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Saturday, January 17, 2009

* 2008-Q4 Progress Review

On the third Saturday after each quarter-end I review my asset allocation and year-to-date total returns by category. The attached PDF contains my actual asset allocation as of 2008-Q4.

Asset Allocation

There are three areas that I am focusing on from an asset allocation perspective.

I. Employer/Company Stock
As discussed in the previous reviews and in "My Dirty Little Secret", I am way over-allocated in my employer's company stock. On December 31st my company stock holdings made up 36.6% of my total portfolio compared to 40.8% on September 30th and a target allocation of 40.0%. The decrease primarily resulted from a drop in my employer's share price, along with a the sale of a sizable block during the quarter. My next trading window will open in February and my new target allocation then will be 38.75% at that time.

II. International Holdings
I increased my international holdings from 11.2% to 12.1% vs. a target of 20%. As discussed in "International ETF Dividend Investing", I hope to accelerate this allocation by continuing to purchase International ETFs for inclusion in my Income ETF portfolio. The above increase was a result of a reallocation in my 401(k) plan.

III. Financial Holdings
With the continued drop in financials, my allocation in financials fell from 9.7% last quarter to 9.1%, which is below my target of 10%. This is compared to a 15% maximum. Given the current uncertainty surrounding the ability to sustain dividends by institutions participating in the TARP program, I have limited my purchases in this sector.

2008-Q4 Performance

Like the market in general, the fourth quarter was not kind to my portfolio. Below are the YTD performances of various categories along with my S&P 500 benchmark (VFINX):
  • Income Stocks Q4:-20.4% Q3:-4.3% Q2:-12.4% Q1:-3.6%
  • Income ETFs Q4:-27.5% Q3:-16.3% Q2:-12.8% Q1:-4.7%
  • Asset Allocation Q4:-28.4% Q3:-11.9% Q2:-4.7% Q1:-3.7%
  • Mutual Funds Q4:-38.0% Q3:-19.8% Q2:-10.8% Q1:-8.8%
  • S&P 500 (VFINX) Q4:-36.3% Q3:-18.7% Q2:-12.8% Q1:-9.9%
I am pleased that each category, except mutual funds, is equal to or 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.

The continued under-performance of mutual funds, ETFs and CEFs compared to individual stocks, has led me to no longer target a specific allocation by type of investment. I will continue to allocate my investment based origin, capitalization and sector as noted in the above-linked PDF file.

Passive Income

For Q4/2008 my passive income averaged $1,058/month, up from the $835/month in Q3. The increase related to several securities that pay an annual dividend in the fourth quarter, offset by lower interest income. This amount includes all sources of passive income in my taxable accounts, primarily interest and dividends. It excludes my Roth IRA, 401(k) and blog income (which is not passive).

The next update will be on Saturday April 18th. Thanks for reading!

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