If you continued to ride the market and in the process acquired some more investments in stocks or ETFs, chances are you’ve done well in 2017. But how do you how well your investments are doing or if they could or should be doing better? That’s where benchmarks come into the picture.
It’s nice to see that your investments are experiencing gains. At the same time, a benchmark should be used to determine if the gains are appropriate. For many of us, the benchmark is usually the S&P 500 index or the Dow Jones Industrial Average.
The past year, I almost beat the S&P 500. This is based on the data provided by Personal Capital – one of my favorite personal finance tools.
As you can see, I finished 2017 with 18.78% and the S&P with 19.42% a difference of only.64%. I believe I could have come even closer or would have beaten the index if I didn’t sell off some stocks that were performing really well, thus licking in gains, and then rebalancing/diversifying by buying ETFs.
The stocks I sold were doing well and of course, that’s why it was hard to sell. But I decided to follow the advice of billionaire Warren Buffet – “buy low, sell high”. If it was easy everyone would do it, right?
For financial and psychological reasons it may be hard to sell a stock in the first place. Therefore, a psychological trick I like to use is to not track the stock anymore after I sold it. If it continues to rise, I won’t be mad at myself for selling it. If it falls, I would have made the right decision, even though I’m no longer monitoring it.
Portfolio Composition Which Generated An Almost 19% Return
My portfolio is roughly comprised of the following:
- 401k account – Vanguard index funds including small-cap, mid-cap, and international and less than 10% in bonds. These are crazy cheap to own have which is my favorite characteristic.
- Spouses 401k account – this holds a TRowe Price target date fund. I have to actually go in and see if other options are offered and if am able to save in fees by selecting my own allocation of funds. I’m not a fan of target date funds since I prefer to do my own allocation of funds and save in fees as a result.
- Traditional and Roth IRA accounts – both IRA accounts have either REITs and/or high yielding dividend securities as they are tax-sheltered. I felt like an IRA account is appropriate for these types of securities for my situation as I can avoid paying tax on the income earned….for now 🙂
- Brokerage accounts – a collection of stocks, index funds and ETFs in multiple industries with a heavy weighting in technology and consumer cyclical. I have this weighting because I am most likely an end-user of the products offered by these companies. For example, I own Proctor and Gamble (PG). Their brands include Crest, Gillette, and Pampers among many others. These are brands that we have been purchasing for years and thus are satisfied with the quality of the products. Their long history and continuous increase in dividend provide comfort to me as an investor.
- Kid’s 529 account – this is a target date TRowe Price fund based on the estimated date our son is expected to start college. I really don’t count this as my portfolio as the funds are earmarked for the specific purpose of college education.
- Cash balance – this is a safety net due to an emergency (e.g. loss of job or accident). Also, it is a buffer for a possible future value investment opportunity when one arises.
Where Did I Do Well?
Overall in the core stock market with companies that are continuing to rise such as such as AMZN and NOC, I’ve done alright. From my minuscule stake in these two stocks, I’ve benefitted from a gain of more than 49% from AMZN and about 24% from NOC as compared with the S&P:
Extracted From Google Finance
Where Can I Improve?
As I mentioned earlier, my spouse’s 401k is a target date fund. I can and plan to go into the account and see what changes can be made to maintain or improve diversification and reduce fees. Over time, fees can eat up returns and as the balance increases so do the number in fees. With so many low-cost options of funds out there that are performing well as compared to their high-fee counterparts; it just doesn’t make sense to continue to pay for under-performance.
I believe I can also improve by diversifying into small-cap index funds. For example, Vanguard’s small-cap ETF (VB) doesn’t have a minimum investment amount since it’s an ETF. The fund did not beat the S&P 500 index; however, at a glance, it’s attractive due to the following:
- The fee is super-low at 0.06% and the average annual 10-year return is 9.68%.
- It will allow me to further diversify, seek long-term growth via the growth industry and benefit from low-fees in my after-tax account.
- It does pay a decent dividend, most recently at .775 per share with the dividend yield averaged out to 2.03%. I try to place the higher income generating investments into an IRA or Roth account anyway for the tax savings.
Have you measured your accounts with a benchmark for the past year? If so, how did you do? How do you usually assess your financial investments to see what can be improved or optimized? Please share your thoughts below.
I use Personal Capital because (1) it’s free, (2) it tracks all of my accounts and overall net worth, (3) my account balances automatically update, (4) it shows how my investments are diversified and allocated in various sectors, and (5) can use built-in tools like “Investment Checkup” to get….wait for it…free personalized advice!