Equity Portfolio Update #2 [+7.2% YTD @ 3-31-16]




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We have officially begun a new year and with that I have decided to start a new quarterly series. As many of you know that have been reading for any length of time, every month I put together a very detailed financial report that details out gross income, expenses, net worth, savings rate, and progress on the 7 year 3 month mortgage pay off goal. Since the report already pushes 3,000 – 4,000 words a month, I thought it would be more appropriate to provide details of the equity portfolio in an entirely separate post.

Also, I don’t really see the benefit of updating this on a monthly basis, quarterly should be just fine.

One of the guiding tenets of this blog is that of FULL TRANSPARENCY. This is another step in living up to the high standards we set here at GYFG.

This will serve several purposes:

  1. It will force me to analyze the performance of my portfolio.
  2. It gives you a better view of what is under the hood.
  3. It will also provide some visibility around where the increases come from. Too many people overestimate their returns and forget about new money contributions, company matches, dividends, etc.

Breakdown of Portfolio Performance [3/31/16 vs. 12/31/15]

You may have noticed in the title of this post that the portfolio is up 7.2% so far in 2016, and I will be the first to admit that this is a bit misleading at first glance. But never fear, I will be breaking down the components of where the gains came from and will also be comparing the performance to the S&P 500 as my benchmark.

For many of you this will be your first time seeing a waterfall chart. If this is your first time I hope you like the visual of how the portfolio grew and what made up the gains.

Equity Portfolio Walkforward Q1 2016

Now let’s breakdown the buckets…

2015 Ending Balance = $121,400

[+ $7,065] Contributions – 2016 Contributions to Mr. GYFG 401K. We lost the tax advantage this year for Mrs. GYFG and stopped contributing to her IRA.

[+ $5,169] Option Premium Collected + Closed P&L – This is representative of the option premium I collected for selling cash secured puts, covered calls, other option selling strategies, and any other realized gains from closing stock positions (there have been no closed positions this year).

[+ $0] 401K Matches – At this time I am the only one in the GYFG household that has a qualified retirement plan through work that offers contribution matches. Last year the company I work for offered 25% on up to 6% of your income. This year it has increased to a 50% match, but it will only be on up to 4%. The first match will not happen until April. Based on about $80K in earnings in Q1 I expect to receive a match of $1,600 in April.

[+ $458] Dividends/Interest – One of the rules I use when selling covered calls or puts is to only do this on stable companies with a long history of paying dividends, and a dividend rate of 3% or greater. It is just another way I look to increase my margin of safety in the event that I am exercised and forced to take a stock position from short puts. It also helps to reduce cost basis on long covered call positions, until the stock is eventually called away. The interest is very minimal and comes from interest on cash sitting in my brokerage accounts.

[- $3,965] Current MTM Gain/(Loss) – This has improved slightly from the end of year MTM loss of $4,500 in 2015. I will detail them later in the post. This is a little misleading by itself, because the premium from the $5,169 above offsets these open MTM losses.

2016 Q1 Ending Balance = $130,127 [+ $8,727 or + 7.2%]

Now that you can see the detailed breakdown you realize that a large part of the portfolio increases came from new contributions. When you back out the contributions you are left with the investment gains.

Note: I include the 401K match as an investment gain (none in Q1, they will hit account in Q2). It is not money I contributed and I don’t distinguish it from market gains.

This leaves a gain of $1,662 or 1.3%.

This compares to the return of the SPY (ETF representing the S&P 500) of 0.8% before dividends or 1.33% with dividends.

Note: the SPY gain was calculated taking the March 2016 closing price of $205.52 and total return here.

What is the Current Make-up of the Portfolio?

First and foremost I should remind you that of the $130,127, only about $45,432 is actually invested (about 2X where I ended the year). The rest is sitting in CASH. This leaves me sitting with 65% of my investable assets (down from 78%), across my brokerage accounts, in CASH. This is very telling with respect to how I feel about current market valuations.

The market decline that seemed to have bottomed in February made for a good opportunity to increase the amount of cash I have working for the GYFG household. I am still following the 4 tier system to deploy cash. In addition to this cash stash, we have also been building up our savings account that currently has about $85K in cash as I type this. This will be a growing problem over the next 9 months (a good problem to have I suppose).

We are preparing ourselves to take advantage of much better prices ahead. I don’t fear the erosion of inflation on the purchasing power of our dollars. I actually think that cash will be one of the best performing asset classes in 2016.

Current Open Positions

  1. CAT – Covered Call
  2. OIH – Covered Call
  3. PG – Covered Call
  4. VZ  -Covered Call
  5. WMT – Covered Call
  6. SPY Big Fat Jade Lizard
  7. XLE – Covered Call, Short Callspread

Well there you have the second portfolio update (you can see update #1 here). This may evolve over time, but for now this is likely the format that I will continue using going forward. The next update will be comparing Q2 YTD of 2016 vs. December 2015. One day I will also include performance of my P2P investments, REIT’s, and Rental Real Estate. Or I may even create a separate post series. I have not decided yet…if you have an opinion, please let me know.

How did your portfolio do in Q1 of 2016? What is your plan for the rest of 2016? 

