Funds For Fun Update: August 27th, 2023
Hi Everyone! To be transparent, I will share bi-weekly updates of my “Funds For Fun” portfolio account that I hold on M1 Finance. I treat this account as a super high total return saving’s account. I use an M1 finance account (Sign up today and get $10 for free!) because it is easy. I set up a draft rule that pulls in the amount of money that I want it too, what day, and the frequency. I will use this fund to help pay a down payment on a car or house, and any other future expenses. Instead of getting a 1-2% yield/return, I hope to get an 8-12% return.
You can check out this Googlesheets link to see which companies I invest in, which ETFs my finance invests in, my Roth 401 allocation, and my “Funds for Fun” portfolio that I am using to pay for future expenses. You can also check this website called Track Your Dividends (I am not a sponsor, but use and enjoy their product) to freely track the dividends of companies you invest in. You can create multiple portfolios, and see the future value, diversification, and next upcoming payment of your portfolio. This is the main website I use to track my annual income and the future value of my portfolio. Sign up for free and effort start to track your portfolio.
In each update I will go over my current mindset, any buys or sells, reasons for why I bought or sold certain stocks, the future mindset of the stock market, and visual graphics of my Funds For Fun holdings.
Alex Funds For Fun Portfolio Updates
Current Mindset
It has been a while since I did one of these updates and boy, a lot has happened in the financial, world events, and personal life. I recently moved to Fairfax, VA! I am loving it right now; it is an entirely different vibe and world from State College, PA, but it is incredible. My future wife and I just went on a wedding tour, including seeing our grandparents for a bridal and wedding shower! We were graciously gifted many awesome kitchen toys and much-needed appliances and decor for our new apartment.
Financially, Mr. Market reached its maximum (for now) price in July but has been in a short bear trend as news of the Federal Banks raises its rates, core inflation remains relatively sticky, you still can’t buy a house if you are younger than 35, car prices are still ridiculous, car loan rates are even stupider, and one of the biggest concern of mine is that student loan payments are being turned back on in October with interest rates starting in September. Terrible and truly awful. Millions of young people are now being forced to pay the minimum payment, a financial burden they have not had in the last two years. Additionally, many had the hope that at least 10K or more would be erased from their debt reducing their desire to save and plan for repayment. The worst fate is not the debt itself, but the interest rate. Just paying off the minimum payment itself with a 5-6% interest rate will put hundreds of thousands of people, young and old, in crippling and high-anxiety financial situations. Ask any college or student who has recently graduated and they will tell you, “I am fine paying off my debt, but cut or reduce the interest rate at least”. It is like watching film directors (the president) choose Liam Hemsworth (student loan forgiveness) to replace Henrey Cavill (lower interest rates) in The Witcher while all of the audience screams a resounding, “No!”
According to a study conducted by Bankrate in March of 2023, 21.7 percent of millennials and 15.4 percent of Gen-Z live paycheck to paycheck with little savings. Think about that, that’s just the number they are reporting. The average student loan debt is $28,400 according to Nerdwallet. Now, for all those thinking that’s not bad, anyone who graduates with a college degree can pay that off quickly. MMMMhmm, not so fast boomer, gen-x, or anyone who has a house. The focus should be on the interest rate. Remember, thousands of people who are Gen-Z and millennials are already living paycheck to paycheck.
Now, let’s run an experiment to see the impact of the interest rate. Using a few online tools, let’s assume the interest rate is 6% and your student loan debt is starting at $28,400. If you want to pay it off in 10 years, your monthly payment would need to be $315.30, and in total, you pay $9,435.79 in interest. If you want to pay it off in 20 years, your monthly payment would need to be $203.47, and in total, you would pay $20,431.94 in interest. If you want to pay it off in 30 years, your monthly payment would need to be $170.27, and in total, you would pay $32,898.05 in interest. That’s 4k more than the original debt!
Many in my generation can barely even make ends meet, how in the hell are they supposed to pay off their student loans with interest rates greater than 4%. How can we save for a downpayment on a house, afford kids, or even afford a car? Inflation has been made worse by increasing the cost of rent, groceries, transportation, houses, and a car. Many are not living the American Dream, many are living in purgatory of working their ass off just to pay rent. Others are simply in the American Nightmare of impossible costs of living and stagnated incomes. My generation is stuck in a loop of pushing the rock up the hill, just to have it rolled back down due to the sheer weight of debt.
Student debt rant aside, my portfolio is currently up around 16%. I have been steadily funding it from $120 a week to $200 since I have built up a decent emergency fund. Last few weeks I have been reading a book called “I Will Teach You to Be Rich” by Ramit Sethi. I have really enjoyed this book because it has taught me the psychology behind the way in money. Why I am saving, why am I investing, and why did I make this Funds For Fun account? The book helped me understand that I am investing money into what I call a “Hyper-Growth Account” to put a FU down payment on a house in 5-10 years. It made me realize what I hold special and my wants in the future, and damn it I want to retire early in a house, not an apartment that I am renting. So check the book out! If you are just starting or have years of experience with personal finances, you will gain knowledge. Think of it like the Whole 30 diet for finances.
