Portfolio Update – December 2021: Markets overcame a wall of worry to end a turbulent year near all-time highs

Report on my investments, overall portfolio performance and my investment goals for 2022

Wow! 2021 is over, and what a year it was! It was a volatile, turbulent, but solid year for the stock market with indices approaching new all-time highs (driven by a handful of stocks). “Bull markets climb a wall of worry”, and that’s certainly true for 2021. It’s time for a portfolio update. In this article I will report on my investments, overall performance and my investment goals for 2022.

Portfolio Update 2021
Image Source: G-Stock Studio / Shutterstock.com

Portfolio Performance

2021 was a solid year for my investments, although it was a complete mess for performance measurement. In 2021, I had my positions spread across two brokers, and one broker had not implemented adequate performance measurement. Realized gains were not included in performance, and overall it was not very transparent. During the year, I moved all my positions to Interactive Brokers, so I will have proper performance measurement for next year’s portfolio updates.

The Interactive Brokers account shows a return of +9.71% for 2021. However, this does not include dividends and realized gains from the other brokerage account, and in addition, I had a cash position of about 24% in the Interactive Brokers account for most of the year, which reduced the calculated performance while markets were rising. In September/October 2021, I used the cash position to buy an apartment that I now use as my office.

Portfolio Performance 2021
Portfolio Performance 2021

The performance shown on the screenshot applies only to positions in my Interactive Brokers account. The portfolio slightly underperformed the Vanguard Total World Stock Index (benchmark in my brokerage account), which returned +12.8% in 2021. When I include the estimated gains from the other brokerage account, I get a return of about +12.7% for 2021. When I include the returns from my other investments such as real estate and cryptocurrencies, my total return for 2021 is about +19.6%.

Portfolio Income

Dividend Payment Analysis
Image Source: William Potter / Shutterstock.com

While I also invest in interesting growth stocks, the main focus of my portfolio is on capital preservation and regular “passive” income (cash flow) for my retirement. In recent years, most of my portfolio income used to be dividends. However, in 2021 I started generating income from selling options. My approach as an option writer is rather conservative, as I exclusively focus on cash-covered puts and, if assigned, on covered calls. I only sell put options on stocks that I wouldn’t mind owning long-term.

This systematic way of selling options is called the Wheel Strategy. I usually sell options on a monthly basis and in doing so, the amount based on the underlyings usually doesn’t exceed 10% of my total portfolio. I am very happy, that despite the low risk approach, I’ve been able to generate a solid income from selling options. I intend to scale this further next year, as I plan to double my income from options.

Income (cash flow) from investments in 2021:

Option Premiums€6,060
Rental Income€3,920

My long-term goal is to generate at least €25,000 in dividend income per year. Technically, I could already achieve this goal today by investing in high-yield stocks. However, I tend to avoid high-yield stocks because these high dividend yields are usually not sustainable. Also, I don’t plan to retire yet, so I prefer to focus on growing my portfolio’s income rather than cashing it out.

At the moment, I focus on high-quality stocks with reasonable payout ratios and therefore sustainable dividends, which are usually also increased every year. The usual dividend yield for my stocks is 1-3%. Although I have also invested in technology stocks or other non-dividend paying stocks, I am quite satisfied that the overall dividend income from the portfolio is quite decent. I usually either reinvest dividends or use the funds to sell more options. My dividend income for 2022 is currently estimated at €9,243. The actual dividend income is usually higher, as not all upcoming payments are in the database.

Projected Portfolio Income 2022
Projected Portfolio Income 2022

In 2021, I also partially hedged my portfolio from time to time at my own discretion. Although I am not a fan of market timing and consider myself a “buy and hold” investor, I sometimes hedge my portfolio partially with futures. Income investing can be pretty boring in the long run, and while I’ve discovered selling options as a hobby, I also enjoy trading futures. However, the hedging is usually only 3-15% of the portfolio, and I trade DAX futures (FDXM & FDXS). This is technically not income, but the profit from portfolio hedging with futures was €2,538 in 2021.

Position Overview

Below is a detailed overview of my current stock portfolio, sorted by position weight. The screenshot also shows the unrealized P/L for each position in %. As an income investor, I mainly focus on dividend stocks. However, I also like to invest in innovative companies and about a quarter of my portfolio are companies from the technology sector.

My best stocks in 2021 were Albemarle (NYSE: ALB), Nvidia (NASDAQ: NVDA), Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), Alphabet (NASDAQ: GOOG) and Fortinet (NASDAQ: FTNT). Also HIVE Blockchain Technologies (TSXV: HIVE), which was my best investment in 2020, kept doing well.

Portfolio Update 2021 - Positions Michael Hebenstreit
Portfolio Update – Positions December 2021

Asset Allocation

As you can already see from the number of my positions, I like to diversify. I know that you can diversify a portfolio with as few as 20-25 positions, but when you build an income portfolio with a significant amount of money, you quickly end up with more positions. From time to time I try to reduce the number of stocks in my portfolio, but most stocks I bought for a reason, and as long as my investment thesis is intact, I don’t sell them. I’ve basically built my own ETF. However, unlike a regular ETF, I only own stocks that I really want to own, not just because they are part of an index.

My regional allocation is pretty balanced between the US and Europe. I’m quite happy with that, as I don’t want to overweight the US market, although I’m still quite bullish on US stocks. My allocation to Asia was usually higher, but then Chinese stocks tanked in 2021 (as you can see from my position in Alibaba), and that’s now what’s left. However, political risk aside, the valuation of Chinese tech stocks is now very reasonable. I think 2022 could bring some surprises for Chinese equities.

Region Allocation - Portfolio Update 2021
Region Allocation – Portfolio Update 2021

My sector allocation favors stocks in the technology and healthcare sectors. I think the reasons are pretty obvious. Technology is changing our lives, and there are a lot of great investment opportunities in the technology sector for the next decade. Healthcare stocks, on the other hand, pay solid dividends and valuations are very reasonable. I prefer to avoid banks, legacy energy companies and other dinosaurs. Instead of banks, I would rather invest in innovative FinTech companies.

Sector Allocation Portfolio Update 2021
Sector Allocation Portfolio Update 2021

A few months ago, when Bitcoin was sitting at around $48,000, I sold my direct cryptocurrency holdings. I no longer own any coins, but I am indirectly invested in cryptocurrencies through some of my stocks. My overall asset allocation is currently 61% stocks, 35% real estate, 3% miscellaneous and 1% cash.

Outlook 2022

2021 was a turbulent, but solid year for the stock market. In my opinion, 2022 could be a similar year, a year dominated by COVID-19, central bank policy and economic uncertainty. However, provided the world doesn’t end, it could be another solid, albeit very volatile year for the stock market.

This year has brought some sharp corrections and flash crashes, followed by massive rallies. I think we have to get used to this market environment. On the other hand, this market also offers many opportunities for active investors, and passive investors can just sit tight.

As for my portfolio, I will continue as I am and invest in high quality companies for the long term. I also plan to double my income from selling options in 2022 and reinvest dividends to continue to grow my dividend income over time. I hope you enjoyed my 2021 portfolio update. How did your portfolio perform in 2021 and where do you see the markets going in 2022? Let me know in the comments below.

Personal Finance, Business & Investing Blog | InvestOpen.com
About Michael Hebenstreit
Michael is an investment professional, digital entrepreneur and former equity trader with over 22 years of experience in trading and investing. On InvestOpen he shares his personal experiences as business owner, insights into his approach as a long-term investor and his investment ideas.

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