Today, I want to share my financial independence portfolio. Usually, I share my portfolio performance quarterly on my Turkish blog. Though, I am still determining whether I should do it yearly instead of quarterly. I have not been able to post an article on this site in the past weeks. The main reason, we went through a substantial period of illness as a family. I could not work, and naturally, I could not write during that period. Creating a new blog and producing regular and quality content takes much work. I have published 20 articles on this blog within a short time. However, health and family are more important than other things. Anyway, let’s start to dig into my portfolio.
Portfolio size
My portfolio size increased by 2.8% in USD terms compared to the previous quarter and reached $ 72,438. You can see from the table below that it increased by 13.4% on a Turkish Lira basis. However, the Turkish Lira depreciated by 10.3% against the US Dollar in the same period. Considering the inflation in this period, the Turkish Lira depreciated even less than it should have. The modest increase in my financial independence portfolio was primarily due to the valuation of my Borsa İstanbul assets in dollar terms. Unfortunately, my monthly savings amount was negligible during the period. In summary, my performance in expanding the portfolio was slightly better than in the previous quarter.
Asset allocation
In an environment where the prices of all financial assets are falling, cash is king. As you can see from the share chart below, a quarter of my portfolio is in cash. By cash, I mean Dollars, of course. The reason I keep this much cash is to be able to buy in increasing volumes if the S&P 500 continues to decline. Eurobonds still constitute the most significant part of my portfolio, with 29.7%. Borsa Istanbul’s share increased from 15.5% to 17.1% compared to the previous quarter. I didn’t make any new purchases. I have never traded in Borsa Istanbul, except for the same share purchase with the dividends paid throughout 2022. The shares of my overseas real estate and bond investments also decreased. The interest rate hike environment has not been suitable for both asset classes. 🙂
Cash flow
Cash flow is much less affected by market conditions. As you can see from the table below, my total cash flow in the last three months is $857.6. That is, at today’s exchange rate, $857.6 * 18.59 = TL 15.942. When we look at the components of cash flow, Eurobonds make up the largest share. Unfortunately, the biggest contribution of Turkish Treasury Eurobonds at the moment is their high cash yield. This asset class drags its portfolio size down as its prices fall and Turkey’s CDS premium increases. I hope it reverses after the election. 🙂 I also earned approximately $93.5 in dividends and interest income from overseas assets. To be precise, Interactive Brokers paid about $12 in interest on the cash I held in my account. Thus, in the first nine months of 2022, I earned a total cash income of $2,303 (*18.59=42,809 TL).
S&P 500 bear market and my game plan
As a long-term investor, I see the bear market in the US capital markets as a great opportunity. Investors get such a discount in 10-15 years. However, it is impossible to know the future. Now that I look back, I realize some of my mistakes.
US long-term treasury bonds
First, the correlation between stocks and bonds turned positive as the interest rate decline dynamics of the last 40 years reversed. I am at a loss of around 27% on my investment in US long-term treasury bonds. However, I continue to buy as the price drops to a certain extent. Things will turn around for bonds once inflation is under control in the US. So I will continue to reduce the average cost through 2024. 🙂 Due to its high duration, it is highly affected by interest rate hikes. If I had invested in a fund that tracks the total bond market, my loss would have been less.
Situation in real estate ETF
Similarly, in real estate investing, my timing was a disaster. In this item, I am at a loss of around 25%. Greetings to those who say, “House prices never fall.” 🙂 At the moment, house prices are falling sharply in the USA. Foreign real estate markets follow the USA. So it positively correlates with the S&P 500 in my real estate fund. In other words, I could not provide a good diversification by including this item in the portfolio. Fortunately, its weight is meager, and I am not planning any new purchases. I’m saving my scarce cash for the S&P 500.
The situation with the emerging country ETF
I am also at a loss of around 15% in this asset item. Unfortunately, developing country markets follow the S&P 500. However, the correlation seems weaker. The only plus of this asset item is that the dividend distribution efficiency is 3.9%. So relatively high. As the price drops to specific points, I enter small buy orders to reduce the average cost. For example, two weeks ago, such an order was fulfilled.
Case in S&P 500
While preparing this article, inflation data in the USA had yet to be released. So I am still determining how the news effect will be. The first two of the following buy orders have been fulfilled. The third is at hand. I’ve been waiting nine months to get it, even if it falls. Let’s see if the market will give me what I want.
In conclusion
The fact that my financial independence portfolio does not grow fast enough due to the bear market affects my psychology negatively. If the market were at the end of 2021, my portfolio would be roughly seven thousand dollars higher than it is today. The market will make up for these losses when things get better. But for now, I’m moving against the wind. I continue to act according to the game plan I made at the beginning of the year. The table below shows the transactions I have made in foreign markets since the beginning of 2022—10 purchases and sales. I did the last one to round out the number of S&P 500 ETF shares to 200. The calculation becomes easy. 🙂 Apart from these transactions, I bought one Eurobond once. I bought Arçelik and Tofaş with dividends in Borsa Istanbul. In other words, the total number of market transactions in the first nine months of 2022 is 13. Let’s see if the end of patience is peace. What do you think?
