January 2, 2014

My Investment Portfolio Returns - EOY 2013 Update

2013 has been the year of stock market recovery in the US and abroad. Both DOW Jones and S&P 500 indices reached new high's since the internet bubble of late 1990s.

S&P 500, which is considered as a broad barometer of the US economy, closed the year at 31.84%.

Total International Stock Market index capped 18% gains this year. Emerging Markets index performed poorly at 1.72% due to broader cool-off of emerging market economies in China, Brazil, Russia, and India.

The REIT index did not perform well this year because of the taper talks from the fed and somewhat slow-down of the house purchases in the last quarter of 2013 due to rising interest rates.

I do not invest in bonds. But, the Total Bond Market index is -2.31% this year. This is to be expected because equities rose faster which in  turn boosted investors' confidence. So, they moved money from bonds to stocks this year.

This year, I made a few tweaks to my portfolio.

  1. I re-balanced my portfolio four times during the year. I sold off some of the shares in the  S&P 500 Index Fund, Large-Cap Value Index Fund, Small Cap Value Index, and Small Cap Index Funds. This has resulted in quite a large amount of capital gains this year. The proceeds are being invested into a temporary fund Vanguard Target Date Retirement 2060. I am using this fund as a temporary placeholder as a house-payoff fund. We are planning to pay off our house at the end of 2015.

  2. This year, I moved  my brokerage account from Sogotrade to Vanguard. This account had XLE ETF (energy sector) and BRK.B (Birkshire Hathaway). I plan to simply hold these two funds forever or as long as I feel.

  3. I also added Vanguard REIT Index ETF to my brokerage account and invested $1000. I currently hold the Vanguard REIT Index Mutual Fund in the Roth IRA account. But, contribution limits prevents me from adding more to the real-estate part of the portfolio. The REIT Index performance took a backseat this year due to taper talks from the Fed. So, I saw this as an opportunity to grow the real estate portion of my portfolio. I will make some additional purchases of this ETF next year.

NOTE: As I think back, I feel that I should not have re-balanced my portfolio this many times during the year. I should have waited until the year-end to re-balance the portfolio. Because I was doing it whenever the market reached new high's, I may have missed opportunities for additional gains in the second half of the year. Oh well..as they say, emotions often get in the way and I got a little too carried away with rebalncing. I'm not planning on making further re-balancing until the year-end in 2014.

Below is personal performance rate of return calculated by Vanguard. It uses a formula called internal rate of return (IRR), which is a dollar-weighted return. IRR takes into account new money coming into the investment, as well as how long that money has been held. Don't confuse this personal rate of return with the returns posted for funds and indices (second table). The returns presented in these instances use a time-weighted calculation, which does not take cash flow into consideration.

Name  YTD  1-Year  3-Year  5-Year  10-Year
Entire Portfolio 16.2 16.20% 11.80% 12.30%   —

Overall, I am pleased with the performance of the stock markets this year. If you were out on the sidelines, you probably have missed 30% or so growth of your money. I hope the rally continues into the next year. But, I'm suspecting that gains will be modest next year.


  1. Hi,
    Happy New Year!!!
    Nice write up. Can you explain about the pros and cons of paying off the mortgage. Do you hold REIT eft in taxable account?


  2. Monica,

    Thanks for the question. Explaining pros and cons of paying off the mortgage may take an entire blog post. But, here is a quick summary.

    (1) Peace of mind for having the house paid off.
    (2) In another 2 years, our yearly mortgage interest will go down to $4000. We're reaching a point where our itemized deductions will be same or equal to the standard deduction amount. So, keeping the mortgage offers no significant tax benefits. We may still get an itemized deduction if the amount is greater, but mortgage interest is not going to save us a lot of money. I know lots of people keep mortgage for the tax benefits. But, if the benefits aren't much, then it doesn't quite make much sense because it is like spending $1 to save 20 cents on the taxes.

    (1) We'll have to come up with cash to payoff the remaining amount. This money could be invested in the stock market for greater profits. But, I don't know how the markets will perform after we payoff. If they perform strongly like this year, then we'll lose out. If they perform badly like a recession, then we'll win out. I guess it is a risk on our part either way.
    (2) Some people say that having mortgage and debt helps college kids get federal financial aids. They use this as one of the reasons to justify a 30-year mortgage. I've not done much research as my kids are newborns/toddlers and I don't buy the reasoning. But, even if this was true, long-term I believe people end up paying more in mortgage interest than they would probably get in return for financial assistance from the government.

    I personally don't like debts of any kind. If our house is paid off, then I'll only need to worry about everyday living expenses, property taxes, and home insurance. These things are much easier to manage during a layoff than otherwise.

    On your other question, I bought REIT ETF in a taxable brokerage account. I hold REIT mutual fund in a Roth IRA as well.

    Hope this helps.

  3. Thank you very much for your detailed explanations about mortgage pay off. I asked this question as I am in the same boat to payoff my mortgage instead of investing in the market. From past one year I am doing only standard detection as the interest is low. I want to have good night sleep by knowing that I do not owe any money to any one.
    Do you think REIT EFT is tax efficient than REIT mutual fund? I mean the dividend it generate is taxable right?

  4. Monica,

    Thanks for the comments. Whether to payoff a house mortgage or not is actually a nice problem to have as it means you have enough savings and are looking for peace of mind (next step). Generally speaking, ETFs are supposed to be tax efficient than their mutual fund equivalents (or that's what the proponents of ETFs say anyway). But, according to the distributions data from Vanguard, Vanguard REIT ETF is actually slightly tax inefficient than the mutual fund.

    REIT ETF: Realized capital gain/loss as a % of NAV = –2.22%
    REIT Fund: Realized capital gain/loss as a % of NAV = –2.21%

    Dividend as a percentage of NAV will remain same in both ETF and mutual fund.


    So, ETF is not necessarily any better than its mutual fund equivalent. It is actually slightly worse. The reason is that because it is an ETF, people may be trading it in and out, causing the managers to sell the underlying REITs, and thus generating bigger capital gains. That is my educated guess.

    With that said, REITs in general are highly tax in-efficient than stock funds. So, for this reason, it is recommended to put REITs in a tax-advantaged accounts like Roth IRA.

    But, if you are not investing thousand upon thousands of dollars in REITs in a taxable account, I would not worry too much. The key thing is to invest and let it grow.

    Hope this helps.

  5. Thanks for the detailed explanation. I was only concerned that REIT will be a burden if it hits taxes so much. I read in your another post reply that you recommend reading Paul Merriman's value investing, I saw that you have included his recommended value funds in your portfolio. May I know how long you have been following Paul Merriman's value investing.

  6. Thanks Monica. I started following Merriman's advice since 2008. That's when I moved money from Fidelity and seriously started investing.