ETF Monkey Personal Portfolio Update - Q2 2022
In which I report on a quarter, and first half, that are truly ones for the books.
It’s been 9 months since I offered readers a peek into my personal portfolio as of Q3 2021.
A little later, I’ll get into the reasons for my failure to provide a report the past two quarters. However, in line with the adage “don’t bury the lede,” let’s get right to my Q2 results.
Photo by Carlos Muza on Unsplash
The Bottom Line
In Q2, the S&P 500 posted a more than 16% quarterly loss – its biggest one-quarter fall since March 2020, according to this article from CNBC.
The Dow and Nasdaq were not spared from the onslaught. The 30-stock Dow lost 11.3% in the second quarter. The Nasdaq, meanwhile, suffered its biggest quarterly drop since 2008, losing 22.4%.
Over that same period, my portfolio experienced a decline of 8.82%.
Even though I am not formally reporting on the entire first half, here are the numbers, in the interests of full transparency.
For the first half, the S&P 500 dropped 20.6% for its largest first-half decline since 1970. It also tumbled into bear market territory, down more than 21% from a record high set early January. The Dow is down more than 15% for 2022. The Nasdaq is by far the worst performer of the three and deep into bear market territory, down nearly 32% from an all-time high set in November. It’s also down 29.5% year to date.
For the entire first half, my portfolio is down 12.81%.
The Two Missing Quarterly Reports
As I revealed in the Q3 2021 update, I had recently concluded the sale of my home.
What effect did this have on my portfolio decisions at that point? Here is how I summarized things at the time.
My wife and I plan to buy a smaller home as a replacement at some point. However, at this point, we are not quite sure when, and even where, we will purchase that home. In the meanwhile, I need to invest the money in a manner that reflects a balance of conservatism and caution, yet with some level of aggressiveness to deal with the risk of inflation. (Bold added, for emphasis.)
Happily, in December, 2021, we found our new home! We settled on a condo in a wonderful Southern California town, a mere two miles or so from the Pacific Ocean. As it happens, the timing of our close could not have been more fortuitous. As alluded to in the above quote, I had kept by far the bulk of our proceeds in cash, short-, and intermediate-term bonds. When we decided on our new home, and I had a defined close date, I moved everything we would need to meet our closing requirements into cash.
As things turned out, none of this happened a moment too soon. The calendar had barely turned to 2022 when everything started heading south, including bonds. As the below tweet from Charlie Bilello shows, the first half of 2022 was truly one for the history books.
Because of all of this, I decided that producing Q4 2021 and Q1 2022 performance reports for my personal portfolio would not be of much benefit to my readers since, for that brief period of time, my asset allocations were substantially different from where I would normally have set them. Once my housing transactions were complete, and things got a little more back to normal, so did my portfolio choices.
With that, let’s move on to Q2. I will continue my tradition of first sharing the big picture, followed by the details.
The Big Picture
As I have featured previously, I first summarize the detail into 8 asset classes, and then at an even higher level into 4 asset classes. This helps me see the big picture, as well as the really big picture. As an example, I can see my weightings of domestic and foreign bonds, as well as TIPs, and how they line up against my target weights. But then I can also see the weighting for bonds as a whole. In the screen shot below, you will see that I ended the quarter very much in line with my target weightings. The only asset class being flagged as a significant variance in the ‘% Diff’ column is foreign bonds, where I am roughly 10% below my target weight. At the same time, in the really big picture, bonds/TIPS as a whole are almost dead-on my target weight.
Similar to my Q3 2021 report, on the far right of the graphic, I include my weighting as of the last quarter (3/31/22 in this case) and then a computed column to display the difference. I then color-coded in green and red to visually feature which weightings increased, and which decreased.
Looking at the above graphic, what likely jumps out at you is that I decreased my overall bond weighting by 3.41%, with offsetting increases to stocks and cash.
This was deliberate, in line with some changes I made to my target weightings as 2022 progressed, as follows:
I started the year with an overall weighting of 50% in stocks. In March, with the S&P at 4,170, down roughly 13.5% from its 52-week high, I upped my weighting in stocks to 52%, with the difference coming out of bonds.