Taking a look at the time-weighted return (TWR), I am currently up, as of 08/25/2023, 20.85% compared to the S&P 500 which is up 17.20%. The difference between the two funds is 3.67%. The TWR chart goes back to the first week and is a tool I created to help me understand the performance of my portfolio, tracking it against the golden standard, the S&P 500. If you are interested in the tool, check out my Patreon page. Page touches on topics like financial education, building a portfolio, and tools to help you achieve your life goals in finances.
I have picked some winners, but have also picked a few losers, so far. The winners right now in my portfolio are Amazon (AMZN) up 44.58%, the Vanguard Technology Exchange Traded Fund (VGT) up 16.77%, S&P Global (SPGI) up 15.14%, old reliable Berkshire Hathaway (BRK.B) up 13.95%, Intuit (INTU) up 10.9%, and the NASDAQ QQQ up 10.46%. The losers currently are Dollar General (DG) at -18.47% (DG just fell another -14% on August 31st, not great!), Ulta Beauty (ULTA) at -12.05%, my fiance’s new company Northrop Grumman (NOC) at -7.58%, and the Pumpkin Spice Queen herself Starbucks (SBUX) at -7.56%.
Overall I am still happy with the performance of the portfolio. I can see myself in the next year continually reallocating the portfolio by selling the companies that aren’t doing well and adding to my position in QQQ or VGT, or riding it out. Either way, my future wife and I will continue to fund this portfolio and use it as our downpayment on a house.
The Buys and Sells
The Buys
I am continually beefing up my position in industrials and technology. The automation of allocation, buying, and rebalance system M1 Fiances possesses has given me a hands-off experience allowing me to relax while M1 does the heavy lifting. In the last few months, I have continuously bought in QQQ, O’Reilly Automotive (ORLY), Intuit (INTU), Cintas Corp (CTAS), Old Dominion Freight Line (ODFL), VGT, Broadcom (AVGO), and Fari Issac Corp. (FICO).
The Sells
No sells!
Why I Bought and Sold
Why Did I Buy It?
All part of the plan baby!
Why Did I sell?
No sells!
Future Mindset of the Stock Market
I think at this point, if you ask any random person on the street, a financial advisor, a principal, or someone feeding the birds, they all have an opinion and they will all be different on the future outcomes of the stock market. Personally, I think we will be flat for the next 2-3 years. I don’t mean that the market will be flatlined and stagnant staying at the same price for the next 3 years, but we are likely to go into a recession within the next year, stay there for a year, and then come back to the current price point that the SPY and QQQ are at currently, whats called a lower high. The price. of the stock market will look like a rollercoaster going up and down. However, this can lead to great buying opportunities, if you have extra cash hanging around, which the majority of us don’t!
Not canceling student debt was a big blow to Gen-Z and millennials, and this will likely hurt the economy down the road for the next decade. Think about it, my generation and the millennials are the next ones up to bat making the big housing purchases, buying cars, and regular consumer spending like for food, gas, and living expenses. For many, they will stay in student debt, not able to get out due to many factors. The cost of living is going up, but wages remain stagnant. Leading to stressed out, high anxiety, and frazzled human beings. With the increase in the cost of living, their paychecks can only go so far; resorting in working more or using credit cards to cover expenses. Which can lead to credit card debt with an even higher interest rate. I am no financial wizard, but I am a meteorologist, I can forecast that credit card debt will increase in the next 3 years.
Another concerning factor for the economy is the strict budget Congress has imposed on the US. There can only be a 2% increase in the national budget for the next fiscal year, and no increase for 2025. This means little to no expectations for economic growth. On top of that, the nation will also have to deal with federal interest rates. While this is good for your high-yield savings account, it is bad for business. In the next few years, many companies will likely file for bankruptcy or lead to massive layoffs. An action that Google, Meta, Amazon, and many other companies have already done.
What happens in the world does not affect my investment strategy for the Funds For Fun portfolio. I will continue to use the satellite and core methods, picking high-quality exchange-traded funds (ETFs) and individual stocks that provide excellent returns. It is the perfect way to stay ignorant, but at least have the confidence to invest weekly in the stock market.
Asset Allocation and Total Income
No changes in my set allocation. Dollar General remains above my 3.5%, but I bought a great deal when they fell by -20%. I am hoping to keep most stocks around 3.5%, with only V, AMZN, FICO, and SPGI at 5%. My two ETFs in the portfolio will be the bulk of the portfolio with VGT at 25% and QQQ at 13%.
Weirdly enough, even though is mainly a growth-oriented portfolio, I am still generating decent dividends through AVGO, SBUX, and VGT. The portfolio does have a ~11% dividend growth rate, so we shall see how that plays out in the next few years.
