Notes: Benchmark is changed to 75% Vanguard LifeStrategy Moderate Growth fund and 25% Vanguard Growth Fund (previous weighting was 50/50). This produces the equity/bond ratio of 65/35.

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Notes: Portfolio shift to 8% Timber REITs and 8% MLPs completed. Also, fixed income increased to 35%.

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Comments: Portfolio outperforms the benchmark by almost 2%, primarily due to Precious Metal equity and the MLP allocation. At first I thought this was a mistake until I did a rough verification with the following performance information (for June 2010):

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Comment: My portfolio caught up with the benchmark due to the heavy dose of PrecMetal equity, which outperform significantly in the month.

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Comments: Rebalanced into INT EAFE. Moved 1% allocation from US SmallCap to US Timber.

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Comments: PrecMetal equity fell about 12% in January. This contributed to a fall of about 0.5% to the portfolio. International equities, EAFE & EM, both also fell more than domestic stocks. These explained the under performance of the portfolio with respect to the benchmark (-3.23% versus -2.26%).

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Comments: The portfolio gains 1.95% in December.  The overall gain for 2009 is 29.49%. This is commendable considering the 28.2% loss in 2008.

However, when 2008 and 2009 were taken together, the portfolio’s performance is at a value of only (1-28.2%)x(1+29.49%) =0.930, i.e. there is a loss of around 7%.

2008 & 2009 proved to be a very good reminder of the need to stay the course. If an investor were to sell out at the bottom during Feb 2009, (s)he would not be able to participate in the rally starting from Mar 2009.

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Comments: Portfolio made a huge gain of almost 4.5% in the month.

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Comments: Portfolio was on track to gain for the fourth month in a row until the last week of October. In the end, the portfolio had a small loss of 1.66%. Took the opportunity to rebalance out of US LargeCaps and PME into US SmallCaps, US Timber/REITS  and International EAFE equities.

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Comments: Sold off some PME to buy US LargeCaps.

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Comments

Portfolio continues to recover. Sold off some US REITs to rebalance after their huge run up over the past few months.

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Comments: Portfolio continues to recover from last year’s drop. The gain for the month was 7.13%. Current Equity:Bond ratio is 69.4:30.6, with the target being 67:33. If this run continues, I expect to have to rebalance out of equities to fixed income soon.

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• US LargeCap 11%
• US SmallCap 8%
• US REITs 4%
• US Timber REITs 4%
• US MLP (PIK dividends only) 4%
• INT EAFE 20%
• INT Emerging Market 11%
• PreciousMetal Equity 5%
• Fixed Income 33%

The ranking of the asset classes, in terms of tax efficiency (based on historical dividends), are as follows (most tax efficient at the top):

• US MLPs EEQ & KMR (with PIK paid-in-kind dividends only) : 0% taxed.
• US Timber REITs PCH, PCL & RYN: 0% taxed due to my enormous capital losses accumulated (see related post “Tax-Free Dividends from Timber REIT Investing” HERE).
• US SmallCap (IJS) : distribution yield ~2.0% will be taxed.
• PreciousMetal Equity (GDX) : distribution yield ~2.0% will be taxed.
• US LargeCap (IWB) : distribution yield ~2.8% will be taxed.
• INT EAFE (VEA) : distribution yield ~4.0% will be taxed.
• INT Emerging Markets (VWO) : distribution yield ~5.0% will be taxed.
• Least efficient : US REITs and Fixed Income.

The commonly sprouted ‘wisdom’ of putting International equities and emerging market equity in the taxable account so as to get the foreign tax credit is coming back to bite me now (and probably in future as well) with huge 4% (VEA) and 5% (EEM) distribution yields. This is ironic considering that VEA is simply just another class of Vanguard’s Tax-Managed International stock fund.

On the other hand, US SmallCap Value has a sub-3.0% yield but ‘experts’ usually would recommend putting this asset class into tax-deferred accounts.

Anyway, based on this analysis, I have been re-directing new money in the taxable account to the most tax-efficient assets listed above.

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