checking in on finances, 1 year in..

Around this time last year I was heading off to Germany for a vacation planned months earlier.  It was while on this break that the US (and international) markets really started to report all of their irregularities that resulted in the ‘economic crisis’ of the last year.

index
S&P 500 1 year chart (via Yahoo Finance)

While this made for interesting conversations while on vacation, it was all a bit shocking to be watching while so far from home.  I returned from Germany and was rather amazed (along with so many others) to watch the markets continue to decline for as long as they did and as far as they did.

During the past year I made a lot of financial decisions to try to salvage some value in my portfolio and I decided to take a look back at some of the decisions I made, and where I am now, compared to last year.

I, like many people, find much of my savings in retirement plans.  As such, I try not to overly manage this money (since it will be a while until I draw from it).  The downside to this is that I had pretty much the same portfolio makeup at the beginning of the crisis as I had during the boom times of the previous decade.  Unlike some friends who warned of impeding doom (with calls to pull money out of the market) my money was still sitting vulnerably out there.  And it was hit.

Luckily though, I did have some safety.  First and foremost, I had recently transferred out a bunch of money from a previous employer’s 401k plan so that was sitting – as cash – in my IRA.  This meant that almost 30% of my IRAs value was haphazardly stored as a non-declining asset during the market slide.  Secondly, I had a reasonable security mix in my assets – including bonds, international and domestic stocks of various sizes.  This prevented a major loss in my accounts.  But even with these measures, my portfolio lost close to 35% of its value (but much better than the 50% decline in the S&P).

It was time to more actively manage the situation.

First: What to do with the cash?  I decided I needed to transfer from cash in a money market fund (earning less than 1% return) into something that would start earning.  I was also reasonably concerned that money market funds wouldn’t prove to be as safe as they had in the past.

Unfortunately, My first moves didn’t fare so well.  I moved some cash into commercial paper.  This quickly looked like a mistake.  At first these investments lost value but thankfully the strength of the companies is holding out and the value of these investments is recently back on track – most are now up in value with only 1 laggard which has been making a slow comeback throughout the year.

Second I decided to buy into stocks – breaking my multi-year streak of only owning funds. I decided to try to buy companies recently hit hard by the slide.  Google and Yahoo have proven to be good decisions (and I still hold out hope for the family of Yahoo properties providing even more upside).  Washington Mutual?  Not so much (currently down 97% on that one).

Finally, I diversified my Mutual Fund holdings even more.  I purchased lower-fee index funds (have you looked at that S&P chart over the last 6 months?!) and sold off some of the more expensive funds.  I already owned reasonably low-priced funds but these new funds are better and I’m more and more a fan of index funds for a bulk of the holdings.

So where am I today?

Not including contributions made over the past year, my portfolio is still down – just about 7%.  Not bad, considering it was down close to 35% just 6 months ago.  And I feel like I’m better poised for future growth, given my current mix.  Some of the commercial paper that I own will bring me a 6.75% return for the next 10 years – that might not always beat the market, but it sure is better than the past year.

And, I’ve continued to invest over the course of the year, so including my contributions, my portfolio value is up 8%.  While most of that is contributions, not all of it is.  Looking at my 401k for instance (which is easy to track since I started a new job just 1 year ago) I’ve made a 17% return on those contributions.

So, overall I feel pretty good about where I am.  I still have some cleaning up to do in my overall portfolio mix but I’m happy to have an overall portfolio value that is up in this troubling year.