Uncommon Cents

As those of you who have followed this blog for awhile know, I have a model portfolio made up of four funds, two stock and two bond, that I track regularly. This is actually essentialy the portfolio I have in my 403(b) as well.

Any portfolio where asset allocation is a consideration–that would be every investment portfolio–needs periodic adjustment. For me, that adjustment happens yearly. Quite frankly, if the adjustments are very minor I often leave the portfolio alone, just because it’s often more trouble than it’s worth. That’s not the case this year.

If making adjustments to your portfolio, please consider fees (commissions from sales, for instance) and taxes (which is not an issue here since these funds are all contained within a 403(b)).

Also, consider what your overall asset mixes are. For instance, last year I decided on a more aggressive than usual 75% stock/25% bond allocation; this year I’m going back to my usual 70% stock/30% bond mix. Of the stock allocation, 47.5% is a domestic stock index and 22.5% is an international stock index; with bonds, 15% will be a total bond index and the other 15% will be a GNMA fund.

To match those up with the funds I discuss in the model portfolio posts, the domestic stock fund is the Vanguard Total Stock Market Index (VTSMX), the international stock fund is the Vanguard Total International Stock Index (VGTSMX), the domestic bond index fund is the Vanguard Total Bond Market Index (VBMFX), and the GNMA fund is the Vanguard GNMA Fund (VFIIX).

Turns out that I will need to take a bit off both my domestic and international stock funds and put them mostly into VFIIX but a little into VBMFX. I will work on that today!

The 401(k) match, where an employer matched up to a certain contribution by an employer into their retirement account, largely disappeared last year in the midst of the economic crisis.

Now, according to CNNMoney.com, the 401(k) match is back.

While a whole bunch of companies discontinued or at least cut back on their 401(k) matches last year, 80% of the ones who eliminated their matches are saying they’re going to restore them this year.

That’s a huge help for folks saving for retirement and a positive sign that an economic recovery is underway.

As usual I’ve been giving monthly updates of the performance of our model portfolio, consisting of four different Vanguard funds, the same ones I said I’m definitely not selling. You know these by heart already, so let’s see how they did for the year rather than just the month:

The Vanguard Total Stock Market Index (VTSMX) finished the year up 22.22%. Remember that this fund also yields 1.88% at current and makes up the largest portion of our portfolio. The Vanguard Total International Stock Market Index Fund (VGTSX) did an even better 30.87% and right now pays a dividend yield of 2.24%. As you can see, the stock portion of our portfolio did fabulously.

In the fixed income portion of our portfolio, the Vanguard Total Bond Market Index (VBMFX), was up 1.57% while putting out a very nice 4.04% yield. Similarly, the Vanguard GNMA Fund (VFIIX) was up, but a marginal 0.662% while paying a current yield of 3.99%.

Overall, every single one of these funds was up, and it was a great year for investing (remember, early this year the markets looked like they were on the brink of collapse)! Let’s see how things go in 2010.

I’ve been very happy with the way our model portfolio has performed this year, and I believe that December was just as much of a winner as the year had been to date. Let’s take a look at the numbers and see how things went.

The Vanguard Total Stock Market Index Fund (VTSMX) was again up, less than a percent, but up, 0.92%; in addition remember this fund pays a dividend yield of 1.88%. The Vanguard Total International Stock Index Fund (VGTSX) was actually down, 3.61%, but remember, the fund yields a decent 2.24%. On the fixed income side of the equation, the Vanguard GNMA Fund (VFIIX) was also down, 2.21%, while yielding 3.99%, and the Vanguard Total Bond Market Index (VBMFX) was down as well, 1.71%, with a yield of 4.04%.

Despite the fact that three of the four funds in the portfolio were down for the month, overall the portfolio was up, a combination of the fact that VTSMX was the largest holding in it and all of the dividend yields that the various funds paid.

While it wasn’t a spectacular month for our portfolio, it was a positive one, and I’ll take those any days over the alternative!

This is a guest post from the National Endowment for Financial Education (NEFE), a non-profit dedicated to improving the financial literacy of all Americans. NEFE operates the site Smart About Money and have developed a series of articles filled with tips to help you make 2010 the year of financial freedom. You can also find Economic Survival Tips, worksheets and articles focused on financial education related to housing, spending, credit and job change. Please look at Smart About Money’s other articles to help to make 2010 a great financial year for yourself, and you can follow NEFE on Twitter at @nefe_org

1.      Control spending: If you spend less you’ll have more money available to pay down debt and save for the future. Write down your expenses for a month to see where your money is going. You might be surprised by how easy it is to find places to scale back.

2.      Create a debt repayment plan: If you carry credit card debt, write down everything you owe and make a plan to pay it off. Start with small items you can act on right away–it will make tackling the bigger debt easier. Also, try buying with cash only. It’s a sure-fire way to prevent increases in your credit card debt.

