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Tuesday, April 8, 2008

* 2008-Q1 Progress Review

Over the last several months I have undertook a project that would allow me to measure my asset allocation over all my investment holdings using three different measures (origin, capitalization and sector). This attached PDF are the results for 2008-Q1.


Asset Allocation
As noted in "My Dirty Little Secret", it was no surprise that I have way too much allocated to my employer's stock. I spent 20+ years getting into this situation and I don't expect to change it over-night. I have developed a 5-year plan for correcting it by systematically lowering the exposure to my company's stock by 5% a year. At the time I set this goal, 45% of my portfolio was company stock, thus my 2008 goal is 40%. During Q1, I transferred a portion of company stock into other investments, but the majority of the decline to the current 39.7% was related to share price.

There were some surprises in this analysis. Prior to completing the analysis, I thought I was significantly over exposed to Financial Services and Real Estate due to the high levels owned in my Income ETFs, Income Stocks and Roth IRA. When viewed across my entire portfolio, financial services is high at 10.8%, but not unreasonable like the 30+% I thought it would be, while Real Estate is about average at 3.2%.

As noted under target allocations, I am over-allocated in mutual funds, under-allocated in in ETFs and about right in income stocks. I will sell securities for allocation purposes but will bring this in line with future contributions.

I am considering guidelines across the various allocations. A few items that jumped out at me were 1.) I am a low on my international exposure and conversely 2.) I am high on my domestic exposure. Overall, it was a good exercise and now that I have a process in place it will be easy to update and maintain.

2008-Q1 Performance
Below are the performances of various categories along with my S&P 500 benchmark (VFINX):
  • Income Stocks (-3.6%)
  • Income ETFs (-4.7%)
  • Asset Allocation (-3.7%)
  • Mutual Funds (-8.8%)
  • S&P 500 (VFINX) (-9.9%)
I am pleased that each category is ahead of my benchmark. However, I am looking to beat the S&P over the long-run, so I don't pay a lot of attention to short-term performance either positive or negative.

Passive Income
For Q1/2008 my passive income averaged $663/month. This amount includes all sources of passive income in my taxable accounts, primarily interest and dividends. It excludes my Roth IRA and 401(k).

Tomorrow I will discuss the process I used to calculate the various asset allocations.


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