The beauty of a portfolio update for Q1 2016 that is now approximately 6 weeks late, is that you don’t have to wait too long until the update for Q2 – which will hopefully be back on schedule. I just did not get around to the Q1 update when I should have. Anyway, nothing quite like starting a post with a poor excuse. Enough excuses and on to business.
Having looked at some of my recent posts and recognizing that I may have been a little “detail oriented” (translate that as a tad long and maybe yawn material in parts), this post is cutting to the chase. It provides an assessment of how our various investment strategies have performed over the first quarter of 2016. Please note that the % change in the table below reflects our contribution and investment fund performance combined.
*Non-contributory for Mr. PIE. Employer provides contributions.
By some miracle, Mr. PIE’s 401K held its own during the downturn of Jan/Feb in the market. We have stated before that we each max out our respective 401K’s. Mr. PIE 401K made a modest gain during the quarter. Mrs. PIE’s 401K did not fare so well and ended up down when factoring in contributions. Her 401K is much more aggressive than Mr. PIE 401K which explains the difference.
457 (Deferred Compensation Plan)
For those not familiar with it, a 457 plan is a supplemental tax-deferred plan somewhat similar to a 401K. The employer provides the plan and Mr. PIE defers compensation into it. Unlike a 401K plan, there is no penalty to remove funds prior to age 59 1/2. The maximum contribution to the 457 on an annual basis is $18,000 for persons below age 50. Like the 401K, there is an additional catch-up bonus of $6,000 allowed for persons age 50 and over. In theory, a 50 year old whose employer offers a 401K and 457 plan could sock away $48,000 (18 + 18 + 6 +6) dollars in 2016.
Mr. PIE has had the opportunity to add to both his 457 plan for some time now. Although we are very happy with how our tax-deferred savings looks, we elected to start putting 5% of Mr. PIE’s salary on a biweekly paycheck basis into this investment vehicle, starting this year. Given that this is the first quarter where we are contributing, the % change is not applicable, hence NA in the change column. It will further boost our tax-deferred savings. We did tell you that we are quite conservative with respect to planning for the years ahead…..
We have described before that we feel our 529 plans for the small PIEs are appropriately funded. In fact, they are tracking some way ahead relative to their age. Since we will stop contributing to these funds in the summer of 2018 when we reach FIRE, the next two years will allow us to load them up on a monthly basis and aim to get closer to two six figure sums in each account by then. From that time on, we will let the market drive any future growth for subsequent 7-9 years before each small PIE heads into continued education land.
We have been maxing out our HSA for a couple of years now, and this year we have actively chosen not to use this fund to cover medical costs, but to pay these costs out of pocket instead. This will allow our HSA to grow tax free and we’ll withdraw funds tax free much later down the line. The HSA really is a beautiful thing when it comes to taxes: it goes in tax free, grows tax free and comes out tax free! We currently have the majority of the assets invested in a low cost Vanguard fund, albeit with a very small, fixed monthly fee from the Credit Union for the pleasure of being able to invest at all. A small portion of cash has to remain in the savings account portion of the HSA, per the rules of the Credit Union. We look forward to watching the HSA grow over the next two years, and will consider continuing to fund it after that if doing so presents an appropriate tax advantage.
We make no regular contributions to our IRA’s. Within each IRA are non-traded REITs. Each has provided a modest gain during the quarter. As we have described before, these REITs have been performing pretty well for us over the last three years. Although Q1, 2016 performance was not as strong as previous quarterly performance, a gain is a gain.
Our other REIT has not fared so well this quarter and was actually down ~2%. That was in contrast to +3.7% growth (total) over the previous two quarters in 2015.
Mr. PIE Pension (UK)
Mr. PIE contributed to a savings plan when he was gainfully employed in the UK. Of course, he makes no contributions to that plan now. The plan had a gain of 2.1% over the quarter. Funds from this plan will be accessible when Mr. PIE reaches age 65.
Mr. PIE Pension (US Employer)
This fund grew by 2.5% thanks to contributions from Mr. PIE’s employer. At separation from service in 2018, Mr. PIE will elect to take this pension at age 55 in the form of an annuity for each year he continues to walk the planet.
We have summarized before that our strategy for FIRE has been to secure our mountain home, pay off the mortgage in full on that home and then divert as much as we can since paying off the mortgage to our taxable account. This account will ultimately be enhanced by the equity we have in our primary residence. Proceeds from that sale in the summer of 2018 will boost our taxable account enormously.
How did our taxable account grow so much in Q1, you may ask. A combination of the following:
- Mr. PIE’s 2015 performance bonus that was paid in March 2016. To be very honest, an extremely sizeable bonus which will be hard to see replicated year-over-year. Hard individual and team work – yes. Aided by strong company performance – yes. Overall thankful to work for a strong organization – you bet.
- Aggressive savings. We have significantly ratcheted down our spending. Savings have gone directly to our taxable account at Vanguard. Boy, it is good to see that happen. Our savings have been gained through challenging pretty much everything in our expenses. And we still feel that we have some room to reduce further our monthly expenses. Our biggest wins have been groceries budget, eating out less, finding home/car insurance plans with much lower annual costs and eliminating a wine club subscription. And the funny thing to us at least, we have barely noticed the change in lifestyle! I certainly would not have predicted this but it is true.
The increase here merely reflects money we placed in our cash savings account to cover some significant upgrades to our mountain home – new siding and shingle roof. The increase in cash was merely temporary before the check was on its merry way to the contractor. It is important for us to take care of basic shelter expenses and have our mountain home in fine shape by the summer of 2018. Expect more changes to the cash bucket in our Q2 update as we actually reduce further our over-sized (obese?) emergency cash fund and divert it to the taxable account. Even the ultra-conservative PIEs can change philosophy on the concept of an emergency fund!
Given the ups and downs in the market during Q1, I am not sure we could have expected a whole lot better performance. It is what it is. Who knows what the remainder of 2016 will bring? Unlike those who sit behind polished desks in big city financial districts and periodically send out their pearls of wisdom regarding the stock market, I am offering no such predictions.
Have you been happy with your portfolio performance year to date? What performed well or not so well? Any sizeable winners in your portfolio?