May so far has not been a great month for the stock market. As of earlier this morning, the S&P is down almost 7% for the month of May. I should consider myself lucky given that I’ve only lost about 2-3% in the same time period. With recent happenings in the market, here’s my current outline and thoughts on where my portfolio is and what to consider:

My Portfolio Overview

I’ve been with Scottrade for some time now. I don’t consider myself a day trader nor a very active trader. For the past couple of years I’ve mostly been buying and not really selling. Given my level of available capital for investing and that I still wanted to pursue a diversified portfolio for long-term stability, I settled on ETFs. Also given that I would be cost-averaging my buys, I sought commission-free ETFs and thus settled on Scottrade’s Focus Morningstar set of index ETFs.

I’m not a seasoned investor and overall consider myself a beginner when it comes to investing. However, I definitely do my research and feel that my journey will prove to be valuable experience… learning both from my mistakes and successes in the stock market. My overall goal is not to seek aggressive growth, but instead have long-term stability and be able to earn an average annual return of 6-8% to protect my savings from inflation and earn a little above that.

When I first started investing, I focused on the four following industries:

  1. Consumer Defensive (FCD)
    I chose this ETF as means to protect my portfolio from international issues. The index is comprised of companies such as Wal-Mart, PepsiCo, P&G, etc. I’m aware that these companies have international exposure however their operations and earnings are still mostly stateside. In addition, as unemployment drops, the first industry that will have a positive gain will be consumer defensive. This was my selection for growth in a positive economy.
  2. Communication Services (FCQ)
    Also shielded to a degree from international turmoil, this index is made up of companies like AT&T, Verizon, Comcast, and DirecTV. My thought behind this choice was that given where technology is heading in that everything is becoming mobile, these are the companies that will be the backbone and benefit from growth in other industries within the US.
  3. Financial Services (FFL)
    This was a risky investment. Since the bailout, banks and the financial sector hadn’t really recovered. But after taking a look at their financials, I figured the large financial instituations such as Wells Fargo, Bank of America, Citigroup, and JPMorgan Chase were being undervalued. However this industry has the potential of being very volatile given its international exposure and the looming possibility of additional government regulation.
  4. Utilities (FUI)
    This index is part of my hedging strategy for my portfolio. Overall history in the companies included in this ETF is that during bull markets, they don’t fare as well but do during bear markets. So if the market ever starts taking a dive, this portion of my portfolio will soften the losses… at least that’s the plan.

Since I started my initial portfolio, I’ve added a new ETF to the mix:

  1. Health Care (FHC)
    My thought behind adding this index to my portfolio is that with an aging baby-boomers population, the health care industry is prime to benefit from it. I took into the account health care reform – if it goes through in 2014, the number of people seeking medical care will increase and Big Pharma will reap the benefits. However, if health reform doesn’t go through, then the overall health industry will gain so Big Pharma will follow. This index is comprised of companies such as Johnson & Johnson, Pfizer, Merck & Co, Abbot Labs, etc.

Portfolio Reaction – Losses Minimized

So far it seems my investing strategy is paying off. Although my portfolio has lost 2-3% this month, it is still better than the S&P and DJIA losses. I could have fared much better if it hadn’t been for the Financial Services portion of my portfolio which my position was reduced by about 8%. I could only grind my teeth upon hearing of JPMorgan Chase and its loss. There was a significant  JPMorgan stock selloff but very little of that stayed in the financial industry. Overall I feel that investors have lost confidence in the financial sector. Even though the financials of banks such as Wells Fargo are strong, JPMorgan’s irresponsibility has affected the entire industry. I only fear that intense government regulation is to follow that will lower long-term profit projections for the industry thus affecting my portfolio negatively.

Overall I should be happy, at least as happy as you can be when your portfolio dips 2-3% within a couple of weeks. The Utilities ETF did what I expected it would do and hedged some of my losses. My investment in the Health Care index also gained, minimizing my losses during this downturn.

What’s Next

The turmoil in Greece is putting me on the fence with Financial Services. I feel that the domestic economy is strong and thus my upcoming investing will be mostly focused on Consumer Defensive. As for Financial Services, I will still be investing just a small portion in order to lower my cost-average and catch higher profitability once Europe figures out it’s economic crisis. At this time, I feel it would be unwise to invest in Utilities. Overall I think the market is nearing a turn and thus will hold off on increasing my portfolio hedging component till we begin experiencing more consistent growth.

Related Posts: