Time to take look at the first half of 2021 from an investing and saving / lifestyle perspective and then look ahead to the rest of the year to see what (if any) changes I am planning to make.
*As a caveat – I am not a licensed financial advisor and all of the following is just my opinion
Let’s start with my investing
The first half of 2021 continues to be great for asset values:
- The S&P 500 is up ~16% this year
- Housing prices continue to soar
- The 10-year bond yield has come down from a high of 1.75% in March ’21 to 1.35% indicating moderating expectations for inflation
My overall allocation has remained largely unchanged from the beginning of the year (Source: Personal Capital):
- 90% Split between the S&P, Russel 3000 growth, and international equity indexes (smaller exposure)
- 5% Real estate crowdfunding
- 5% Industry / single name bets (incl. clean energy, betting platforms, crypto, NVIDIA)
Given that the vast majority of my portfolio is passively invested in indexes that closely mirror the S&P, my overall annual performance has correlated fairly well with the broader market. The slight divergence can be attributed to 3 things:
- Tech over-exposure: My portfolio is a bit over-exposed to tech / growth stocks, which I am okay with given that I created that overallocation in March 2020
- Realized gains: I sold off some of my winning positions this year (Oil + some single name stocks), and Personal Capital doesn’t track those gains
- Real-estate return lag: My crowdfunded real estate returns usually don’t show their full gains until the end of the year
As I mentioned in my Q1 recap, inflation expectations / interest rates are going to be among the most important economic signals to pay attention to this year. One chart you can look at to keep tabs on what is going on is the 10-year treasury yield. Essentially what your annual interest rate would be for lending money to the US government for 10 years (source: CNBC):
Back when I wrote my Q1 recap in March, interest rates were rising quickly, but have cooled off since, which has contributed to rising asset prices in the 2nd quarter (particularly with growth stocks).
My bet is still that inflation comes in hotter than expected with rising wages, increased commodity prices, and massive service inflation (N of 1 here…but my willingness to pay for sporting events, concert tickets, and vacations is through the roof right now…and I don’t see that decreasing anytime soon).
This will have several important implications, the expected pace of interest rate hikes will continue to increase, mortgage rates will go up, and unless companies can prove their earnings justify it, stock valuations may somewhat correct.
My investing for 2H 2021
Regardless of my opinion on the current economic climate (caveat that it is just an opinion), I am personally not shifting anything in my core portfolio based on this view (e.g., the 95% of my portfolio that is invested for the long haul).
With the 5% of my portfolio that I let myself play with I bought some crypto during the recent dip and some clean energy stocks, which I think becomes more appealing if oil prices stay high.
Going forward, I am keeping my automatic bi-weekly investments in the S&P through my 401K, but will only increase my S&P exposure in my non-retirement accounts when there is a dip of more than 2%. This strategy has been great for me over the past 6 months and I want to stick with it because I see fairly limited upside in the 2nd half of the year.
I am a strong believer in creating an automated plan for your investing that allows you to maintain a stress-free and steady investing system over the years. It substantially decreases the burden on yourself if you create some rules around investing an let yourself follow those for the long haul. Some examples include:
- Time-based: Invest $500 in your non-retirement account every other week
- Condition-based: Invest $1K in your non-retirement account every time the market dips >2%
I tend to use the time-based approach with my retirement accounts so I never have to look at them and the condition-based approach in my non-retirement account.
My savings
This year I decided to commit to the philosophy that smart ‘incremental decisions’ justify one-off indulgences. If I want to take a trip, get a digital piano, or go to a sporting event, I am not going to question it. But when I am not doing that, I am going to continue to lean on the habits I have built during quarantine: eating at home more, limiting my expenses on unnecessary products, etc.
My barometer for spending comes down asking myself the question “will this still make me happier one month from now”, and if the answer is yes, then I think of it as a good use of some of my excess savings over the past 15 months.
As a caveat, if you are in the process of paying down debt with a high interest rate or need to build up a savings buffer, I would focus on that before taking this approach. However, once you have set up your healthy financial system, you have to find a way to create a healthy relationship with money (future post to come on this). I particularly like this approach since I don’t have a place that I am very excited about investing my money at the moment.
As a result, my overall personal savings rate is at 67% for the year but has fluctuated between 79% and 50% by month. Given I took trips in both February and June, this doesn’t particularly surprise me.
In addition, I have finally made the move to Boston and am starting a new job in a few weeks, so will have some re-baselining to do with my personal savings rate over the next few months. Even the price of chipotle is higher…
How is your year going and where are you looking to invest going forward?
Readwritemoney
