On October 3, 2018, I published an article revealing the status of my personal portfolio as of September 30, the end of Q3.
As readers who followed my work throughout 2018 were well aware, I had been getting more conservative as the year went along. A large part of the reason for this was that I felt the market had gotten further and further ahead of itself, and had become more cautious as a result.
As of the end of Q3, that hadn’t played out so well. I summarized my YTD results this way.
Long story short, my portfolio has underperformed the U.S. market thus far in 2018. YTD, my overall return is 3.08%. As a couple of reference points, the Dow is up 7.04% YTD and the S&P 500 8.99%. A couple of things have contributed to this underperformance. First, U.S. stocks have continued to outperform everything else. At some level, it’s that simple. Basically, any portfolio diversified into asset classes other than U.S. stocks is likely to have underperformed.
In short, then, as of the end of Q3 my performance trailed the Dow by 3.96% and the S&P a whopping 5.91%.
A Tale of Two Years
In many ways, however, I look at my portfolio performance for 2018 as a tale of two years. You see, that’s how dramatic the turnaround was for me in Q4.
Let’s talk some numbers. In Q4, the Dow dropped by 11.83%, the S&P 500 by 13.97% and the Nasdaq an otherworldly 17.54%! And that was following a halfway-decent recovery from the lows of 12/24, when they had been down 17.64%, 19.32% and 23.03%, respectively.
It was during this quarter that my caution paid off in spades. All in all, my portfolio only took a hit of 4.78% during Q4. For 2018 as a whole, my portfolio declined by 1.94%. In contrast, for the full year the Dow dropped by 5.63%, the S&P 500 by 6.24% and the Nasdaq by 3.88%.
My Portfolio At Year-End and Comments on Q4 Activity
Next, I will reproduce the same graphics I offered in my Q3 summary. Feel free to take a quick peek at the explanations I offered with respect to the details of how these work.
First, what I refer to as the big picture.
Just a couple of comments here, before we move on to the details of my holdings.
First, as you evaluate the comparative 12/31 and 9/28 weightings of my various asset classes, you will notice that ‘Foreign Bonds’ became a new asset class for me during Q4. Essentially, I sold BSV in favor of BNDX, thus the offsetting decrease in ‘Domestic Bonds.’ I made this decision following an article on the topic I wrote for my friends over at Seeking Alpha. As you will see, I wrote that article on August 22. I pondered what I had written and its relevance to my own portfolio for a little over a month and then, on October 5, did something about it. I suggest you take a look at the Seeking Alpha article if you’ve ever pondered the question of including international bonds in your portfolio.
Second, if you look closely, you will see that I made a decision to lower my dedicated weighting in REITs, in favor of adding to my weighting in domestic stocks. Again, if you look back at my Q3 summary, you will see reference to the concept that I felt I had overweighted myself in interest rate-sensitive holdings. This was part of doing something about that.
Next, the details of all my positions, in descending order by weight.
Just one comment here. You’ll notice that my cash allocation dropped by roughly 2% between the end of Q3 and year-end. Simply put, during Q4, and particularly during the December rout, I nibbled on shares of ITOT, IXUS, AAPL, ABBV, CVS, CVX, IBM, JPM, MMM, and WFC. You may not see this obviously in every case, but that is due to the extent of their price declines during the rout.
In my writings, I have consistently featured low expenses, diversification, and a steady stream of dividend income as solid anchors for your portfolio. As featured earlier in this very article, I also encourage each investor to think about where they are personally in their investment life, and make sure their asset allocation is suitable for their circumstances. Particularly if you are either near, as I am, or in your retirement years, you always have to keep an eye out for capital preservation.
For me, following these principles led me to some level of underperformance for the first 9 months of 2018. But the 4th quarter provided a measure of redemption, even allowing me the the opportunity to accumulate some assets as I entered 2019.
I hope your year was successful as well. And not just with respect to your investments, but in every area of your life. Please, remember to take good care of your family. And, if you have found yourself blessed financially, take a minute to give a little something to someone in need. You will be richly blessed for doing so.