2017 Investment Performance

2017 Investment Performance

Hello folks! Welcome back to The Green Swan. Better late than never…today I am finally publishing my 2017 investment performance. This is the second part of my 2017 year-in-review as last week I published by 2017 expense summary. In today’s post, I will be recapping my 2017 investment performance as well as providing a look ahead with my annual model going forward. So let’s get started!

S&P 500 Index Performance

To get things started, I should note that I track my investment performance to the S&P 500 Index. It is a good benchmark that overall I want to track (and maybe slightly beat) every year. So how did the S&P 500 Index do? When including reinvested dividends (because historically about half the return from the S&P 500 Index has come from dividends…and because I reinvest my dividends…), the S&P kicked off a solid 21.83% return in 2017!!! That’s huge. It isn’t always that good and for all the investors out there, we need to still be ready to brace for the next 20% decline…you know it is going to happen eventually.

You take the good years with the bad though and 2017 was definitely a year to celebrate. However, I did not fare quite so well myself. Even though I primarily invest in index funds which should generally track the S&P 500, there are a few things that can, and have, thrown me off from the S&P performance.

Let me explain…

My Investment Variables

In 2017, my investment performance did not fare so well. Generally, there are three factors that can come into play for me and either drive a much better or sometimes worse performance from the S&P.

First, I only keep about 35% of my investments in index funds designed specifically to track the S&P 500 (VFIAX for example, among others). The other 65% is invested in domestic small cap indexes (e.g. VSMAX – 25% or so) and a combination of broad-based international indexes and some emerging market specific indexes (e.g. VTIAX and PRMSX – about 40% of my total portfolio). This is a relatively higher risk portfolio, so theoretically it should outperform the S&P 500 more often than not, but this is one key variable I’ve introduced into my portfolio. For the record, VSMAX grew 16.24% in 2017 (a 5.59% dog compared to the S&P) and VFIAX grew 27.55% in 2017 (a 5.72% gain over the S&P!!). It’s good to be diversified!

Second, I still have a good chunk of employer stock as part of my portfolio. This definitely goes against my strategy of being an index investor, but I made this conscious choice about a decade ago and it has paid off over time for me. However, I am in the process of selling this opportunistically and currently less than 5% of my portfolio is in employer stock. However, this still can have an impact as to whether I outperform or underperform the S&P 500 Index.

Lastly, the biggest variable for me is now the big chunk of money I have invested in my small business. 2017 was a good year for the business, we learned a lot, we have it going in the right direction, but I didn’t adjust my recorded value of that investment. However, eventually I expect to adjust this value as we get into the business even longer and it really begins to kick off some cash flow. That day will come, but for now I will keep it recorded at the same value. This variable is only going to grow in the future as in January 2018 I more than doubled the amount invested into it when we completed another “bolt-on” acquisition!

2017 Investment Performance

2017 was a good year, but not great. And when I say this, know that my commentary is all relative to how the S&P 500 performed. I am excited to say that our investments went from $1,009K on January 1, 2017 to $1,340K at December 31, 2017. That’s a huge jump, no doubt. Although I will temper that by saying about $131K came from new contributions Lucy and I made throughout the year and the remaining growth of $200K was from value appreciation (the stock market going up).

Overall, our return profile in the year was 17.5%, quite a bit shy of the S&P 500 performance of nearly 21.83%!! But like I said above, the biggest drag by far was the investment in the small business which I haven’t changed my estimated value from the initial contribution I made. Needless to say, I do believe there is a lot of hidden value in that investment and eventually I will feel more comfortable reflecting that value appreciate as well.

2018 and Beyond

So what’s in store for 2018? Well I’m expecting it to be a little bit of a mundane year for us in terms of contributions we will be making. Hopefully the market does well again though! But this time last year we were expecting our newborn at any moment and we were already contemplating the small business acquisition that we just now completed. With those financial considerations behind us, our 2018 investment contributions will be pretty straight-forward. And as you may recall, we have already “full-funded” our kids 529 plans so we don’t expect to make any more contributions there either.

My 2018 investment contribution goal is ~$165K. This is inflated by ~$20K as I carried over from 2017 a large amount of cash in my checking as I was deferring investment contributions until we closed the small business acquisition. So otherwise, our normalized investment contribution amount in 2018 is ~$145K.

Lucy and I will continue to max out our IRAs ($11K combined), we’ll max out our H.S.A. ($6.9K family limit for 2018), and we’ll max out our 401k contributions ($37K combined). Note that 401k contribution limits increased from $18K in 2017 to $18.5K per person in 2018. Included in my annual contribution estimate is the employer matches to our 401k accounts which will be ~$15K from both Lucy and my employers combined. So that leaves another $95K for 2018 which will get funneled into our taxable brokerage account.

Summary / Other Talking Points

When will I reach my “FIRE-Starter” investment inflection point? Still not for a couple more years! 2020 is now when I expect to hit my inflection point. I am still increasing my annual contributions every year which keeps pushing out this date further and further. Funny how that works, but I’ll hopefully reach my FIRE-Starter before I finish my FIRE journey and retire…

I have my Dire wolf (aka millionaire status) and now I’m in hot pursuit of my smilodon! I am still planning on pulling the ripcord and retiring when I reach $3 million which I’m on track to achieve by early 2023.

And that leads my to my retirement date…which I’ve recently set a goal for March 2023. 2017 was definitely a good year and has propelled me to reach these milestones. But I’m not an oblivious investor, with the good years come bad years and I most definitely will experience another one or two before I retire early. It is just a matter of when.

As you can see, we keep a very close eye on our investments. We use Personal Capital to aggregate and track our various investment accounts which I then easily transfer into my excel file which allows me to cut and slice the data in more personalized ways. Personal Capital simplifies my life immensely and is free. If you don’t already use Personal Capital you should consider signing up today!

Thoughts?

How was your 2017 investment performance? Did you track to the S&P 500 Index or did other variables come into play for you too? Let me know in the comments below.

Thanks for taking a look!

The Green Swan

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10 Comments

  1. Like you, I have a greater variety in my allocation than just the S&P 500. I’m typically 30% bonds, and then equal parts S&P500, Small Cap, International and REITs. All Index funds. So even though the S&P shot up last year, I didn’t shoot up as much.

    On the flip side, when it crashed in early Feb, I didn’t crash as much.

    The FIRE-starter point is an interesting concept. I’d have to say I’m past it, because I’m pretty close to FI (29 months left). I put in over $63K last year, but made over $79K (capital gains & dividends). This year (2018) I may go back, because I really pushed my contributions up (over 50% this year of my gross/pre-tax income), so I’m looking to put about $90K in for 2018.

    Great post!

    Mr. 39 Months

    1. Yes it’s nice to have some diversification, and for you especially with bonds a little more of a stable portfolio. Get past the FIRE-Starter is a big accomplishment! Portfolio growth takes on a much different profile from there on. Congrats and thanks for sharing!

  2. You rock, my friend. My net worth went up $180K last year. Not too bad for a retired fellow with 65% of his portfolio in bonds and cash. But $331K is out of sight. I bow before you.

    1. That’s impressive growth for you considering you have so much in casi and bonds! Hopefully 2018 keeps the momentum going. There’s a lot more of the year left to see…

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