– Gen Y Finance Guy


Gen Y Finance Guy

Hey, I’m Dom - the man behind the cartoon. You’ll notice that I sign off as "Gen Y Finance Guy" on all my posts, due to the fact that I write this blog anonymously (at least for now). I like to think of myself as the Chief Freedom Officer here of my little corner of the internet. In the real world, I’m a former 30-something C-Suite executive turned entrepreneur turned capital allocator. I am trying to humanize finance by sharing my own journey to Financial Freedom. I believe in total honesty and transparency. That is why before I ever started blogging, I decided that I would share all of my own financial stats. I do this not to brag, but instead to inspire motivate, and also to hold myself accountable. My goal is to be a beacon of hope, motivation, and inspiration, for you, the reader, by living life by example and sharing it all here on the blog. My sincere hope is that you will be able to learn from me - both from my successes and my failures! Read More



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11 Responses

  1. It’s interesting to see the scale of the option premiums collected. Do you keep track of the time you spend on deciding which options or stocks to go with? Or keeping a close eye on the market once you are in a position?

    My gut feeling is it isn’t worth my time investment right now to get more active in this area, but maybe I should learn now any ways – at some point (>$200k?) there is a solid enough return on time to justify it. And I should probably know what I’m doing then rather than winging it with so much money…

    1. Hey Brian – I honestly don’t spend much time evaluating the markets as I have developed a pretty tight system for evaluation. First, I almost always want to have some sort of short option premium on the SPY (ETF tracking S&P 500). That one is easy, it’s just broad exposure to the market. I then have a hand full of EFT’s that I look at based on what’s going on in the market place. Thus the positions in XLE and OIH. I tend to prefer to have positions in ETF’s to remove binary risk. The same reason you would invest in an index fund vs. individual stock picking. Then the last place I look is the 30 Dow Industrial Stock List. When looking there I am looking first for dividend yields of 3% of greater, but they also have to have recently fallen to lower than 50% of there recent 12 month trading range and they have have implied volatility within at least the 35% percentile of the last 52 weeks.

      I tend to only sell options during down moves as this brings fear into the market which bloats option premium. Typically I use the VIX as the proxy for market fear.

      All that to say is these days I maybe spend 5 minutes a day on average checking in on the market to see if there are any opportunities.

      I think if you learn the two basics: Covered Calls & Short Puts that it would not take much of your time. If you ever have any questions, feel free to ask away over here 🙂

  2. Nice portfolio results! The option income you have is really nice.
    I now also start to track my option income. I am for now working with a small account, using mainly cash secured puts.
    Due to a speculation tax, covered calls are only useful for me on ETFs as on stock, I pay 33pct cap gain. Then again, that is good, just like you say: it removes binary risk.

  3. Cool report and nice job on the option premium. This 18 months of sideways market has been fantastic for premium collectors like you and I!

    I just realized I officially hit the two comma club!! My assets have officially broke $1M.. They come in at $1,020,000. However, there’s this pesky little other half of the balance sheet called liabilities that comes in at $593,000 😉

    I agree with your comment above about it not being too time consuming. I currently have 7 puts sold on margin through the strategy I previously outlined. The only important thing is to watch close to expiration and decide whether you want to be put the shares, roll it, or collect the premium.

    My current put options are:
    KMI, MDT, POT, RY, SBRA, UNP, WFM – All the expirations are either jan 2017 or 18 with the exception of SBRA which is October of 2016, the furthest out available. The reason it doesn’t take much monitoring is because I’d actually like to be put the shares, and if I just ignore it and collect the premium, that’s quite all right as well!

    T was on an absolute tear and I closed all my put positions out with 80% gains in 30% of the time. I typically like to close them out if my gain is approaching 2x the time elapsed as I find the value proposition of staying in the put goes down dramatically.

    1. 18 months of sideways market + some decent dips causing very nice spike in implied volatility = Fat Premiums to be collected 🙂

      Nice job on the $1M in assets. I am about $150K behind you at the moment. We should hit over $1M by January 2017 on the Asset side.

      That is a good way to manage short premium. I tend to do the same thing.

      Onward & Upward!!!

  4. It’s interesting how your company does their match. With mine (which I thought was standard), they add the match every time I make a contribution (so every paycheck). I downloaded and read your pdf on selling options a while back. I gotta say, it’s like Greek to me. Looks like I need to do more study, because it seems like a good way to make your money work.

    This may be a dumb question but, how to you account for Dividends/Cap Gains? It needs to used when calculating Cost Basis (because it is purchasing shares), but it isn’t money you contributed (similar to company match). So do you exclude it from the cost when calculating ROI?

    1. Hey Mattattack – I have had it both ways, based on my monthly contributions and a match with every contribution, or just a match every quarter. It accomplishes the same thing…FREE MONEY!!!

      Re-Dividends: If you look above you will see that I call that out separately. You can either reduce cost basis with dividends or treat them as gains, I like to treat them as gains (easier that way).

      Re-Capital Gains: First any unrealized gains/loss get captured in the “Current MTM Gain/Loss” bucket (Unless its from option premium I put that in separate bucket). Any closed P&L gets bucketed in the “Option Premium Collected + Closed P&L” bucket.

      Does that make sense?


  5. Good to note your progress. Again I like the new charts you introduce to showcase the data. On a separate topic, I noticed in your networth chart the introduction of Gold, can I know in which form are you holding this asset?
    My Q1 results have been posted and they are in the red and I am not complaining at this moment. Wishing you a good month ahead!

    1. Hey Santosh – Thanks for the comment.

      Yes, Gold is now a new allocation. I am holding the gold in the form of gold coins (specifically maple leaf 1 troy oz).



    1. Historically it has grown from 10% to over 50% over time. I wasn’t tracking it that closely back then, but that is a ballpark estimate.

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