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How Accurate Are My Predictions of 2007? Part 2: On Investment Income

Contributed by mm | December 11, 2007 4:56 AM PST

dartaccuracy.jpgThis is the second installment of a three-part series that reflects on my predictions of 2007. In the previous post, I reviewed the result of my first three predictions on our earned income. Today, I will debrief you on my forecast on investment income:

Prediction #4. Size of investment portfolio will grow from $700,000 to $900,000 by the end of 2007.

What I Said One Year Ago: If anything, 2006 educated us how investment is growingly more important to our finance. With some leverage (i.e. 0% APR balance transfers and unpaid tax on unrealized capital gains), I'm currently managing a $700,000 portfolio and this number will most likely to grow to $900,000 next year. It will require more time to be allocated to the investment process and more rigid process management.

Result: In my November month-end tally, our portfolio stands at over $940,000. Actually, for several days in late October, the size of my portfolio briefly surpassed $1 million. This prediction is not a bad call!

Prediction #5. US economy growth may fade and the current bull market in the stock market may come to a close.

What I Said One Year Ago: Personally, I don't feel U.S. stock market gains will be as dependable as in the previous four years. Therefore, I will be more careful in constructing my US dollar-denominated portfolio.

Result: As we all witnessed throughout the year, the U.S. stock market is growingly volatile. I have been more careful in navigating my U.S. stock and mutual fund holdings this year.

Prediction #6. China stock market is apparently overheated and will be much more volatile in 2007.

What I Said One Year Ago: I benefitted slightly from the domestic stock market, which grow almost 70% in 2006. I have since downsized my exposure to only 10% of the peak now that the valuation is gone (average market P/E is over 30 now) and everyone is taking stock as the favorite topic now. It will be interesting to see how this will play out, and whether new opportunities will surface in 2007.

Result: I sold off my remaining China market exposure in February 2007. The stock market went crazy in the first eight month by another 100%, before it entered into the current correction. Now the index is 20% off its peak. I was right that the market will be more volatile, although I'm well educated in value-investing and didn't plunge myself into the craziness. Maybe I should be more greedy?

Prediction #7. US dollar may continue to weaken against other currencies. Chinese Yuan will continue to appreciate 3-5% against US dollar.

What I Said One Year Ago: One chronic pain in our financial progress is how we will use a US dollar-denominated portfolio to pay for our retirement which will certainly include at least an element of living in China some time of a year. With the growing deficits, it will only take time for US dollar to weaken further. While I don't expect the Chinese government to implement a sudden exchange rate hike in the next few years, the daily climb of the exchange rate (adding up to a total of 3% appreciation in 2006 so far) still requires some careful treatment to make sure we can still come ahead, after foreign exchange adjustments.

Result: U.S. Dollar weakened against all major currencies and Chinese Yuan appreciated 6% so far this year again the dollar, although it actually depreciates against Euro. Good call on dollar valuation that pushed me to expand my international equity position from 27% in the portfolio to 35% today.

The next time we will discuss the predictions on our 2007 expense ...

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