stocks.
I do have most of this exposure via EAFE stock index funds. I am trying to limit exposure to China (and some other emerging markets). I think Jack Ma and BABA are a good example of why.
Since it is the end of calendar years 2020, let’s take a look at performance over the year: As you can see from the chart (maybe….Koyfin changed a ton of stuff and I’m kind of hating it/struggling to stick with it), the SPY was up 17.24% and the QQQ was up 46.18% (!!!!). Foreign developed stocks (EFA) were up (gasp) 6.52%.
Value stocks did turrible: RPV was down (8.96%) and QVAL was down (6.15%). VBR (Vanguard small cap value) was up 6.04%, but I pretty much threw this fund out of my universe after the largest position for much of this year was Tesla. No matter what you think about Tesla, it should not have been in a properly functioning quantitative value strategy.
Not pictured in the chart above, BRK put up a 1.52% increase and AOR (ishares growth allocation ETF…basically a globally diversified 60-40 portfolio) was up 10.75%.
I only did about 6% in my 401(k) for 2020. This is my largest account (about 70% of my total). The account is only about 60% allocated to stocks right now. That has been the case for most of the year. I basically allow myself to toggle from 45% to 90% long stocks based on valuation.
I have tried to become more systematic and use written rules incorporated into an investment policy statement, versus making ad hoc allocation decisions (as I was doing a few years back). This is my attempt at a compromise to allow myself to balance risks and return in the markets and control potential for behavioral mistakes to hurt me (e.g., piling in at “the top” and piling out “at the bottom”).
Despite these efforts, I did make (at least) one material behavioral mistake in 2020 in this account. Going into this year, I decided to remove a rule that allowed a discretionary 10% overweight to a particular stock fund (I basically have VXF, EFA, and SPY as my stock allocations in this account).
I was just going to let this phase out over time as new contributions came into the account, but on March 16, I went ahead and decided to move the 10% overweight out of EFA and into t-bills. This was just a few days before the bottom. Clearly the market price action impacted my timing in implementing this change.
EFA was up about 50% from this date. So, I cost myself maybe another 5% of performance in this account by exercising the discretion to go ahead and move that EFA allocation to 30% from 40%. Oof level 7.
Otherwise the drag versus the SPY is just due to my greater allocation to bills and foreign stocks. I am never going to be a 100% SPY guy (diversification is a free lunch over the long sweep of history). I also think it’s a poor bet to be bigly long bonds here.
The average yield to maturity on the AGG (US bond index) is like 1% and the people who print the money are telling us 2% inflation is the minimum they will accept. Of course you could have said pretty much the same thing coming into 2020 and the AGG was up ~7% (more than my 401(k)). But there are a lot of stupid things going on right now in my opinion (and I’m an expert on stupid things…believe me, or read this blog).
TREND + VALUE ALLOCATION
I also manage some of my portfolio based on a very simplistic, systematic trend and value strategy. In essence, I apply one of the simple moving average signals (thanks to covid-19, everyone is very familiar with moving averages and how they are used to “smooth” lumpy/noisy data to try and discern the underlying trend) and combine that with a valuation trigger/overlay/condition precedent.
The idea is to have some risk management in place when stocks are expensive by selling when they also have negative time-series momentum/trend (for example, when stocks are down over the last 12 months). When stocks aren’t “expensive” I just want to be long and strong. I only allow changes once a month in an effort to limit the number of “whipsaws”(when I sell and am forced to buy back into the equity exposure at a higher price).
If you’re interested in learning more about trend-following, I would recommend you start by searching for info on Alpha Architect and Meb Faber’s site.
The account is divided equally: 33% each to the S&P 500 ($SPY), the Dow Jones Completion Index ($VXF), and foreign stocks (basically, $VXUS).
I now have about 17% of my investments in this account/strategy. I am prioritizing contributions into this account. So, it should become a larger allocation over time (unless the relative performance stinks).
I made a change back in June to go back “full long,” after moving to t-bills with the U.S. allocations back in March. I took a whipsaw on that move out and back. This trend + valuation account roared back from the whipsaw, however, and ended 2020 up 17.29%.
In 2020, this account/strategy beat the benchmark I’m using: AOR, a globally diversified version of a 60-40 portfolio. That benchmark account was up 10.75%. As stated, SPY was up 17.24% in 2020. So the SPY took an L too.
Adventures in Capitalism
I only actively manage (we’re talking “stock picking” here…not asset allocation) about 10% of my overall portfolio, but I really enjoy following the markets and companies. I also think there’s some societal benefit for having humans (and even their algos) out there trying to intelligently allocate capital and back and build businesses to serve their fellow humans. So it’s a hobby I like that I believe has societal benefit and may result in some financial gain. Win Win Win. For more, read The Rebel Allocator
The goal with this section of my journal is to track my thinking about these investments for future reference/analysis. I will also pull together info I want to refer back to in this section.
I recently posted my final 2020 update for the Fun Fund. I was DOWN 11.72%. [hold on a second, I just threw up a little bit….ok, I’m back]
In my HSA, I was up about 25% in 2020. Most of this gain came from REITs like SLG, VNO, EQR, AIV (pre-split), and JBGS; as well as WFC, and EBAY. I also opened and funded a Roth in my wife’s name in March. That’s all in BRK and WFC and it’s up 42.76% (lucky timing). That’s pretty much all of the material stuff.
GOALS!
With the new year/decade, I established some goals for 2020. I have been tracking them in my monthly journal posts to try and prod myself along. Since it is the end of the year, I suppose it is time to assess my success or failure in pursuing these goals.
1) Save at Least $50K – Victory is Mine
I beat this goal. I contributed just over $50K in savings/contributions to my investments in 2020.
On a related point, it looks my total investments at the end of December 2019 were $256,000. So, including gainz, I increased the relevant accounts by about $64,000 to end up 2020 at $320K.
My Beardstown Ladies method annual return (i.e., including contributions and investment gains…haha) for 2020 was 25%; still crushed by the QQQ’s. Oh well, sometime I will tell you about how I was kind of rich in college during the internet bubble and it didn’t end with me rich (obviously).
2) Savings Rate of 60% or Greater – Fail
I didn’t reach this goal. I think I was close to 53%.
3) Book a Trip Using Travel Rewards – EPIC FAIL
HAAAAAAAHAAAAHAAAAA. No! Covid-19. Also, I kind of hate dealing with the travel rewards junk. It really seems like a lot of work and the benefit is premised on the list price quoted to you for the travel eventually booked thought these special non-market channels.
I can get 2% cash back with my Fidelity card with zero hoops and 5% on categories through the chase cash back card if I want to fuss around with something. I think I’m going to have to bounce on the CC rewards stuff. I get why bloggers would want to pump it, because you get these fat affiliate rewards if you refer people. I dunno maybe I will give it a second shot after covid.
4) Read 12 Books – Gentleman’s C?
As for the goal of reading 12 books, YTD I have finished:
When Genius Failed, Concentrated Investing, Factfulness, the Rebel Allocator, Walden, Towers of Debt, Sapiens, Thinking in Bets, and The Perfect Store.
During the year I also “accidentally” re-read Damn Right, Margin of Safety, and The Davis Dynasty. I think I also re-read a “little book” or two. Pretty sure I re-read Greenblatt’s the Big Secret.
I am currently reading The River of Doubt and Captive Audience. I’m mostly done with River of Doubt, but I will save the deets for the next update. Overall, I’m giving myself a Gentleman’s C (pass) on this goal.
5) Achieve Body Fat Composition Below 20% – FAIL
“Fitness? We talkin’ ’bout fitness?” No but seriously, I totally failed this one. I did get one of those Garmin watches for Xmas. Apparently my wife noticed that I failed as well….anyways we will talk about new goals sometime in the next couple of weeks. Is that a donut?
That’s a Wrap
So anyways, that’s the state of the stash as of 12/31/2020. A decent year of saving. I am very thankful we didn’t have any huge financial or health setbacks during this pandemic.
Beardstown method 20%+ CAGR aside, my portfolio performance in 2020 was very meh compared to what was going on out there. Then again, I’ve got a lot of bills and foreign stonks. It looks like I did about an EAFE level (sub 7%) portfolio-wide return for 2020. Not terrible considering all the bills I HODL (but I am not mandated to own those).
As for my personal goals, I did ok on the savings-related benchmarks. I’m also ok with the books goal. If I can just reallocate the time I spend watching youtube videos about the crash of 1987, I can probably crush that performance in 2021.
Let me bid you farewell until next time with a a tweet that fell on deafeningly zero interaction. Happy New Year!