3.      Set up auto-savings plans: Arrange with your bank or another financial institution to have a set amount deducted from your checking account to a savings account each pay period. Of the Americans who have been able to contribute to emergency savings funds, automatic withdrawal is the most popular method, according to the Consumer Federation of America.

4.      Boost retirement savings: If your employer offers a 401(k) plan, increase your contributions. If you don’t have an employer plan, open an Individual Retirement Account (IRA) and arrange for contributions to be made automatically from your checking or savings account.

5.      Create a long-term plan: Write a list of your long-term goals, such as buying a home or saving for college or retirement. Visit the Life Events section of Smart About Money for concrete tips on accomplishing those goals.

6.      Protect Yourself: Be prepared for the unexpected by making sure you, your family, your assets and investments are insured and fully covered. If you do not have a will, make 2010 the year you establish a life plan.

7.      Find a financial buddy: Share your financial resolutions with a friend, colleague, or family member, and you’ll be more likely to keep them. Find someone else who wants to turn around their debt or cut their spending, and establish a mutual support system.

Let’s face it–especially considering just how horrible things looked in early March, our model portfolio has had a splendid year–and if the performance through March had simply been breakeven, it would be a fantastic year. Let’s see how things went as the kids went back to school and our summer slipped away.

The Vanguard Total Stock Market Index (VTSMX) continued its upward climb, up 6.10% in September alone! For the year, it’s up 16.16%–what a reversal from its early year plunge. Remember, this fund also pays a dividend yield of 2.11%.

The Vanguard Total International Index (VGTSX) was also up, an even better 7.52% for the month, and a very hot 29.88% for the year. This fund also pays a dividend yield, even stronger than the domestic VTSMX–2.39%.

In the fixed income portion of our portfolio, the Vanguard GNMA Fund (VFIIX) was again up, but a microscopic fraction .003% but paying a 4.42% yield. And finally, the Vanguard Total Bond Index (VBMFX) was also its usual steady self, up a super tiny .007% while continuing to pay its 4.32% yield.

All in all, it’s been a great month and a fantastic year. Let’s hope things keep rolling through the rest of 2009!

Despite the good times in the stock market this year, the economy itself still appears on the ropes. We’ve discussed how 401(k) matching is one of the steps that companies have taken to spend less; they’ve also cut or eliminated dividends, some despite being nicely profitable before the dividend cut.

Now we have companies cutting their benefits–including the company I work for cutting mine–in an effort to stay in the black.

I’m sure that the companies that are cutting back on these benefits are not thrilled with doing so–after all, they want to treat their people well, correct?–but feel like they have to do so to stay alive financially.

For someone like me, who has worked for the same company for nearly 15 years, I’m wondering if these are desperate times for employers. Never before have my benefits been so poor, and it’s clearly to save money. Desperate times would of course result in desperate measures.

Let’s home the economy improves–a lot, and soon.

I received what I call my yearly “fake raise” this week: I hit the maximum contribution for my 403(b).

It makes me feel better to know I’ve contributed all I can, but it disappoints me that I can’t save more in this tax deferred way. As we’ve covered before, the advantages of regular investing are great, so even though I can’t put more money into my 403(b) for this year, my Roth IRA and regular brokerage account will continue to be filled as the months go on.

While it’s not really best in terms of building wealth, it’s really nice psychologically if in no other way to have more money in my paycheck at the end of the pay period.

How are you doing with your 403(b) or 401(k) or 457 contributions?

It’s been a wild ride up since March; the major indices which had plunged to almost 1/2 their all time highs have now reclaimed a lot of that ground again, at an absolutely staggering pace. The Vanguard Total Stock Market Index Fund (VTSMX) ended the month up another 1.99%, and for the year is up 11.98%, as well as paying a nice 2.18% dividend yield.

The Vanguard Total International Stock Index Fund has done even better year to date, up a staggering 23.43% and was up 0.816% in August. Remember this fund also pays a dividend yield of 2.47%.

Finally, in the fixed income portion of our portfolio, the Vanguard GNMA Fund was up another 0.47% for the month and 1.23% for the year, with a yield of 4.51%; the Vanguard Total Bond Index Fund was up 1.07% for the month, 2.17% for the year, and pays a dividend yield of 4.40%.

It’s been a great investing year even if it hasn’t eliminated all of the losses of the past year and a half. Let’s hope September continues to rock on!

I’m rather disciplined when looking at my balances as far as my investment accounts go–I don’t react emotionally, or at least not in making changes based on the balances. I have a plan, I stick to it, so I’m more than willing (if not always happy) to look at my 403(b)–the non-profit counterpart to the 401(k)–no matter what the market carnage has been.

That said, with the rally in the broad market since early March, even after the huge drop we saw between late 2007 and early 2009–it’s now safe to look at your balances again without feeling like you lost a ton.

Right now, my 403(b) balance is within about 5% of its all time high–and yes, while I do realize I probably put another $20,000 into it, but it certainly looks a lot better than it did around the start of this year.

So go ahead and look–just don’t react emotionally and make changes!