Couple of things, none deserving of a full post, so I’ll just smash them together: 1) Changes to RPC Income portfolio, now with Utilities, 2) update on inflation and withdrawals, and 3) When Does the Leaderboard Change?
1) Utilities now a part of the RPC Income portfolio
You can’t write seven posts on REITs that conclude by saying that REITs don’t measure up and that portfolios will be better off with other things instead, especially utilities, and then not do anything, right? So, starting in August, I have changed the RPC Income portfolio to decrease allocation to REITs and give to Utilities instead. Using the prices as of August 1st, I halved the allocation to REITs, so now it is 7.5% in VNQ and 7.5% in VPU. I did consider scrapping VNQ entirely in favor of VPU, but thought it would be more instructive to see them go neck-and-neck. You’ll see the changes in early September, once the August portfolio review is out.
Justin
2) My Method for Accounting for Inflation and Portfolio Withdrawals
We had a bit of a kerfuffle in the second week of August when the inflation numbers were published. Since July’s number came in at 8.5%, compared to June’s number at 9.1%, it was reported that there was no inflation in July. This is true, but the brouhaha came about when people heard that as “there has been no inflation over the past year” or that “inflation is no longer an issue,” both of which are decidedly not true. I think there’s politics in this: just like the debate over whether there is a recession in the US, there are many who would like there to be high inflation and a recession since it serves their political goals.
No matter - what really matters is how this very niche blog deals with inflation when handling withdrawals to test the 4% rule. Glad you asked: I simply take the latest announced figure, which shows the inflation over the 12-month time period ending with the most recent month. I then increase my monthly withdrawal by that amount. So in the August portfolio review, you’ll see the withdrawal go from $3,541 to $3,566.
To get to that figure, I use a simple approach. The 8.5% for July is saying there has been 8.5% inflation since August 1st of last year, so I just divide that number by 12 to smooth out the annual inflation data. In a way, I am over-estimating inflation, since I’m using the simple division of x/12, and NOT factoring in compounding. In simple words: if inflation were 12% for the year, for my month I would take 1%, even though actually 1% a month for twelve months would surpass 12% if it were compounded.
3) When Does the Leaderboard Change?
To update the RPC Income portfolio, I had to break a little rule of mine, which is to not look at the performance of the portfolios outside of my set times for portfolio reviews. I have this rule mostly to keep myself from fiddling with them too much, since I’ll wind up putzing around for hours with the spreadsheets.
But this time I had a great excuse, and noticed something. July was obviously a great month for the portfolios after months and months of sliding, nay falling, downward. So far, August looks pretty promising too. Will we see some changes at the top of the portfolio rankings, as a result? The RPC Stability portfolio has held the top spot overall for the past five months, and I for one am curious to see if any of the portfolios from the midfield, or even the back, can start putting pressure to make the podium.
At the start of the month, the RPC Stability was $32,000 over second place, the Golden Butterfly portfolio. I don’t think the Golden Butterfly will catch up too quickly, since it too is pretty conservative. Some of the other portfolios could easily start to close their larger gaps, though. Equity-heavy portfolios and especially, equity-heavy with leverage ones, can see a huge jump with good months. The RPC Growth portfolio, for example, saw its value jump $51,000 in July, though it still trails the RPC Stability by $114,000. Like Max Verstappen starting in tenth, it may not be too long before the aggressive ones are overtaking the conservative ones.
I’ll be watching closely: how many months until the Stability portfolio is passed by another, and how long until it is passed by the RPC Growth? My predictions are worth less than the cost to subscribe to this blog, but I’ll say October, and then January.