Setting goals is great. But if you don’t create a plan and track your progress towards reaching them, those goals become worthless. Using a free software like Personal Capital allows me to track all of my investment accounts in one place so I can easily check up on performance. Earlier this year, I laid out several
Earlier this year, I laid out several financial goals for 2017. One of them was to invest $45,000 in my after-tax accounts in 2017. That plan has changed, as I’m now focusing on maxing out all the deferred tax accounts we have available to us. I was previously against this idea as I wanted to build an after-tax portfolio to fund an early retirement. However, I’ve found that I can use a Roth conversion ladder to access some of these funds penalty free whenever I want. As we saw in my dividends post, it’s always better to test your beliefs by running the actual numbers.
Because of this change, I’ll be able to invest more money in 2017 without earning an extra dime. This will allow me to reach my goals even faster.
It’s been an interesting 2017 from an investment standpoint thus far. The market plodded along for the first month of 2017 while we waited to see the new administration in action. February saw the market surge as Trump and company began their move to repeal Obamacare, only to see it pull back a bit in March when a new plan could not be agreed on. Despite all this, it was a very productive quarter with the S&P returning about 5.5%.
So how did my investments perform against the S&P 500? Let’s take a look at the first quarter returns in both my tax-deferred and after-tax portfolios.
My 401k has performed well thus far with a return of 5.81% in the first quarter. In my 2017 goals, I discussed moving away from this account due to the high-cost mutual funds offered. But not all high-cost mutual funds are bad. I’ve had a few different actively managed funds in my portfolio throughout the year that I discussed in this post. Both have performed extremely well. And I’m starting to see that the options provided by American Funds in my 401k are no slouches either.
The average expense ratio of the five funds currently held in my 401k is 1.47%. Much higher than I’d like, but the funds have a history of performing well even after the fees. And I believe the benefit of tax-free growth outweighs the high cost. Here’s the individual performance of these funds thus far, net of fees.
Given the choice, I would rather go with lower cost funds. But as I’ve switched my investment plans to forego some contributions to after-tax accounts in favor of maxing out all our tax deferred accounts, I’m working with what I got. Perhaps they won’t perform as well as cheap index funds, but the ability to invest more by saving on taxes up front outweighs that.
Rollover Roth and IRA
About 68% of my investment portfolio sits in my rolled over Roth and IRA accounts from previous jobs. At the end of last year, I talked about the process I went through to cut fees within these accounts. I traded out the underperforming American Funds New Economy (ANFCX) for the Fidelity Nasdaq Composite ETF (ONEQ). How has that worked out? In the first quarter, ONEQ is up 10.38% while ANFCX is up 10.29%. So pretty much a wash so far. However, ONEQ has had much better performance over the past 15 years, so I’m confident this low-cost index will continue to outperform over the long haul.
My taxable account is still in its infancy. I’ve held shares of Berkshire for a long time, but I just began expanding my taxable investments last year through Wealthfront. I also have a small portfolio of dividend stocks, which I’m considering expanding after my recent review of dividend stock performance.
During the 1st quarter, my taxable stock accounts returned 4.18%. Up until the last week of the quarter, this portfolio was right in line with the S&P 500. However, Berkshire, which performed quite well through the end of February, tanked in March driving my returns down. As my taxable portfolio still isn’t very big, this had a big impact on my overall returns.
On a positive note, my experiment with Wealthfront continues to go quite well. During the first quarter, my Wealthfront portfolio returned 6.33%. This is where I’ve put a good portion of the funds I have to allocate towards after-tax investments. Another sizable portion has been allocated to Fundrise. My goal is to bring my investment in Fundrise up to $10,000 by the end of 2017. So far, I’ve invested $7,000 this year to bring my total investment up to $8,000. My first dividend payout is scheduled for this month and is expected to be 8% annualized. This return is not captured through Personal Capital as it has yet to be paid out.
The final portion of my taxable accounts is P2P lending. I invested $5,000 in Lending Club in the last half of 2016 to test it out. Returns have started to tick back a bit as I’ve had a few loans charged-off. Still, my return is near 10%. This isn’t included in the total return listed above as Personal Capital doesn’t calculate the loan interest as an investment return. I don’t plan on expanding my investment in P2P lending at this point. My portfolio is far from seasoned and I’m curious how it will perform over a longer-term.
How will the rest of 2017 fare? Much of it will depend on Trump’s administration passing a health care bill so they can move on to tax reform. The gains we’ve seen in the stock market since the election have been driven by the optimism created from Trump’s plans to reduce taxes and regulations on businesses. If he falters, or can’t make all the changes he promised, we’ll likely see a decline in the market.
Regardless, the best action is to stay the course. I plan to continue investing in the market every month rather than try to predict the future through a crystal ball. For most people, timing the market is a losing bet.
Readers, how are your investments fairing so far in 2017? What is your outlook for the rest of the year?