Equity Portfolio Update #3 [+11.7% YTD @ 6-30-16]




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We have officially closed out half the year, thus the need for another peek into the equity portfolio. 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 [6/30/16 vs. 12/31/15]

You may have noticed in the title of this post that the portfolio is up 11.7% 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 Q2 2016 V2

Now let’s breakdown the buckets…

2015 Ending Balance = $121,400

[+ $9,950] Contributions – 2016 Contributions to Mr. GYFG 401K. We lost the tax advantage this year for Mrs. GYFG and stopped contributing to her IRA.

[+ $5,052] Option Premium Collected + Closed P&L – This is representative of the option premium I’ve 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).

[+ $1,413] 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 next match should take place in July (they happen quarterly).

[+ $935] 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. On track for about $2,000 in dividends in 2016.

[- $3,087] 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 $5,052 above offsets these open MTM losses.

2016 Q2 Ending Balance = $135,663 [+ $14,263 or + 11.7%]

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. It is not money I contributed and I don’t distinguish it from market gains.

This leaves a gain of $4,313 or 3.3%.

This compares to the return of the SPY (ETF representing the S&P 500) of 3.0% before dividends or 4.04% with dividends.

Note: the SPY gain was calculated taking the June 2016 closing price of $209.92 and total return here.

What is the Current Make-up of the Portfolio?

First and foremost I should remind you that of the $135,663, only about $89,163 is actually invested (up about $44,000 from Q1). The rest is sitting in CASH. This leaves me sitting with 34% of my investable assets (down from 65%), across my brokerage accounts, in CASH. I took advantage of the volatility over the whole Brexit fiasco.

I have changed my tune a bit on strictly following the 4 tier system to deploy cash. I have decided that it makes sense to compliment this 4 tier system with monthly dollar cost averaging, so I have set all future contributions to the 401K to invest in the SPY index fund that is available. We will continue to hold about $46,500 in cash to take advantage of any decent down moves as originally prescribed in the 4 tier system linked above. In addition to that we continue building up our cash stash in our savings account which should hit over $100K in the next month or two. This will be a growing problem over the next 7 months (a good problem to have I suppose).

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
  8. APPL – Covered Call
  9. KO – Stock (only got 30 shares so could not do a covered call)
  10. VTI – Covered Call
  11. VXX – Short Put

Well there you have the third portfolio update (you can see update #2 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 Q3 YTD of 2016 vs. December 2015. One day I will also include performance of my P2P investments, REIT’s, and Rental Real Estate. 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 Q2 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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6 Responses

  1. I think you’re mislabeled a few things……

    Is the first chart on the bar supposed to say “2015 ending balance” and end with “2016 Q2 balance”?

    I also think you meant to say “2016 Q2 ending balance” instead of Q1 in the blue font right before discussing current makeup of the portfolio.

    1. Thanks MBB_Boy – I thought I had corrected that, but it looks like I uploaded the new graphic and never replaced it before publication.

      It is fixed now!


  2. Nice results for the year. I like the graph that gives the source of portfolio increase. It shows how powerful contributions are.

    the option income looks nice. Recently I also tried the vxx short puts. Rolling them for now!

    1. Thanks AmberTree!

      Contributions are very powerful in the early stages of wealth building. Compounding is nice, but the magic doesn’t happen until you hit an inflection point where returns from compounding are greater than contributions.

      What strike and expiration month are you short on the VXX puts?

    1. TD Ameritrade is the most liberal in what you can do in your retirement portfolio (i.e you have the most control and options).

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