May was another mostly sideways month, though with a slight bias to the downside. Just one portfolio was in positive territory (100% Equities, +.29%) and, big news, it now has the top spot overall, after 14 months of leadership by the RPC Stability portfolio.
Been doing the portfolio reviews since July 2021, so coming fast upon the two year mark, and after all the hullabaloo, it does feel a bit weird to have a pretty simple portfolio, the 100% Equities at the top. The RPC Stability had been the best performer since March of 2022, and though I expected it would give way to more aggressive portfolios eventually, I didn’t expect that it would just be a simple mix of 80% US stocks and 20% international stocks that did it.
As for news for the month, nothing much stands out. There was some speculation around the debt ceiling (don’t get me started on that!) that eventually turned out to not be a very big deal, and then the rocket ship trajectory of Nvidia seemed to dominate the headlines. That company was the star of the month, and perhaps the determining factor for which portfolios did well and which didn’t. The best portfolios were the 100%, then the 80/20, then the 60/40, and then the highest Risk Parity-style portfolio finished fourth (the Capital Efficient Butterfly, at -.56%).
Keep in mind, as always, that those figures are net of withdrawals according to the 4% rule, adjusted for inflation. Though inflation is steadily tracking down, it still came in at 4.9% for the previous twelve months. This meant an increase in the monthly withdrawal, all the way up to $3,974. Recall that we began at withdrawals of $3,333 a month; it has been quite a jump up to where we are now.
As for assets, variations of funds based on large-cap equities were the winners for the month. UPRO finished first up 2.63% for May and VTI came in second at 1.43%. I no longer have any funds that track the S&P 500 solely, but VOO was up 1.51% for the month, meaning the 3X promise of UPRO was not realized. The up and down nature of the month meant that volatility drag took more of a toll, so let May of 2023 be a good example of the struggles that these 3X funds have in sideways markets. Up 1%, down 1, up 1 and then down 1% doesn’t get you back to zero, and that effect is even pronounced as those swings get larger.
The worst asset to hold in May was DRN, the 3X leveraged REIT fund, showing another clear problem with 3X funds. When the underlying fund is down, in this case VNQ, which was down 3.95%, then the 3X leveraged funds are portfolio murderers. DRN was down 14.3% for the month, so you got your 3X and then some. Yikes.
NB: Not sure who has made it this far, but I might wind up skipping next month's portfolio review, and will definitely miss the one wrapping up July. I have a big summer trip coming up, and won't be doing this from the road. Will get back on them eventually, though, probably as a three month review of June, July, and August performance.