With 2016 over, it’s time to look back and see how I did for the year. This is the second post in the series where I focus on how my investment portfolio performed (to see how I did on income and expenses, check out my 2016 Financial Performance Summary). While I track my portfolio on a pretty regular basis in personal capital, I like to sit down once a quarter and do a deep dive analysis in Excel. Now that the year is over, it’s time to look back and see how I did over the whole year.
But, before we get into the analysis, I’d like to layout my investing approach.
It’s not sexy, but it works and it has me well on my way to financial independence.
Here are the highlights:
- I automatically contribute from my paycheck into my 401k and HSA each pay period
- I stick to low-cost index funds for the bulk of my investments in order to keep costs low
- I avoid owning any individual stocks in order to stay away from single-stock risk
- I allocate the investments between stocks and bonds, but I also include alternative investments
- I re-balance the entire portfolio once or twice a year if the percentages are really out of whack (more than 5% off), but let things ride if they are within a few percentage points of my allocation strategy
This is the most rational and data-based approach to investing for the long-term and it has been working well for me. When I was younger and just learning to invest, I would occasionally make a “bet” on a single stock, but not anymore. I was lucky that I never got burned with a single-stock bet.
While I was always cautious and never lost a lot of money, the expression “experience is a cruel teacher, it gives a test before presenting the lesson,” is true for investing, and I know several people that have been burned pretty badly with single stock investments.
Not only is my investing approach supported by numerous quantitative studies, but it accomplishes the goal of keeping things both simple and easy (remember that achieving financial independence is simple but not easy). Whenever you can do both, that is a good thing.
So, how did 2016 go? Pretty good. Overall the portfolio was up 9.9% for the year, which I am very happy with. See the table below for details:
The shining star in my portfolio this year has been my Precious Metals fund. While it has come down since mid-year when it was up 92%, it still closed out the year with a respectable 50% gain. No complaints from me. Also, my Energy fund is up 33% for the year, although it was offset slightly by the Healthcare fund down -9%. Between the two funds though, they were still up 22%, so again, I’m not complaining.
I got into those two funds when I reallocated at mid-year. I wanted to increase my domestic equity exposure with a tilt towards those two sectors which I think will outperform over the long-term given larger demographic and macroeconomic trends.
I’m happy with my current allocation and nothing is materially out-of-whack. Equities are at about 70%, bonds about 10% and alternative investments about 20% – that feels right. I have 25% of my portfolio in international equities of which 5% is focused in emerging markets. Aside from international bonds, which I’d rather not pick up right now, I have a little exposure to every major asset class with a heavier allocation towards equities which is as it should be.
Last year, the S&P 500 had gains of 9.5% according to personal capital. The Dow, however, was up 13.4%, skyrocketing after the presidential election. Historically, I have looked to match/beat the S&P, so I was successful again this year even though the Dow kicked my butt. That’s OK. I’m in it for the long haul and I have certainly beat the Dow in previous years.
And about that 9.9% return. That’s pretty darned good and if it keeps up, which it won’t, but if it does – I’ll double my portfolio in 7.2 years. It would actually double even sooner than that if you include my new contributions. Not bad.
(A note to my regular readers: Due to increased career and personal commitments over the next few months, I’m going to be taking a brief hiatus from the site. I’m planning on coming back, but just need to give 100% of my focus to some other matters for a little while. In the meantime, have a great 2017 and don’t forget to be net worthy!)
How was your 2016 investment performance? Did you match/beat the S&P?