Financial Independence Portfolio performance

Recently I stopped getting excited about size of my portfolio, but rather aim to focus on what is can generate for me in terms of dividends.  Now it is 3% annually. The funny thing is, even if the net worth goes up, the yield  is going down.

My understanding that with the bull market and funds are chasing performance, more and more companies are pulling out from TIPS (Treasury Inflation-Protected Securities) and putting money in the stock market.

The average yield on lowly rated corporate debt, or junk bonds, recently dipped below 5 per cent to a record low that is less than US Treasury bonds yielded in 2007.

I came to realize that for the financial independence size of the nest egg is of little importance.  Difference from a retirement portfolio is that I am not going to sell it to buy annuity.  For financial independence, the nest egg should be able to generate enough money to cover expenses and compensate for the inflation.  Inflation affects not only expenses but the principal (nest egg) as well.

May 2013 update ($246,730 +$8,400 or + 3.5%)

The portfolio changes:

↑ Accumulated additional 3,500 USD as part of my annual savings goal.

↑ Gazprom (GAZ:FRA) is up by 600 USD

↑ Vanguard VDE is up by 1,900 USD

↑Vanguard VOO is up by 500 USD

↑Company shares are up by 470 USD

Grand total additions:  6,970 USD

↓ Rosneft lost 520 USD

Grand total losses are:  520 USD

April 2013 update ($238,300 +$4,470 or +1.8%)

The portfolio changes:

↑ Accumulate additional $3,500 as part of my annual savings plan ($42,000 a year or $3,500 a month)

↑ Annual bonus added towards financial independence investment - $10,000

↑ EUR is up towards USD – 1,581 USD

Grand total additions: $15,081 USD

↓ Vanguard Energy ETF stocks are down $1,300

↓ Gazprom and Company  shares are down $4,490 combined

↓ Emerging market mutual funds are down $1,980

↓ Precious metals down $970

↓ RUB and GBP   are down to USD, causing loss combined 1,871 USD

Grand total losses are $10,611 USD

Energy Stocks Screening

 Energy Prices forecast

	2013	2014	2015	2016	2017	2018
Oil $/bbl*	107	100	100	100	102	107
Oil in 2012 prices $/bbl*	105	94	92	90	90	93
Gas $/mcf	3.06	4.25	4.5	5	5.4	6

* Brent Oil price

mcf - hundreds cubic feet (North America, Henry Hub).

April 2013 Analysis major Oil and  Gas Companies stocks analysis: 

* Gazprom has big exposure to one country only - Russia

March 2013 update (234,000 +4,000 or +2%)

The portfolio changes:

↑ Accumulate additional $3,500 as part of my annual savings plan ($42,000 a year or $3,500 a month)

↑ Vanguard Energy ETF stocks are up $ 300

↑ Gazprom and Company shares are up $790 combined

↑ Precious metals up $400

↓ Emerging market mutual funds are down $990

Currency wars, Risk taking and Satisfaction

Risk taking

            With interest rates still low – some government bonds offer negative interest rates – the Eurozone crisis stabilizing and the US economy healthier, investors are emboldened.

              A huge amount of liquidity has been sitting in cash or negative yield bonds out of fear. As that recedes, a wall of money is flowing into financial assets. Debt markets are very accommodating and there is a lot of capital sloshing around.

             Some of the governments are more desperate than others – in the UK there has been serious discussions on imposing negative interest rates as a stimulus measure.  This will further undermine the savers efforts to earn meaningful money to preserve the capital against inflation.

              Spread between yields for highly-rated and lower-rated companies bond is far narrower than it is used to be. Investors are chasing returns, sometimes at all cost. It is not unheard off that emerging markets institutes rated at BBB- successfully selling bonds at 3.6 per cent in USD. This makes bonds rather risky and pricy investment.

              Investors are putting money in the assets they would not do otherwise for the premium they are getting – stock market at the current returns. Markets are almost at all-time high, while the returns are very low.   There is a risk of not only erasing value of the money, but erode the returns as well.

Rate of Return (ROI) on Real Life Investments

In 2012 I have acquired some investments and would like to review their effectiveness. The way I calculate rate of return is quite simple:

-         For the shares /equities with dividends paid:  (price at the end of the year – price at the beginning of the year + dividends paid)/ price at the beginning of the year.

-         For the mutual funds or shares with the dividends reinvested: (price at the end of the year – price at the beginning of the year)/ price at the beginning of the year.

I used my current investments as real life example of rate of return on the investments:

	Vanguard Energy ETF - VDE	Gazprom OAO (GAZ:FRA)	Company shares
Number of holdings	300	3000	248 to 260
30th December 2011	30,243 (@100.81)	32,130 (@10.71)	9005 (@36.31)
28th  December 2012	30,057 (@100.19)	27,690(@9.23)	8736 (@33.6)
Dividends	537* (1.99 per share)	1219** (@ 0.45)	12 shares or 388**
Dividends %	1.78	4.4	4.4
Overall return $	351	-3,221	-269
Overall return %	1.1%	-10%	-3%

*10% taxes paid.

** projected dividends, 10% taxes paid.