Saturday, October 24, 2009

* 2009-Q3 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-Q3. Below is a high-level summary of the information contained in the PDF:

Asset Allocation Actual Target Diff.
Cash/Fixed Income 27.2% 27.0% 0.2%
Equities-Domestic 37.3% 39.0% -1.7%
Equities-Internl 22.8% 24.0% -1.2%
Employer Equity 12.7% 10.0% 2.7%
Total 100.0% 100.0%
Cash/Fixed Income 27.2% 27.0% 0.2%
Large Cap. 45.2% 48.0% -2.8%
Small/Mid Cap. 14.9% 15.0% -0.1%
Employer Equity 12.7% 10.0% 2.7%
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 have been over-allocated in my employer's company stock. During the third quarter I made significant progress bringing this allocation in line. On September 30th my company stock holdings made up 12.7% of my total portfolio compared to 18.7% on June 30th and a target allocation of 10.0%. I lowered my allocation by exercising employee stock options for cash, selling shares held and allocations in my 401(k). My next trading window will open in November and I plan to continue a steady reduction until I obtain my target allocation.

II. International Holdings
I increased my international holdings from 18.1% to 22.8% vs. a target of 24%. This increase was primarily the result of a reallocation of my 401(k). As discussed in "International Income Investing", going forward, my primary focus will be on U.S. equities in my dividend income portfolio. I will continue to use my 401(k) and my Asset Allocation Portfolio to ensure an adequate international allocation.

III. Cash/ Fixed Income Allocation
I continue to focus on my Cash/Fixed Income allocation. My target is 27% and I am currently at 27.2%, up from the 22.8% at the end of June. Again, the largest source of the increase was from reallocation within my 401(k).

2009-Q3 Performance

The third quarter was very kind to my portfolio. Through June I had trailed the S&P 500, but my income portfolio's year-to-date performance passed the S&P in July before slipping back behing it in September. Below are the YTD performances of various categories along with my S&P 500 benchmark (VFINX):
Portfolio Wtd. Avg. 2009 YTD 2008
Income Stocks -3.2% 19.7% -20.4%
Pocket Change (9/08) 7.4% 13.9% -7.3%
Income ETFs -7.5% 19.0% -27.3%
Asset Allocation -4.6% 27.1% -28.4%
Mutual Funds -13.5% 19.2% -38.0%
S&P 500 (VFINX) -12.2% 20.0% -36.3%
BRK.B -16.9% 3.4% -32.1%
Income Stocks vs S&P 9.0% -0.3% 15.9%
Income Stocks vs BRK 13.7% 16.3% 11.7%
When weighted with 2008, all portfolios 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 Q3/2009 my passive income averaged $714/month, down from the $822/month in Q2. The decrease resulted from dividend cuts in my non-income portfolios and lower interest rates on cash holdings. 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-January. As always, thanks for reading!
(Photo: sanja gjenero)

Cash/Fixed Income 28.0% 27.0% 1.0%
Equities-Domestic 37.9% 39.0% -1.1%
Equities-Internl 23.5% 24.0% -0.5%
Employer Equity 10.6% 10.0% 0.6%