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?
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