Don’t call it a (modest) comeback! My stash went up a little bit in the last quarter of 2022. It is time for my personal finance and investing journal update. Let’s update the State of my Stash…
If you are new to my blog, or this series of posts, I am tracking my liquid savings/marketable investments. These posts are sort of a finance and investing journal, so I can look back and see what I was thinking and (hopefully) how I achieved certain financial and savings goals. The primary benefit for me is to have a “forcing function” to make me drill down and see what’s going on.
CURRENT PORTFOLIO ALLOCATION
Most of my stock exposure is through index funds. I do tweak the allocations in these funds based on valuation and/or trend, depending on the account.
In my biggest account, I basically allow myself to allocate between 50% and 100% to stocks (equally split about 1/3rd each between equivalents of the ETFs: SPY, VXF, and EFA).
Throughout 2022, my largest account was 30% in EFA and 15% in VXF and SPY. I continued averaging into these funds (or equivalents) at these allocations.
EFA was up 16.40% in Q4 (!) and SPY and VXF were up 4.35% and 1.86%, respectively. Across 2022, EFA was down (14.19%), SPY was (18.99%) and VXF was (27.32%). That’s probably just a good start after the bubbles of the last 5 years.
I’ve got about 15% in accounts where I pick stocks. Those are basically all 100% long in various names. The remainder is in bills and cash equivalents. My overall allocation seems to be basically unchanged from the end of Q3 (like 60% in bills).
PARTICIPATING IN CAPITALISM
Not really much to say about my active stock picking accounts this update. I’ve been averaging in a little bit of Google and Amazon (back when they were getting murdered a month or so ago). I haven’t done much else. I’m reinvesting (reduced) dividends in $SLG.
VALUE + TREND
I also manage some of my portfolio based on a very simplistic, systematic trend and value strategy.
When long, the account is divided equally: 33% each to the S&P 500 (SPY), the Dow Jones Completion Index (VXF), and foreign stocks (VXUS). Basically, if the valuation of one of these indices/funds is rich (as determined by me, based on a somewhat discretionary “process”), then I apply a simple moving average trend-following rule.
The idea is to have some risk management in place when stocks are expensive by selling when they have negative time-series momentum (for example, when stocks are down over the last 12 months or below the long-term moving average).
When stocks aren’t expensive, I just want to be long and strong (so no trend-following). I only allow changes once a month in an effort to limit the number of “whipsaws”(when I sell and later buy back into the equity fund at a higher price than I sold, because the trend rule says so, resulting in a loss).
If you’re interested in learning more about trend following, I would recommend you start by searching for info on the Alpha Architect and Meb Faber sites. Jeremy Siegel also touched upon the subject of trend a little bit in Stocks for the Long Run.
I have about 25% of my overall investments in this account/strategy. I am prioritizing contributions into this account. It should become a larger allocation over time (unless the relative performance stinks).
As of 12/31/2022, this account was still 100% in t-bills/cash (it’s actually in one of those “stable funds”). Since March 2022, this account has been 100% in cash equivalents.
For the full year 2022 this account was down (3.88%). This beat the primary benchmark I’m using: $AOR. AOR tracks a globally diversified version of a “60-40” portfolio. AOR was down (15.15%) for 01/01/22 through 12/31/22. As I’ve said, SPY also got smoked (18.99%).
I remain pretty pleased with the performance of this account. It put up a 17.29% return in 2020, smoking the 10.75% return for $AOR (and basically matching the 17.24% return for SPY). Some of that was just timing luck around the COVID crash and rebound. That’s ok, I’m not looking for this to avoid those kinds of moves. I’m looking to mitigate something similar to a 1929-1931, 1973 – 1974, or 2001 – 2003 bear market.
While I took a loss versus SPY in 2021 (+30% vs. +14% for this account), that was due to the 33% (each) allocated to VXF and VXUS (there were no trend rule signals/changes). I’m just not sold on concentrating everything in U.S. large caps.
I also like how the strategy has continued to serve as sort of a psychological “release valve,” providing reassurance that even though the market was expensive, I am rolling with some risk reduction. I have taken a few whipsaws over the last several years (for example a small one in 2020…which could have been worse), but those haven’t been huge or bothered me much. I basically view it as cheap insurance that I only buy when I think the market is expensive.
I actually feel like I am getting set up for a whipsaw as I write this. Earlier this week, I bought the VXUS allocation after applying the trend test. It did not feel great, but I have committed to let “system 2” rules make the decision.
STASH STATS
Now on to the balance update. As a reminder, as of September 30, 2022 I was at about $406,000.
Since that date, I have continued to automatically save. Automating my savings is my strategy of managing my behavior (and limiting the willpower required to stay on plan) by basically saving/paying myself first, then dealing with the consequences in the rest of my budget.
I have been saving about $5K per month automatically into my relevant accounts. I did have to withdraw about $6K during the fourth quarter of 2022 to handle some lumpy spending. So my net savings probably dropped to about $3,500 per month during Q4.
I was able to hit several savings goals in 2022. My “order of savings operations” was: 1) 401(k) up to employer match; 2) HSA; 3) 457 plan to max (wife has access via job); 4) max my 401(k). I got through all of these in 2022. I also bought $10K in series I savings bonds. Maybe I will do another post about setting my 2023 savings goals.
I also recently did a survey of our spending (in mint) and it looks like we spent an average of about $7,500 monthly over the last year. That’s a bit higher than I would like. I need to see if I can figure out how to reduce that. Some expenditures for child care should roll off in 2023, but I’ve also been trying to run pretty lean in other areas (and wait for things like used car supplies to normalize). I am probably going to be increasing spending on transportation and housing over the next couple of years. I think food and dining are probably the areas that need attention.
Despite my higher than desired spending, the Q4 market bounce showed up in my stash as well. I ended Q4 with about $437,000 in my portfolio.
How Fast is the Stash Growing?
In 2021, I started tracking the rate of how quickly my stash is growing, including both savings and investing gains (or…losses). This is an odd metric for most use cases, but it is easy to compute and reflects both levers that I am trying to use here (saving and investing). Thanks to an idea from a twitter friend (@DadInvest follow him if you don’t), I also started tracking the 5-year trailing CAGR for my total invested assets (this also includes both gains and contributions….beardstown ladies style).
First, my percentage increase in the stash from saving and investing for 2022 was 4.5% (437-418/418). The five year trailing portfolio/savings CAGR is 21.73% (12/31/2017 to 12/31/2022)(again, this includes contributions and is not offered as evidence that I am an investing savant).
This 5 year CAGR is cratering and is much lower than the almost 40% rate when I computed this at year end 2021. I guess it is still a decent motivator.
THAT’S A WRAP
So anyways, that’s the state of my stash. I mostly hit my savings goals this year and made it through an almost bear market pretty ok. I guess it would have been much worse if I were fully long stocks this whole year. I have been mentally playing with the idea of increasing the allocation to my value + trend strategery, but that’s not the kind of change I want to make in a bear(esque) market. Something I will continue pondering into 2023.
Thanks for reading!