In May, when the S&P dipped below 4,000, I upped this to 53%. Along the way, I benefited from multiple GTC limit buy orders I had previously set to trigger at preset price points.
Finally, on May 20, when the S&P index entered bear market territory during intra-day trading, I upped my stock weighting to 54%, executing trades in the middle of the trading session to do so.
In summary, then, my current weighting in stocks stands at 8% above my overall “baseline” target weight as a recent retiree.
The Details
Here are my detailed holdings as of 6/30/22. Have a look and then I will offer just a few comments.
Really, there is nothing too dramatic to report here. Essentially, you are just seeing the details of the big-picture adjustments I shared in the previous section.
I’ll just comment briefly on a couple of matters involving my bond holdings. With respect to domestic bonds, you will notice a fairly sizable drop in AGG, my total-U.S. bond market ETF. I shifted some of this to BSV, a shorter-duration alternative, and the rest into SPAXX, my cash holdings. As a recent retiree, one of the things I need to ensure is that I have enough “safe” money to cover my cash flow needs over the near term, say 6 months to one year. Essentially, this was simply a modest move to do just that.
In the case of foreign bonds, which I hold in my wife’s IRA and will likely not need to access for at least 3-4 years, I actually sold a portion of these to purchase additional shares of VYM at much lower prices than possible a few months back. In other words, I effectively increased my risk—or, more accurately, volatility—profile slightly on funds I will not need anytime soon.
A Few Closing Thoughts
As I finalize this article, the S&P 500 index at its July 1 closing price of 3,825.33. Technically, this is bear-market territory, based on the S&P index’s high close of 4,796.56 on January 3, 2022 (4,796.56 x .8 = 3,837.25).
What am I thinking about as we move forward? Readers who have followed me for a while are no doubt familiar with this article, in which I summarized a recent note from Credit Suisse Investment Strategist Zoltan Pozsar.
In combination with several other data points pointing to heightened recession risk even without the deliberate action on the part of the Fed that Pozsar suggests, I am still of the view that we will see at least 3,600 on the S&P before we have any chance of things stabilizing.
Even that may be optimistic. Here’s just one related observation, from Morgan Stanley.
What actions might I ponder taking with my own portfolio moving forward? I’ll leave you with what I wrote in the comments section of a follow-up discussion thread I posted based on the Pozsar piece.
My takeaway is that the next key area I am watching for is right around 3,500-3,600. At 3,600, you have a 25% decline in the S&P.
At about 3,400, we would be back to the levels immediately preceding the COVID-19 panic in late-February, 2020.
Far lower, at roughly 2,400-2,500, we would be at the December, 2018 mini-crash.
Bearing in mind that, as a retiree, I need to remain somewhat cautious with my allocation, I feel like I might be willing to move to 55% stocks at 3,600. Perhaps 56% at 3,400.
The question I am wrestling with now is: Would I be willing to go as high as 60% on my stock allocation? And, if so, at what level? I believe I would be happy to do so if by some crazy chance we got to 2,500. If I split the difference, that would imply a 58% weighting somewhere around the 2,900-3,000 range.
Clearly, if we do get down to that area, I will have experienced some fairly significant pain. My overall portfolio could easily be down 20%+. As I see it, though, the payoff, for me, could be a solid, strong, multi-year run from that point.
I wrote that roughly a month ago, and I haven’t seen anything yet that materially changes my view.
Preview of Coming Attractions
In this article, given my status as a newly-retired investor, you may have picked up some hints concerning my asset allocation decisions. For example, that I felt the need to move some additional funds into cash and shorter-duration bonds to cover my anticipated cash needs over the next 6-12 months.
Related to that, there is an additional topic I did not even touch on in this article. This has to do with asset location. You see, in addition to one’s selected allocation, it is worth considering what assets belong where, both in terms of tax efficiency and potential volatility.
I plan to use the same data from which this article was generated to share my strategy with respect to this in a future article or articles.
UPDATE: I have now done so. Here is a handy link.
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