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Saturday, July 25, 2009

* 2009-Q2 Progress Review

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-Q2. Below is a high-level summary of the information contained in the PDF:

Asset Allocation Actual Target Diff.
Cash/Fixed Income 22.8% 27.0% -4.2%
Equities-Domestic 40.4% 39.0% 1.4%
Equities-Internl 18.1% 24.0% -5.9%
Employer Equity 18.7% 10.0% 8.7%
100.0% 100.0%
Cash/Fixed Income 22.8% 27.0% -4.2%
Large Cap. 45.0% 48.0% -3.0%
Small/Mid Cap. 13.5% 15.0% -1.5%
Employer Equity 18.7% 10.0% 8.7%
Total 100.0% 100.0%

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 June 30th my company stock holdings made up 18.7% of my total portfolio compared to 21.9% on March 31st and a target allocation of 10.0%. 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 August and I plan to continue a steady reduction of my target allocation.

II. International Holdings
I increased my international holdings from 15.0% to 18.1% vs. a target of 24%. 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 and some purchases of Vanguard Emerging Markets Stock Index (VWO).

III. Cash/ Fixed Income Allocation
Now that my allocation to financials is in line with my target. I am now focusing on my Cash/Fixed Income allocation. My target is 27% and I am currently at 22.8%, down from the 25.0% at the end of March. This by far will be my most challenging allocation to bring in line.

2009-Q2 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):
Portfolio Wtd. Avg. 2009 YTD 2008
Income Stocks -13.7% -0.2% -20.4%
Pocket Change (9/08) -1.8% 1.9% -7.3%
Income ETFs -17.5% 2.1% -27.3%
Asset Allocation -17.3% 4.8% -28.4%
Mutual Funds -24.8% 1.6% -38.0%
S&P 500 (VFINX) -23.1% 3.3% -36.3%
BRK.B -24.5% -9.4% -32.1%
Income Stocks vs S&P 9.4% -3.5% 15.9%
Income Stocks vs BRK 10.9% 9.2% 11.7%
My income portfolio continued to under-perform the S&P in 2009. However, when weighted with 2008, all portfolios except my mutual funds out-performed the S&P. As I stated all during 2008, it is my desire 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 Q2/2009 my passive income averaged $823/month, up from the $744/month in Q1. The increase resulted from fewer cuts in dividends (I missed some dividends by selling after a dividend cut). I continue to sell my income ETFs that have dividend payments. 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 in mid-October. As always, thanks for reading!

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