Sunday, February 22, 2009

ETF portfolio 2008 returns

2008 was an absolutely terrible year for all sorts of investments: the US stock market as measured by VTI returned -36.68%; developed foreign markets as measured by EFA returned -41.04%; and emerging markets as measured by VWO returned -52.47%. Bonds did much better: US investment grade bonds as measured by AGG returned 7.91%.

So how did you do last year? It's worth taking the effort to track your actual annual returns over time, and to compare those returns with standard indices. That gives you valuable insight into whether or not your investment strategy is any good. Perhaps you manage your own money by investing in individual stocks. Such tracking will then tell you whether your stock picking skills are up to the mark (I hope they are!). Or perhaps you're using a money manager. In that case, such tracking will tell you whether your money manager is worth the fees he or she is charging.

For my part, I've decided that my stock picking skills are not up to the mark, and that I'm not sure how to pick a money manager that's worth the fees. So I've been using a diversified portfolio of index ETFs (the actual portfolios are here). The only decision to be made in this strategy is how much risk you want to take on.

So how did these portfolios perform in 2008? Quite poorly, as one might expect. But the diversification between stocks and bonds did help---the more conservative portfolios lost less than the more aggressive ones. Here's a table summarizing the returns over the last 3 years:

ConservativeModerately conservativeModerately aggressiveAggressive

You can see more details on the returns in the various years here (including how the various components performed): 2008, 2007, 2006.

One final point about these portfolios and last year's terrible investment climate---there was lots of opportunity to do tax loss harvesting! The essential idea is to sell an ETF that is showing a significant loss (and there were plenty of such opportunities last year) and then buy it back after 30 days (to avoid a wash sale). In the interim, to make sure you continue to have the equivalent market exposure, you buy an alternate ETF that tracks a similar, but not the same, index (using an ETF that tracks the same index may fall foul of wash sale rules). When you do your taxes, the capital loss you incur with this sale can be used to offset other capital gains and up to $3,000 per year of ordinary income. The capital loss can be carried over to future years. I did some tax loss harvesting last year, so I think I'm set on capital gains for some time to come...:-)

Thursday, February 19, 2009

Science Fair Projects

It's Science Fair time again at our girls' school. Last weekend the girls did their projects with a little help from me. Here's what they did. Both projects are from the website.

Archimedes screw pump

I suggested about a dozen different projects to our third grader before we found the one she wanted to do---she wanted to build an Archimedes screw pump. Archimedes originally designed this pump to remove water from a leaking ship. The design is still used in many modern day pumps. The version we built involved wrapping a vinyl tube in the form of a helix around a PVC pipe. As you rotate the PVC pipe, the lower end of the vinyl tube scoops up water. As the pipe continues to rotate, the water moves up toward the upper end by moving down inside the helical tube. It's quite a remarkable invention by Archimedes. Here's a video of our version in action:

Extracting strawberry DNA

Our fifth grader wanted to do a project with DNA. We found a simple project to extract strawberry DNA. You start by smashing some strawberries to pulp and adding a concentrated detergent solution. The detergent pops open the strawberry cells (the technical term for this is lyse), releasing strawberry DNA into the solution. You then separate the solution from the strawberry pulp using cheesecloth, and pour the solution into a test tube (instead of a test tube we used an inexpensive rain gauge that we found at the local hardware store). Finally, you pour chilled rubbing alcohol into the test tube. The alcohol forms a layer above the strawberry solution, and remarkably the DNA precipitates out into the alcohol! Here's a picture of the DNA we extracted:

The white stringy stuff is the DNA that has precipitated into the alcohol. (We didn't have any way to verify that this was indeed DNA---we're just assuming that it must be DNA!)
/* Google Analytics tracking */