This is going to be rather philosophical and a lot of introspection. At this point in my investing career I think this is something I personally need to do. Hopefully it will be of interest and maybe insight to others, or spur helpful comments for me to ingest.
My July update was a disclosure that I’ve been de-risking, for multiple reasons. Some were purely emotional (risk aversion), some where macro trends (which fed the risk aversion monster), some were burn-out. But I thought I’d post an update for this month.
My changes over the last 3 months have had their desired impact in that I’ve been stressing less about the IRA and the markets. At a time like this I’ve been more concerned about protecting against a loss versus capturing a gain. Some use the “cushion” from this style of investing to “allow” for some loss, whereas I’ve been using the cushion to “allow” for missed gains. Make sense? It comes down to what you are comfortable with as an investor, and what your goals are.
But have my changes shielded me from volatility? This is unclear. While I have certainly stressed less since late June, which has its merits, how have I done financially? That is less clear. For example, I’m only down 1.3% from where I would be if I had made zero changes from June 24th forward. (Now, what are the odds I would have made no changes in 2 months?) And I’m down less than 1% from my portfolio way back in early January. And I’m probably over-thinking all of this. But there is something positive to say about stressing less.
For me my long-term goals are rather well defined. And while I cannot, in any way, reach those goals with a traditional balanced portfolio the way asset allocation theory would want me to be (following that is what got me into this mess in the first place), I also don’t need to have the inherent risk of a very concentrated portfolio either. This is about me finding that middle ground.
So why am I even still here? Why do I read, lurk, and sometimes even respond? Well, Stock Advisor, over the last 3.5 years, has helped dig me out of my hole. And this board over the last year is responsible for roughly half of that digging overall. There is obvious value to the approach discussed on this forum, but I needed to find a way to leverage this in a manner that fits my personal risk profile. And if anyone here feels the same, maybe seeing my approach will be as helpful as seeing other’s approach.
Year to Date:
Month Me Benchmark Beat Monthly 01/25 15.6% 8.0% + 7.6% + 7.6% 02/22 26.0% 13.4% +12.6% + 5.0% 03/29 30.9% 14.7% +16.2% + 3.6% 04/26 36.4% 19.7% +16.7% + 0.5% 05/31 33.3% 12.3% +21.0% + 4.3% 06/28 41.5% 19.5% +22.0% + 1.0% 07/26 49.3% 23.8% +25.5% + 3.5% 08/30 43.7% 20.3% +23.4% - 2.1% YoY 16.9% 2.5% +14.4%
TICKER ALLOC. YTD ====== ====== ==== PSJ 20.4% 32.5% high-growth ETF SPHQ 19.2% 19.4% S&P 500 subset Cash 16.4% QQQ 9.4% 22.1% NASDAQ PTF 8.6% 51.4% high-growth ETF PSR 7.9% 24.2% actively managed REIT mix AIEQ 5.6% 20.2% “the robot” PSA 2.7% 29.7% REIT VNQ 2.7% 23.6% REIT index EXR 2.5% 22.9% REIT CCI 2.4% 33.7% REIT VOO 2.2% 17.5%
High-growth is now at 29% of assets, split between two actively managed Invesco ETFs. An additional tech exposure close to 10% through the QQQ. REIT exposure is at 18.2%.
PSJ, PTF Both of these are actively managed ETFs from Invesco and are focused on high growth areas. One is the Dynamic Software ETF, the other is Technology Momentum. I observed in last month’s portfolio update that both of those ETFs had year-over-year returns that closely matched my own returns, and with obviously less work on my part. I’ll admit, this is the biggest reason I’ve pivoted towards having a large allocation in these two. My gains are higher, but not as much as I would have hoped given the work involved the last year.
PSR This is an actively managed ETF of REITs, again from Invesco. The thought here is they choose a subset of the available REITs that they feel are going to do the best based on current market and macro environments. It does not have a large market cap and it does not seem to have high volumes. This concerns me sometimes. Once or twice I put in a large buy order only to have Vanguard flash me a warning and wanting confirmation that I wanted to do this trade due to these conditions (the metrics obviously flagged this on their system). I am, however, quite happy with my allocation and this funds performance. I won’t add to it, however, which explains my other REIT holdings. The REITs are my way of dealing with the cash pile I had, to gain some dividends while reducing tech exposure. I’ve been in and out of REITS for over 4 years now. In 2015 they saved my bacon and brought my portfolio to an annual gain when my target date retirement fund (which was 80% of assets) was negative. A 20% share of REITs over-powered 80% of losers that year. You could say 2015 was a watershed year for me, and is what started my Stock Advisor and active management over the last 4 years.
AIEQ As I mentioned last month this ETF is a bit of vanity for me. About 5 years ago I started pivoting my career into data science, machine learning etc. and this ETF uses those technologies to actively manage a fund on its own. This fascinates me. The fund’s track record is not high enough yet for me, it had a rough patch last year, but this year it’s doing better and I’m wondering if it is starting to learn enough now given its time in the market.
QQQ, SPHQ These two funds are my way of diversifying in a way that does not “buy everything”. Both historically run a bit better than VOO. Both are also Invesco funds. At this point I really do wonder if I’m putting too much into the hands of Invesco…
My long-term goals are a 16% CAGR for the next 10-13 years, as well as aiming to beat the S&P 500 by 8% per year. I believe these goals are quite achievable with work, but I also believe I can hit these goals without the highly concentrated and risky portfolios here. This path should give me twice what I really “need” to retire, so I have some room for under performance. Time will tell how this plays out.
One thing I found interesting is tracking my current portfolio (at 29% high growth, all ETF) versus what it was in early January (at 80% high growth) versus what it was June 24th (at 60% high growth). All three portfolios are with 1% of each other. As well, year over year my own performance roughly matched two different narrowly focused high growth ETFs. Is there anything for me to learn there? For me the lesson was my own brand of stock picking was not doing much better than a selection of ETFs. (Comments welcome if anyone believes I’ve learned the wrong lesson here - that is what this is for.) Will be interesting to see if this changes much over the next few months. While some on this board are clearly doing better than I am, that point is mostly irrelevant. If I can’t beat the ETFs at this game why should I personally bother to play it? Those that can, play on! My hat off to you.
So I continue with the narrowly focused sector ETFs, based mostly on the continued positive view on these types of companies discussed here. But I diversify some into other categories as a risk mitigation. When this trade war nonsense settles down I expect my appetite for risk will rise again, and I will start back into individual stock picks. I don’t believe I’m done with stock picking for good at all. Just for the time being.