FIFoldPath

Monthly Financial Snapshot: May 2021

I made a slight change to my investment strategy this month by changing my US small-cap value fund from Vanguard's fund tracking the CRSP SCV index (VSIAX) to the more focused Avantis SCV ETF (AVUV). It's an actively-managed fund (gasp!) but the expense ratio is really low which mitigates the principal downside of active funds. It is more focused than VSIAX due to applying more stringent value and profitability screens, so in theory one should expect better risk-adjusted performance due to greater exposure to the value and profitability factors.

I've also been considering modifying my overall strategy away from the Pinwheel Portfolio which I have been using since June 2019. There isn't anything necessarily wrong with Pinwheel, but my main concerns are the heavy allocation to REITs (15%), as well as the current market conditions of ultra-low interest rates (relevant for bond performance) as well as the very high US market CAPE ratio.

REITs have actually been performing extremely well over the last few months (likely due to the US reopening), but after reading the literature there isn't much theoretical justification for overweighting REITs beyond their natural market weight (about 3%). This presents an opportunity to simplify the portfolio by selling off my REITs and re-allocating to other funds.

As for market conditions, a high CAPE ratio is a signal for lower future long-term returns as I explained last month. In addition, the ultra-low interest rate environment doesn't bode well for bonds, as their current interest payments remain low (possibly below inflation), while their capital value is at risk if rates increase (which they might if inflation picks up too much).

So, if I were to modify my portfolio strategy, I might consider eliminating REITs, reducing bond allocation from 15% to 10%, and increasing my stock allocation to non-US and further tilting to small cap value. I haven't decided to change my strategy just yet, but I'll continue to think about it over the next few weeks.

Here's my May expenses:

Category 05/21 Comments
Rent $905.23
Internet $50.47
Cell Phone $30.16
Natural Gas $25.02
Electricity $39.20
Water $0.00
Groceries $526.82
Transport $22.08
Health $224.22
Other $0.00
Necessary $1,823.21
Restaurants $182.08
Entertainment $29.95
Shopping $76.45
Travel/Parking $99.00
Gifts/Donations $0.00
Software/Games $0.00
Business $0.00
Other $0.00
Discretionary $387.48
Total Expenses $2,210.69
Gross Income $4,661.23
Taxes $603.49
Net Income $4,057.74
Savings $1,847.05
Savings Rate 45.52%
Net Worth $425,042.67

Projected time to FI (assuming 6% growth and 4% withdrawal rate): 5 years, 9 months.

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