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Mid-Year Portfolio Performance Report

Mid-Year Portfolio Performance Report

What's in store for the rest of 2018

We're already well over halfway through the year - it only makes sense to take a quick look at how my portfolio has been performing in 2018. Throughout this post, I'll be referencing my original portfolio and investment plan, so if you haven't had a chance to read it you might want to start there. 

Important note: I make some predictions here. These are mostly for fun, and to set my own expectations for the coming year. I would advise you to A) not take these predictions as advice and B) make sure you plan your investments on a long term basis, which is my plan for this portfolio. Individual years don't make much of a difference over the long run... it's mostly about making a good plan and sticking to it!

Quick Summary

I'll look at this for every index fund, but before I get into in too much detail I wanted to show a quick view of what's happened so far this year. The basic upshot is that everything besides domestic stocks has been doing quite poorly.

Since my portfolio is highly diversified -and I benchmark to a large cap index- that doesn't look great for my overall portfolio performance. So far 2018 has returned a dismal -2.01% against a 5.08% increase for large cap stocks. However, I am very happy that my domestic stock allocation is spread across small, mid and large cap stocks, because small caps have done significantly better than large caps. 

ALSO: I should note that I am not including income in this calculation, but including dividends my return is fairly close to even for the year. 

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Comparison against predictions

Every year, I make predictions about where I believe my stocks are going to go. It's mostly for fun, but this mid-year report is a great excuse to take a look at my predictions so far and see if there are any opportunities for tweaking my portfolio with new investments or rebalancing.

VWO (Emerging Markets)

  • Return in 2018: -7.91%

  • Predictions for 2018 (as predicted on 1/1): "I could almost copy what I wrote for 2017 and carry it forward for 2018. Leverage in China hasn’t become less of an issue, and some cracks are appearing in the facade of the highly leveraged corporations there (HNA group). However, strong sentiment continues to guide markets higher, and without a clear catalyst for a drop, it seems fair to predict a modest rise after this years meteoric surge."

  • Reality: I was right about HNA Group, which is going through some serious challenges right now, but my overall return prediction has been off so far. The trade wars have not been friendly to this investment. Oh well, 2017 was an incredible year so hopefully the trade rhetoric will die down and it will turn around. 

VEA (Developed Markets Ex-US)

  • Return in 2018: -3.80%

  • Predictions for 2018 (as predicted on 1/1): "Although Europe (and Japan) had an excellent year, my long term outlook for developed markets outside of the US remains relatively subdued. Both Europe and Japan have aging populations with a historic bent against consumption. It’s difficult to know where growth may come from. This year’s outperformance rectified the low valuations in European stocks, and any further gains from here will be modest, likely under 8% for the year."

  • Reality: So far, my predictions have been spot on! Unfortunately, that also means that not much has happened with this investment for this year. 

TLT (Long-term US treasuries)

  • 2018 Return: -3.96%%

  • Predictions for 2018 (as predicted on 1/1): "I believe the low volatility of 2017 will end in 2018, driving additional investment into the relative stability of treasuries in 2018. It is quite possible the yield curve will invert in 2018, with long term treasuries earning less than their short term equivalent. Unfortunately, that is also a bearish indicator: 6 out of the last 7 recessions were preceded by an inverted yield curve. I expect 5-6% total return for long term treasuries in 2018."

  • Reality: I was right about rising rates, but overall return was clearly way off here. 

FM (Frontier Markets - Argentina, Turkey, Thailand, etc)

  • 2018 Return: -12.94%

  • Predictions for 2018 (as predicted on 1/1): "Turkey, along with the other middle eastern countries in this index, will likely be a drag on the index (unless oil prices rise significantly). However, the other countries that comprise the index, like Argentina and Thailand, will likely continue their rise as their regional economies continue the exciting growth of 2017. That being said, it is likely that the rise in this index will not be as strong as in 2017, and there is always a potential for China-driven volatility and losses in emerging markets as a whole. I am expecting 10% growth for FM in 2018."

  • Reality: Similar to VWO, I was pretty far off the mark here. The trade wars have certainly have an effect, in addition to civil strife in many of the countries that the index tracks. 

VNQ (REIT - US)

  • Total Return: -2.55%

  • Predictions for 2018 (as predicted on 1/1): "Across the world of real estate, there are caution bells ringing. Retail will likely continue to suffer from the Amazon effect. Apartments have been overbuilt over the past several years, and will likely suffer from lower rents in the coming year. Residential homes will suffer from lower deductions for mortgage interest from the Trump tax plan. Still, this index does return a healthy 4% yield, so in aggregate I would expect a modest 3-4% loss."

  • Reality: My prediction was spot on! Although unfortunately, I predicted a loss. At least I seem to have a good feeling for where the real estate market is going. 

VCLT (Long term US corporate bonds)

  • Total Return: -7.41%

  • Predictions for 2018 (as predicted on 1/1): "The rising volatility I expect in stocks will likely affect this index as well. Along with rising rates, it seems foolish to expect significant gains here. I predict a flat 2018."

  • Reality: Although my slightly bearish forecast was accurate, I missed the magnitude by quite a bit. Corporate bonds are the second worst element in this portfolio so far this year, and with rates continuing to rise it doesn't seem to be looking up anytime soon. 

VV (Large Cap US)

  • Total Return: 5.08%

  • Predictions for 2018 (as predicted on 1/1): "Although there aren’t many clouds on the horizon, the low volatility and steady gains of 2017 cannot continue forever. After a short period of rising expectations due to the Trump tax bill, I expect large cap stocks and the US market in general to experience more volatility. However, I do not think the economy will enter a recession in the calendar year, so returns will likely be in the range of 5-10%."

  • Reality: Volatility DEFINITELY returned, and my prediction has been accurate so far this year. We'll see how the rest of the year takes the US economy...

VO (Mid cap US stocks)

  • Total Return: 4.57%

  • Predictions for 2018 (as predicted on 1/1): "My predictions for mid-cap stocks mirror those for large cap. However, I would expect this index to benefit slightly more from the lower corporate tax rate, with relatively  higher profits and returns compared to large-caps for the year. I could see a 12% return from mid-caps in 2018."

  • Reality: I was wrong about mid cap having a better year than large cap, but so far the index is moving in the same direction as my prediction. 

VB (Small cap US stocks)

  • Total Return: 8.18%

  • Predictions for 2018 (as predicted on 1/1): "My predictions for small cap stocks follow my predictions for large and mid caps, but to a more harsh degree. Volatility will affect them more, and any potential slow down in the economy will likely affect them first. I am looking for a small 2-5% gain in VB for 2018."

  • Reality: Right and wrong. Volatility definitely returned to small caps, but they have been doing well this year, better than anything else in fact.

GNR (Natural resources index)

  • Total Return: .16%

  • Predictions for 2018 (as predicted on 1/1): "After last years improvement, it’s hard to imagine a huge increase for commodities in 2018. If oil supplies are decreased or disrupted due to geopolitical tension, it’s possible that a large gain in the index may occur. It’s likely that strong demand for metals will continue. I see this index returning 4-8% in 2018."

  • Reality: As predicted, not much has been going on with this index. We'll see if the 4-8% return pans out towards the end of the year. 

Summary

2018 has been an interesting year so far. A lot has happened, but my investments haven't moved much at all. Looking at my allocation, I may want to make a small investment in my Frontier Market fund simply to bring the allocation more in line with reality. I might also want to decrease my exposure to US stocks. 

The stock option knowledge deficit

The stock option knowledge deficit

Past results are no indication of future performance

Past results are no indication of future performance