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Saturday, April 18, 2009

* 2009-Q1 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 2009-Q1.

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 March 31st my company stock holdings made up 21.9% of my total portfolio compared to 36.6% on December 30th and a target allocation of 38.75%. Unfortunately, none was sold during the quarter and the entire decrease resulted from a drop in my employer's share price. My next trading window will open in May and my new target allocation then will be 37.50% at that time. Given where the share price is, I don't anticipate any sales during the second quarter. I do have some options expiring in February 2010, and may exercise them if circumstances warrant it.

II. International Holdings
I increased my international holdings from 12.1% to 15.0% vs. a target of 20%. As discussed in "International Income Investing", going forward, my primary focus will be on U.S. equities in my dividend income portfolio. I will use my 401(k) and my Asset Allocation Portfolio to ensure an adequate international allocation. The above increase was a result of a reallocation in my 401(k) plan.

III. Financial Holdings
With the recovery in financial stocks, my allocation in financials increased from 9.1% last quarter to 10.8%, which is slightly above my target of 10% but less than the 15% maximum. The entire increase was a result of the securities performance in Q1. Given the current uncertainty surrounding the ability to sustain dividends by institutions participating in the TARP program, I continue to limit my purchases in this sector.

2009-Q1 Performance

Like the market in general, the first quarter was not kind to my portfolio. Below are the YTD performances of various categories along with my S&P 500 benchmark (VFINX):
Q1/2009 2008
Income Stocks -13.4% -20.4%
Pocket Change -1.5% -7.3%
Income ETFs -15.7% -27.3%
Asset Allocation -11.6% -28.4%
Mutual Funds -10.5% -38.0%
S&P 500 (VFINX) -11.0% -36.3%
BRK.B -12.3% -32.1%
As noted by S&P, the Dividend Aristocrats have underperformed the index as a whole and I have found the same true in my income portfolios. For 2008, my income investments and asset allocation portfolio out-performed the S&P. As shown above, this has certainly changed in 2009. Year-to-date, mutual funds and the pocket change portfolio are the only two portfolios beating the S&P. As I stated all during 2008, 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.

As mentioned above, I no longer feel that international securities are the best investments in an income portfolio. Also, I continue to question the validity of ETFs and CEFs as viable income securities and no longer provide them a monthly funding/allocation. I will continue to allocate my new investment based origin, capitalization and sector as noted in the above-linked PDF file.

Passive Income

For Q1/2009 my passive income averaged $744/month, down significantly from the $1,058/month in Q4. The decrease related my concerted effort to replace higher yielding and riskier stocks with lower yielding and less risky stocks. I still have some additional tweaks, but the majority of the planned changes are complete. The above amounts include 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 July 18th. Thanks for reading!

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