At the beginning of the year – when we have our Financial Round-Up Day – I put down my assumptions for what I think the financial markets and economy will return for the year. I try to be conservative in my expectations, but use it to set investing goals and create a spending plan for the year.
With autumn now in full bloom, I thought I would revisit those predictions and see how our financial harvest is coming in. While the overall economy seems to be doing well, our portfolio is a bit down (on paper) due to weak performance at the MegaCorp I am an early retiree from.
Here are the predictions I wrote on New Year’s Day 2017 and how things have shaped up in the first nine months of the year …
- S&P 500 PERFORMANCE – I expected that the market would be up in 2017. Back at the start of the year we were riding the Trump Rally with investors excited about the possibility of tax cuts. I predicted S&P 500 growth of +8% for the year and we are currently at +11.7% growth.
- INTERNATIONAL EQUITY MARKETS – I expected slightly slower growth in the international EFEA index than we are seeing in the US. My prediction was +5%, but I couldn’t have been more wrong. EFEA is up a whopping +18.5% year-to-date. The index started heating up in May and despite slower Asia growth, geopolitical instability and Brexit – it is very strong.
- BOND MARKET – I use VBMFX (Vanguard) as my proxy for the Bond Market and it is up +1.7% so far in 2017. This hasn’t moved much year-to-year and has trailed the inflation rate for a few years. Good to see it up this year, but it is definitely slow growth.
- INFLATION – The Consumer Price Index has averaged +2.2% annually since 2000 and I expected it to be a bit lower this year. The Fed has been diligent in trying to keep inflation low and I pegged a target of 1.5% back on New Year’s Day. Through August, the 12-month CPI is 1.9%. That doesn’t seem too much higher than my target, but it is almost a quarter higher.
- UNEMPLOYMENT – Like CPI, I usually worry a bit about politicians gaming these numbers, but I expected that unemployment would remain flat to year ago at 5% in 2017. It is currently a little lower at 4.4% – so that’s a good thing. Unemployment doesn’t have a direct connection to anything in our financial plan, but I do track it as something to give our portfolio context.
- POLITICS – With Trump winning the election last year, I put healthcare reform and a tax cut as a prediction for Washington to accomplish this year. Unfortunately, as we all know, despite having a majority, the GOP have been deadlocked to get anything done this year. I’m still hopeful as both of these things would help our bottom line. To protect us, I’ve ‘managed’ our income to close to zero for the year by not selling any assets.
- MEGACORP STOCK OPTIONS – This last prediction area has been ugly and getting uglier. I have a significant amount of MegaCorp stock to sell each summer between now and 2020. The company has been struggling a bit and the stock started trailing the S&P500 last year (although it was still up +7.1%). This year, I hoped for +6% but it won’t happen. MegaCorp seems to be struggling more than ever and investors have been giving up on them. The stock price is down -16.5% so far this year and down -28.7% from it’s peak.
Fortunately, I haven’t sold any MegaCorp stock options this year. I should have sold more when it peaked last year, but with 24 months left on my exercise window, I got greedy for more. The leverage that makes stock options so valuable when they go up kills you when they go down.
Our overall portfolio (which includes a good amount of cash that we could live off of for 3 years) is down -6.5% this year. Last year we were up +7.2%, so we are basically back to where we were two years ago. Financial Advisors tell you that weak portfolio returns are especially damaging in the first few years of your retirement.
Hopefully, we’ll navigate through this issue with our MegaCorp stock and turn things around. The other lever we have is our spending, so I think we’ll put off any major purchases until we see where 2017 ends. I was looking at getting a new SUV, but I’m not in a hurry at this point. Better to stay the course and see if a better than expected harvest comes in this autumn!
How is your portfolio performing? Looking good?
Image Credit: Pixabay
MrFireStation 
Your stock options issues rings true to me. I have a few thousand Restricted Stock Options from my megacorp but luckily there is no strike price for me on these so I just lose whatever the value of the stock is. My second set of stock is bought through our employee purchase program that let’s me buy at a 15% discount. So far I have held on to most of it. My wife and I were initially going to use the employee stuff to pay taxes and HOA at the end of the year, but we’ve never needed it. Right now I get a little over 7k a year in dividends from it, and I’m hesitant to sell it even though it makes me really heavy in tech stocks.
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It’s hard to be so heavy on one company’s stock, especially if you are still working at that company. Then you have your career & net worth all tied up together. It’s the proverbial all your eggs in one basket.
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Perhaps some dollar cost averaging? Sell a bit of company stock every month or so? If the value goes down more, you’ll be glad that you locked in at least some gains…
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Yes – that is always a good approach. My plan is to sell 1/8th each quarter over the last 2 years. When the stock fell so suddenly, I convinced myself it couldn’t go lower. I was wrong!
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I read this with a pain in my gut knowing how the market did for us at least in boring index funds (15% last year) and reading how your co. stock crapped out and impacted your overall return. Reminded me of two acquaintances who had similar scenarios, large amounts of net-worth in co. stock. One held large amounts of Cisco due to a company merge he was apart of (7 figures) and had an opportunity to sell most of it after a 6 month lock up period. Suggested he diversify but he never did – lazy, believed in the company, etc.. and then the stock cratered, tech bubble, he lost the majority of it. The other friend had a similar plan to yours but was much more aggressive with the idea he would never hold more than 10-15% of a single stock even it was his employer. He transitioned everything over the course of just a couple months had a tax hit but was diversified while his past co. has been trailing the avg. market. Good luck
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Tech stocks can be especially volatile for sure! The surprise here is that this is a packaged food company. It has grown 28 of the last 29 years. The only year it was down, it was -0.5%. Quite a turn, for sure.
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yeah – it can be a trying time when the general performance is positive and you are holding a laggard. Good luck with your decision. btw – I throughly enjoy your blog. it has helped my prepare and forecast my own journey.
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It’s because you left the company… they need you 😀
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I wish that was the case… If only for my own ego. 😉
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