Saturday, October 18, 2008

*2008-Q3 Progress Review

On the second 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-Q3.

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 32.1% of my total portfolio, and as of September 30, 2008 that amount was up to 40.8% vs. a target allocation of 41.25%. The increase was a result of a run up in my employer's share price. This sharp increase allowed me to sell a sizable block near the quarter's high. My next trading window will open in early November and my new target allocation then will be 40.0% at that time.

II. International Holdings
I increased my international holdings from 9.9% to 11.2% 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. With the rapid decrease in international markets, I lost ground during the quarter. The above increase was a result of a reallocation in my 401(k) plan.

III. Financial Holdings
With the the financials leading the way in the recent pullback, my allocation in financials at 9.7% is below 10% for the first time. This is compared to a 15% maximum. It will be interesting to see how this shakes out in Q4 with my recent sale of Bank of America (BAC).

As noted under target allocations in the attached PDF, I am over-allocated in mutual funds, under-allocated in in ETFs and slightly over-allocated in income stocks. I will not sell securities for allocation purposes, but will bring this in line with future purchases.

2008-Q3 Performance

During the quarter, my income stocks had a good run while my mutual funds and asset allocation portfolio took a turn for the worse. Below are the YTD performances of various categories along with my S&P 500 benchmark (VFINX):
  • Income Stocks Q3:-4.3% Q2:-12.4% Q1:-3.6%
  • Income ETFs Q3:-16.3% Q2:-12.8% Q1:-4.7%
  • Asset Allocation Q3:-11.9% Q2:-4.7% Q1:-3.7%
  • Mutual Funds Q3:-19.8% Q2:-10.8% Q1:-8.8%
  • S&P 500 (VFINX) 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.

Passive Income

For Q3/2008 my passive income averaged $835/month, down from the $877/month in Q2. The decrease related to lower interest income and dividend cuts in my non-income portfolios. 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 January 17th.