Monday, July 9, 2007

Q2 2007 Portfolio Review

Q1 Update: In my Q1 portfolio review, I said the following:

Notwithstanding the benefits I have derived thus far, it is not smart to put money in the stock market which you will need in the next 1-3 years. So today I liquidated the stocks and bought a Short Term New York AMT-Free Municipal Bond Fund which pays about 3.1%. I have to completely segregate the money into a separate account so that I’m not tempted to trade with it!

As it turns out, this statement was a lie. When I wrote it, I had indeed planned to move the cash into the Short Term New York AMT-Free Municipal Bond Fund the very next day. Instead, I bought a bunch of Japanese Yen. I own the Yen as kind of a contrarian investment. That’s irrelevant though. Point is, I do not have self control – if I have cash in my brokerage account, I just have to mess with it.

Q2 Review: As a result of all this, I am starting to think a lot more about asset allocation and organization. Up to now, my approach to allocation has been haphazard at best. By the Q3 ’07 I want to be treating my accounts as follows:

Taxable Brokerage Account(s):
* In this account I want to have “great” stocks which I hold for long periods of time. Every year, I should sell anything with a short-term loss. Hopefully I will generate $3,000 in short-term loss per year. I will only take long term gains, and only if there is a very compelling reason. In my taxable account I am doing way too much trading!

Roth IRA:
* Here is where I should do all of the trading. By Q3 ‘07, anything that I own in here that deserves to be a core holding should be sold and purchased in the taxable brokerage account.

* Today I am invested in international/emerging markets growth mutual funds. I fully expect and hope for lots of volatility in these funds. No action needed here.

Cash Management:
* The goal for this account should be to maximize my after-tax return. Living in NYC, it probably makes sense to put free cash into a muni-fund, but I have to crunch the numbers to be sure.

This is not a perfect setup but I think it will be an improvement over the current arrangement. Now that I have a good system in place for accurately tracking the performance of my accounts, it’s something that can be objectively evaluated at some point in the future.

Here is the YTD performance of my portfolio (which includes the above-mentioned accounts):

My Return S&P 500
Jan '07
-0.41% 1.51%
Feb '07
-0.22% -1.96%
Mar '07
1.66% 1.12%
Apr '07
2.80% 4.43%
May '07
1.97% 3.49%
Jun '07
0% -1.66%
5.89% 6.95%

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