The EAF Portfolio 2014 Review
Another year has past and the EAF portfolio has grown more mature and diversified. I'm fairly content with my performance this year and the lessons learned. I shoot for 10% and depending on how the market ends each day my total performance can swing + or - 2% so even though I'm posting a 9% performance it has been over 11% on certain days this year. I'm going to go over the numbers first and then highlight some important (and costly) lessons that were learned the hard way.Total Performance: 9.03%
Its not going to blow your hair back but 9% overall is not a bad amount of performance from the EAF Portfolio. This is actual Total Performance for the year not including value added through additional investment. Total Increase in value of the portfolio for the year was over 23% which is very substantial. Be aware with these numbers that smaller portfolios such as mine see large swings in total value through even small contributions. The 9% however is pure profit produced by the investments.Performance by the Numbers:
| Investment Vehicle | Performance | Allocation |
|---|---|---|
| Stock/Mutual Funds | 6.79% | 30% |
| Options | 9.02% | 30% |
| Betterment | N/A | 10% |
| Lending Club | N/A | 10% |
| Bonds | 1.21% | 10% |
| Cash | 0.75% | 10% |
| 401K #1 | 9.93% | |
| 401K #2 | 9.53% |
Listed in this chart is the Investment Vehicle, its Performance for the year, and the Allocation of the taxable portfolio that I am trying to keep balanced. Betterment and Lending Club are newer vehicles to the portfolio and therefore do not have any performance statistics for the year. 401ks are not listed in the allocation as they are pre-tax accounts. I'm going to go over these one by one to explain how we got where we are.
Stocks/Mutual Funds - I would be up even farther on buying and holding dividend stocks if not for one bad trade made in the middle of the year. Otherwise these stocks and funds performed wonderfully with zero input from me.
Options - All of my Options money was tied up in Lowes stock from last year all the way until October 2014 when the price recovered. After that I focused on credit spreads for the last 3 months of the year and despite 3 bad trades I was able to pull 9%. There is a lot of potential in credit spreads going forward.
Betterment/Lending Club - In an effort to further diversify the EAF portfolio I have begun investing in Betterment and Lending Club. I'll be keeping a sharp eye on these two going into the next year and post some performance numbers once a few months are behind me.
Bonds - The bond rates have gone up a bit this year but 1% still doesn't beat inflation. As a "guaranteed" asset though you can't really go wrong here. I plan to cash in and reinvest my bonds as rates go higher to lock in higher permanent rates.
Cash - As expected, leaving cash in an account doesn't really do much in terms of performance and losses to inflation however everyone should have a liquid fund available for emergencies.
401Ks - My best performers for the year are the 401Ks. These collections of mutual funds are simultaneously easy to use widely available. Much like Betterment they allow for diversification and decent gains. The bad news here is that should I retire early there will be a 10% penalty to pay for withdrawing that money prior to age 59 and a half. I have my doubts about a 401K being the only thing that people need to retire but looking at my year its an obvious choice for an investing vehicle.
Lessons Learned
It wouldn't be a complete year without a few missteps. Here are the EAF blunders of the year:- Trust the data, but have a backup plan - Specifically for credit spread trading make sure to put in stop-loss orders so that a spread can only go so bad on you, no matter what the data says.
- Don't chase profits - Another credit spread learning experience. Yes you can make one trade that will net you 15% but you are much safer looking for steady 5% gains on stocks with the correct indicators.
- Don't invest on other's enthusiasm - I try very hard to stick to facts here and portray exactly what is happing through actual data so my opinions do not overweigh the facts. I made a trade this year based on what another investor (and friend) endorsed without proper diligence and I got bit rather hard. Don't make that mistake, get all the data you can before a potential trade.
- Do not set Options orders over the weekend - I had one spread that actually cost me money the second I made it because the opening price was so different from the price posted over the weekend. Do your options trading on the live market.
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