Wylie Money: Portfolio Update 10/19/07 Capital Gains and Painful Losses

10.21.2007

Portfolio Update 10/19/07 Capital Gains and Painful Losses

Something a bit strange happened on Friday. Sure the market tanked, but that's to be expected from time to time. After the market closed, I was looking at the carnage in the portfolios I track at morningstar.com and I saw that the WylieMoney Real Estate option: SSREX was down almost 18%.

20 years ago Friday, the Dow dropped 23% in one day, but this Friday it was only down 2.6%. Now SSREX and the Dow have very little in common, but the other Real Estate funds I track were all down more or less in line with the Dow. Another fund, SSEMX was down over 8% which was down sharply over the other Emerging Market funds I track.

I looked at other finance sites to see if maybe Morningstar had it wrong. Google finance still had Thursday's price listed. It is Sunday at 5:30 pm est and Google still shows Thursday's price. I guess their excuse is the little "BETA" under the "e".

Or, maybe they were distracted by their own stock, GOOG, one of the few companies up on the day.

I digress.

When a fund drops sharply out of sync with its market, the usual culprit is dividend or capital gains distributions and sure enough this is the case here.

The most significant flaw in my portfolio experiment is that I have no accurate way to incorporate the impact of taxes into the actual portfolio values. REITs or Real Estate Investment Trusts in particular can generate a 'large' tax bill as they do not receive many of the same tax benefits that equity funds do. Some argue you should not hold REITs in taxable accounts- that may be the case for your situation. Personally, I own BXP and REACX and have been pleased with the long term results. Maybe I just don't mind paying taxes when I'm making nice profits!

Anyway, once I 'reinvested' the distributions in the morningstar portfolios I use for this project, the WylieMoney 20 Mostly Managed portfolio looked even worse for the day, but maintains its hold on first place since May 1st. My Roth IRA slipped on the week, largely due to BXP being down over 8% in one week and the fact that 20% of the portfolio is invested in SPY which is in last place in this experiment.