2011 portfolio performance

It’s that time of year again. Time to put on the accountant’s hat, tally up the wins and losses for the year and see if my 2011 goals were met. In this post I’ll take a look at the performance of my portfolio in 2011 as well as some of the benchmarks that I follow. Here we go. If you’re interested in last year’s numbers, see here.

Before I jump in to the performance numbers, its important that I make clear what my yearly goal is for my investments. I only have one goal every year,plain and simple. Here it is – its so important that I’ll make it separate, bold, and italic… 😉

• Investment goal: to increase my total net worth, every year, after all spending, fees, taxes.

That’s it. Simpler than you thought? Notice that there is nothing about beating the market, or beating some benchmark that someone says is really important. If I meet this goal, who cares about the market or some benchmark? This goal insures that I never run out of money and always grow my net worth. For me, that’s what retirement investing is all about. What about inflation you may ask? That is automatically embedded in this goal. Inflation will drive spending during a given year so as long as the goal is met, inflation is taken into account.

An important point about this goal is that it does not mean that if I don’t meet this goal that I cannot continue my retirement. After all, the 4% SWR rule, states that you can withdraw 4% from your portfolio every year, adjusted for inflation, and be OK. It has worked throughout history and I think will work in the future. But under the 4% rule you can and will have year to year decreases in your net worth which can be worrying. There are no guarantees. So, I have set for myself a harder goal of increasing net worth every year and actively manage my portfolio to achieve this goal. If I fail in one year its not that big a deal. I will learn from that experience and try and do better. OK, enough about goals. How did I do?

My total portfolio return for 2011 was 8.9% gross, without spending, and 4.5% net of spending. That means my total net worth grew by 4.5% over the year taking everything into account. Everything. That is not as good as 2010’s performance of 18% gross, 13.5% net. But considering the market and my ultra conservative positioning I am quite pleased with these results. And as I stated, the big goal was met and retirement can continue unfettered. My total performance was affected by my large cash position through out the year. I started the year with 40% in cash and finished the year with 67% on cash. On average for the year I was about 55% cash. Including bonds I finished the year at about 73% non equity. Also, this year the majority of my gains came from my trading portfolio, 76% of my gains for the year coming from trading. That was a huge change from last year where only a very small part of my profits came from trading.

Lastly, lets take a look at some of the benchmarks I track for portfolio performance. While I have the big simple investment goal, I do like to keep score and see how passive, simple to follow benchmarks performed in the year.

These benchmarks are the S&P500 represented by the SPY ETF, the IVY buy and hold portfolio (see here) which represents a diversified endowment type portfolio, a standard retirement 60% stock 40% bond portfolio, and a timing version of the IVY portfolio. As I’ve stated on the blog before, the IVY timing portfolio is my standard recommendation for 90%+ of investors, retirees and non-retirees included. It is also my secondary benchmark after my simple investment goal I stated above. Overall, my investment results trumped these benchmarks as well. As far as my major stock holdings go, I had projected some returns in my 2011 outlook post. Here is how those did versus my forecast. It was a mixed bag but pretty positive overall. I didn’t hold all positions throughout the year, for example I cut CIM losses early – I got out of ETP in Q3 or so, but it is pretty representative.

That’s about it. My big goal of growing net worth after all spending was met and my performance vs my favorite benchmarks was met. I’m quite pleased with these results but I won’t be getting overly confident any time soon. I’m bound to under perform sooner or later. However, with the investing for a living model of focusing in dividends and capital preservation I’m confident I’ll survive the toughest of times. And watch out when times are good! Now, on to 2012.