Uncommon Cents

A few posts back I discussed what my portfolio in my 403(b) plan looks like; it’s not quite what my model portfolio is because my 403(b) plan doesn’t offer two of the three funds I like enough to have in my model portfolio. But pretending I could have exactly the funds I wanted, let’s see how they did in 2007 (yes, I realize there’s one more trading day in 2007 but I doubt that one day will make a huge difference–and if it does, well, that’s what editing’s for).

My model portfolio is:

Vanguard Total Stock Market Index (VTSMX): 50%
Vanguard GNMA Fund (VFIIX): 25%
Vanguard Total International Stock Index (VGTSX): 25%

Of course, numbers don’t always round off perfectly (they actually almost always round off imperfectly). If we’re talking about a portfolio starting the year with a total of $100,000 in it, we can’t quite get $50,000 to VTSMX, $25,000 to VFIIX, and $25,000 to VGTSX; instead, we end up with:

VTSMX: $49,977.10
VFIIX: $24,995.36
VGTSX: $25,003.05

VTSMX started the year at $33.70. It ended Friday with an adjusted close of $35.58. With an expense ratio of .19%–about $.07 per share–it gained $1.81 per share, or 5.37%.

VFIIX started the year at $9.76 a share and ended at an adjusted close (meaning including dividends) of $10.34 a share as of Friday. With an expense ratio of .21%–approximately $.02–the gain is about $.56 per share, or 5.73%.

VGTSX began the year at $17.67 a share and ended Friday at an adjusted close of $19.99. With its expense ratio of .27%–about $.05 a share, the gain is $2.27 per share, or 12.85%.

Our totals currently look like this:

VTSMX: $52,660.87
VFIIX: $26,427.59
VGTSX: $28,215.94

At the end of the year (well, with one trading day left), all three funds were up; the total portfolio was up 7.33% for the year. The VGTSX fund did the best, which reflects recent history (the international index outperforming the domestic index and bonds); the VTSMX fund did the poorest, although it was at least positive. Interestingly, the VFIIX fund did very, very well, which shows that it pays to own quality when there’s a flight to quality; it also illustrates the importance of owning bonds in your portfolio, because there are years they outperform stocks–like this year. In fact, this portfolio beat the S&P 500 index, which is interesting considering it’s made up entirely of passively managed stock index funds and a bond fund which is managed with very low turnover. While this is not the norm–the S&P 500 has only returned a bit over 4% year to date with perhaps 1% more in dividends–it does happen.

This does throw our proportions off a small bit;the international fund is now over 26% of the total, the domestic fund about 49%, and the bond fund a bit under 25%. Not enough for me to consider rebalancing at this point.

In the end, I think that my model portfolio did pretty well; no, it did not have incredible, mind-blowing gains, but it did better than the S&P 500, and its expenses were minimal. In a year when performance was mixed at best, the return on my model was better than the index, which is the best outcome I can hope for.

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