Instructive month to understand the value of true diversification. Stocks and bonds were both down in February, but commodities surged, leading to success for more balanced portfolios. Portfolios with concentrated risk in equities struggled, finishing 8th, 9th, and 10th.
February was a second consecutive down month for most assets, with just five of the eighteen assets in the portfolios finishing in positive territory. Both stocks and bonds fell, exemplified by a 4.7% loss for Vanguard’s Total Stock Index (VTI) and a .6% loss for Vanguard’s Total Bond Index (BND). In terms of portfolios, this meant that the three traditional portfolios based on just those two asset classes performed terribly, finishing in 8th, 9th, and 10th places depending on their proportion of equities.
What did well? In short, portfolios with higher allocations to non-correlated alternatives like commodities and gold. Commodities, as shown by the fund PDBC, were up 10.6% in February as inflation surged to 7.5% (annualized), a number not seen since 1982. This led to three threshold rebalancing events this month for commodities in the RPC Income, RPC Growth, and Levered Seasons portfolios, and another month. Meanwhile, gold also climbed and digital currency came in as the big winner for the month. Whether or not the rise in gold and digital currency were for the same reasons as commodities I can’t really say, but it is months like these which show the importance of diversifying beyond stocks and bonds.
For portfolios, the Levered Butterfly led the month at +1.32% after accounting for the withdrawals, and with 20% in commodities and 20% in gold, that performance is no surprise. The Qian portfolio finished just behind due to the allocations of 15 and 10, respectively. The RPC Income portfolio was another success, and by finishing third this month, has now taken over the top sport overall. Its value is at $990,000, meaning it has almost been able to keep its value even as 4% withdrawals have been taken out, and that’s after two bad months for most investors. As mentioned last month, this is the dreaded pattern of bad months at the start of the drawdown period, before portfolios have had some positive or even average months to build up a cushion for the bad months. All portfolios are under the $1 million mark, showing the 4% rule is not quite working out (so far). The worst situation is with the Levered Seasons is in last, dragged down by the disastrous showing of the levered equity funds for these past two months.