Looking Back, Looking Ahead

We are about to ring in 2018 so it seems appropriate to write one of those ubiquitous “year in review” type post that recaps 2017 and offers fearless predictions for the year to come – so lift a glass cuz here we go…

The Market

What can you say? The stock market continues a record-setting pace upwards. It is simultaneously creating elation among the bulls and panic among the bears as it reaches a new record high almost every week. The Dow Jones Average hit 71 new record highs 2017!

printing money
Over the past several years it feels like the market is printing money…

Depending on who you talk to we’re either living in the greatest times ever, or we are on the cusp of utter destruction and systemic collapse  – but so goes extremism in news today. I don’t watch them on TV, but I’m sure Maria Bartiromo and Jim Cramer are having a market-love-money-orgy on a nightly basis…

My favorite stock call of 2017 belongs to Kurt Eichenwald who panicked late and 2016 and tweeted – “I hate to say this but, against my investment advisor’s recommendation, I sold all stocks and went all cash months ago, just in case.” Smart move, buddy. Don’t try to time the market. Don’t be Kurt.

2017 Stocks

Among the core large-cap funds I most often talk about SPY/SWPPX are up around 22% on the year, driven mostly by the largest 20 companies in the S&P500 index. RSP, the equal-weight fund, is up around 19%, lagging the S&P500 by 3 points because of its tilt to mid-cap and small-cap companies which are not as hot as large-cap stocks this year. BRK.B is up around 22%, keeping pace with the market. My Robo-Fund at Schwab is up 20%, lagging the S&P500 by 2 points, again due to its small/mid-cap tilt toward value stocks. Overall, 2017 was a very good year for the equity market. My current stock allocation is around 75% of my total portfolio.

2017 Bonds

Among the core bond funds I have mentioned, PONDX performed the best, up 7.87% with a yield of 5%. I also own DBLTX (+3.5% with a yield of 3.7%), NERYX (+4.74% with a yield of 2.9%), and ETHIX (+6% with a yield of 4%) and TOTL (+0.43% with a yield of 3%). For comparison, the aggregate bond index (AGG) returned 1.15% with a yield of 2.5%. In 2017 I faired very well against the broad bond index. My current bond allocation is around 20%.

2017 Commodities

Right now I am only invested in 3 commodities. CEF, a mix of gold & silver, was +17.12% on the year. My timber ETF, WOOD returned 31.9% on the year with a yield of 1.15%, and my oil ETF, BNO, returned 14.29% on the year. 2017 was a good year for commodities I own, and they currently occupy about 5% of my allocation.

2017 Bitcoin 

To say 2017 was a good year for Bitcoin would be like saying 1999 was a good year for Prince. Unless you’ve had your head stuck up somewhere very dark, Bitcoin has undoubtedly inundated any news or social media feed you frequent. Bitcoin is currently +1,473% on the year and is there largest “bubble” in world history in terms of meteoric rise. A plethora of cryptocurrencies such as Ethereum, Litecoin, Bitcoin Cash, and others have seen huge gains as well. I have recommend putting 10% of your cash in Bitcoin, or 2-3% of your total investment portfolio.

The most common question around crypto today is; “Is it too late for me to get in?” In answering that question, it demands a very short term view and I am a long term investor – so I guess that is my answer… Don’t let FOMO guide your investment strategy.

2017 News

The new Trump tax plan has taken centerstage at the end of the year. It seems promising for businesses both small and large, and it seems to mean a decent reduction in taxes for about 80% of all Americans. CPAs are certainly benefiting as well!

One commentary I’d make on the tax plan is this constant infatuation with the 1% – what are they doing, what are they earning, what are they paying… I have one friend who has now dedicated his entire Twitter feed to monitoring the 1% and rambling about how unfair it is to see them do what they do. He is obsessed.

To that end, CNN ran a story entitled “2017 Was a Great Year to be Rich”. Isn’t any year a good year to be rich? (It was such a stupid article I am not even giving them the link).

A greedy 1% man… (copyright Ralph Steadman, used while awaiting permission)

I saw both WaPo and Bloomberg running stories highlighting  the fact that the 1% saw their wealth increase by 22% in 2017, as if there was some wild Trumpian conspiracy to make them richer. Well no shit, Sherlock – the S&P500 was up around the same amount. Of course their wealth grew! Of course they got richer! They invest their money! Oh vey…

I don’t understand it – what some gazillionaire makes in a year or what his tax rate ends up being, or what is benefit is from the tax reform plan has zero bearing on what I get up and do on any given day. I just don’t understand the constant crying – I put on my big boy pants, go to work, and get it done on a daily basis. As a very wise man once said; “It is what it is and it ain’t what it ain’t”…

2018 Predictions

As I mentioned earlier, I am a long term investor so the type of year-end articles that tout “the hot stocks for 2018” have very little interest to me. I have repeatedly preached invest early, invest regularly, invest often, and invest period.

Nothing that happens in the market in 2018 would cause me to alter my monthly plan of depositing money and buying stocks and bonds month in and month out. My core investments are “set it and forget it” and I am simply checking my stock/bond allocations on a quarterly basis and plowing on.

That being said I will mention a macro idea that might fit a spot in your portfolio if you like to mix things up a bit…

India is predicted to become the world’s 5th largest economy in 2018, leapfrogging both the UK and France. They are heading toward becoming the 3rd largest economy in the world by 2027 (Bloomberg). These are not small, incremental moves. This is massive growth in less than a decade.

To ignore investment in China or India as they take the top spots amongst the world economies seems shortsighted. There are plenty of ETFs that will give you broad equity exposure to China and Asia as a whole, and maybe we should look at those in future blog.

a map of India

One investment that I will mention today is SMIN (+57% in 2017). This is a fund that invests in the smallest of the small-cap companies in India. I have been well impressed by it in the 2 years I have owned it, and it occupies about 5% of my total stock portfolio. Keep in mind that it is a small-cap foreign fund with the unique risk factors that come with this type of investing (volatility, currency risk, foreign governments risk, liquidity risk, etc.)

A Word for 2018

We live in a time when the stock market is tapping all-time record highs and there is more wealth in our nation than ever before. It’s also a time when half of America can’t come up with 400 bucks if faced with an emergency – a fact I find simply unbelievable!

If you’re looking for a New Year Resolution for 2018 it could be that taking the steps toward placing yourself on the path of financial independence may be a good one to consider…  Cheers – and Happy New Year!

Disclaimer – I am long the securities mentioned. You should do your own due diligence before investing, and if necessary  consult with a reputable fee-based advisor who can help you determine prudent investments based on your unique circumstances. This is not a solicitation or a recommendation to buy anything. Keep calm and carry on.





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