2015 Year In Review – Investing and Net Worth

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Mrs. Groovy and I started 2016 with a net worth $15,135.29 greater than the net worth we had on January 1, 2015. Not a spectacular year, especially when you consider that we put $72,800 into the market last year (this number also includes our employer contributions).

So what went wrong? The S&P 500 was down 0.7 for the year. The Barclays US Aggregate Bond index was up 0.55 for the year. If our portfolio performed merely as well as these two standard benchmarks, Mrs. Groovy and I would be roughly $58,000 richer.

Part of the reason for our poor performance is home improvements. We spent roughly $13,000 on remodeling a bathroom and replacing the carpet on our second floor with hardwood flooring. We could have added a good chunk of those improvement costs to the value of our home, but decided not to. Estimating the value of your home is as much art as science and we prefer to be cautious. Better to underestimate than overestimate our home’s worth. We don’t want any surprises when we sell next year.

Another reason is energy. Damn those Saudis! Ten percent of the equity side of our portfolio is in an energy fund. And to keep it at ten percent we had to put an additional $15k into it. “Be greedy when others are fearful,” a great sage once counseled. I hope this guy knows what he’s talking about.

The biggest hit to our portfolio, however, came from an individual stock. Mrs. Groovy and I are no longer stock pickers. We managed to turbocharge our portfolio a couple of years ago with a handful of stocks (Aerovironment, IRobot, Stratasys, and 3D Systems). But the more we read about investing, the more we realized that this was pure luck. We were in way over our heads. So we got out of  individual stocks before the market humbled us (3D Systems, for instance, is down over 80% since we sold it). We kept one stock, though, a lithium concern in Nevada called Western Lithium. And up until the beginning of last last year, we looked like freakin’ geniuses. Climate change was marching onward. Electric cars were generating some good buzz. And Tesla decided to build its massive Gigafactory just down the road. What could go wrong? Well, dirt cheap oil for one (damn those Saudis!). When oil’s under $40 a barrel, people pine for SUVs, not GM Volts and Nissan Leafs. And apparently there’s some red tape involved in getting the permits to operate a lithium mine. Who knew? So at the beginning of last year, our lithium stock was up over $30k. Now it’s about even.

$1.74 a gallon! You gotta be sh*ting me.

$1.74 a gallon! You gotta be sh*ting me.

Investment Strategy

We tinkered a little with the asset allocation of our portfolio in 2015. At the beginning of the year, we were 70% stocks, 30% bonds. Now our asset allocation is 60/40.

Mrs. Groovy and I consider ourselves Bogleheads, so most of our portfolio is made up of passively managed index funds and ETFs. The funds that are actively managed (most notably the energy fund) make up a little more than fifteen percent of our portfolio’s dollar value.

Mrs. Groovy’s 403(b) is with TIAA CREF. My 401(k) is with Fidelity. Both of our Roth IRAs are with Fidelity. We also have brokerage accounts with Vanguard and Fidelity. Up until a few years ago, our portfolio was a hot mess. There was no coordination. Each account was its own silo, containing a hodgepodge of funds chosen with all the finesse of a well-manicured ape (“hey, these five-year returns look good”). Our diversification sucked as well. We had little bond exposure and no international exposure. But now, at least, all these moving parts are working as one cohesive unit. There’s a plan. Mrs. Groovy’s 403(b) contributions, for instance, go exclusively toward a large cap equity fund. My 401(k) contributions go mostly toward an international equity fund. Here then is the breakdown of our portfolio among the various asset classes. I’ve also included the fund(s) we use for each asset class in parentheses.

Equity Breakdown (not including the Western Lithium stock)

  1. US Large Cap (TIEIX, VOO, FUSVX): 40%
  2. US Mid Cap (IJH, FSEVX): 10%
  3. US Small Cap (IJR, FSCRX): 10%
  4. Energy (FSENX): 10%
  5. REITs (VGSLX, IYR): 10%
  6. International Developed (FSIVX): 20%

Bond/Cash Breakdown

  1. US Intermediate (VBTLX, FTBFX, FGMNX): 60%
  2. Corporate High Yield (SPHIX): 16%
  3. International Emerging (FNMIX): 8%
  4. Cash: 16%

Final Thoughts

For the most part, Mrs. Groovy and I are happy with our portfolio. Mrs. Groovy is very happy with our 60/40 split between equities and bonds/cash. I worry a little bit about that allocation since we’re retiring later this year. I’m wondering if we should follow the Phau/Kitces model of being more defensive at the beginning of retirement? Maybe a 50/50 or a 40/60 split would make more sense? True, interest rates are low, and that would mean locking in poorer returns. But what if we have another 2008-like market crash in the next couple of years? Wouldn’t a 40/60 split minimize that hit and put us in a better position to take advantage of bargain stock prices (rebalance, baby)? It’s definitely something to consider.

Mrs. Groovy and I are also comfortable (again, for the most part) with the asset classes we have chosen for the equity and bond sides of our portfolio. But there are definitely things we don’t like. We would like to shed, for instance, the energy fund. And not because it took a beating last year. We just don’t think we have the ability to pick the winning sectors of the economy. So we want to get out of sector funds. In 2014, for instance, we got out of a biotechnology fund and an agricultural fund. Our plan was to drop the energy fund in 2015, but Mr. Market failed to cooperate. We now have little choice but to wait for oil to come back.

Another thing we don’t like about our portfolio is the lack of an emerging market fund and a short-term bond fund. Roughly a third of the world’s population resides in India and China. Investing a small portion of our portfolio there probably makes sense. Unfortunately, we just don’t have the stomach for it right now. And, then, of course, there’s the Fed. Janet Yellen and her boys have begun the inescapable march of the interest rates upward. Will this march be gradual, over the course of years? If it is, we’re good. Our intermediate-term bond funds should be able to handle it. But what if some crisis forces the Fed to abruptly accelerate the march? Our intermediate-term bonds would get creamed. Is it time, then, to hedge our bets and put some money into short-term bonds? Definitely something to mull over.

Finally, Mrs. Groovy and I are comfortable with our ability to weather a financial storm. If our portfolio took a twenty-five percent hit right now, we would still be above the Mustachian Threshold (a portfolio value equal to twenty-five times one’s annual living expenses). So there’s no need to panic—yet.

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