Welcome back aviators! Today is the first monthly update in our GVUL Investing Experiment. If you want a refresher on what that experiment entails, start reading about it in Part 1 here. You can also see our initial conditions in Part 2 here.
Let’s start by being honest with ourselves: one month’s performance here is next to meaningless. It’s far too early to draw any conclusions. It’s not even fair to assert a trend. That said, this month produced some interesting data. Here’s the summary of my positions today.
BlackRocket!
First off, let’s note that our BlackRock fund beat the pants off everyone else with a 4.93% ROI in one month! This is more than double the next best fund (FXAIX). If you project that to continue for 12 months you’re looking at a 59.16% annual return! Wow, right?
No.
If you look at the history of this and many other BlackRock funds you’ll see that some years they vastly out-perform the market while others they double the losses suffered in the market overall. Remember: most actively-managed funds under-perform a passive, whole-market index fund.
As Chancellor Palpatine once told his protege, we’ll watch this fund’s career with great interest. However, we aren’t going to project, conclude, or expect anything without a lot more data. (And even then, past performance is not an indicator of future returns.)
Basis Advantage
The next thing we should note is that the cost basis of the GVUL investments has grown faster than the value of those holdings. This means that Delta has paid more in life insurance premiums on my behalf since I signed up for the GVUL that I’ve accrued unrealized investment gains.
And that, my friends, is the true strength of the GVUL.
This means that if I were to cash out all of my investments, I would pay zero capital gains tax on my earnings. In fact, there is still $152.84 in insurance premiums being counted toward the cost basis of my GVUL investments that isn’t even spoken for yet. I expect these investments to gain enough value to more than eclipse those premiums. However could take some time.
The fact that my more traditional investments would be subject to a 20% capital gains tax (assuming worst-case…Captain’s pay is high) cost me up to 0.6% this month. This effect shouldn’t be so large going forward, but that helps assign a quantifiable value to the GVUL being able to count insurance premiums toward investment basis.
Falling Short
Although my BlackRock fund beat the other three horses in this race, my other GVUL fund, the MetLife Stock Index Fund, finished last. It has some of the lowest fees available, so I had higher hopes for it. So far, it’s a weak start.
Also interesting was are the differences in performance in my three bottom funds. The MetLife Stock Index Fund targets the S&P 500, and FXAIX is a more honest S&P 500 index fund. It seems odd that in a single month, FXAIX would more than double the performance of its peer. However, we know that the MetLife isn’t actually an index fund. Its background materials freely admit that it only attempts to match the performance of the S&P. That’s a big difference.
We should also note that for this month our Total Stock Market ETF, Vanguard’s VTI, did a full percentage point lower than the S&P 500 fund I picked. We should expect these to differ some.
I think it’s too early to decide whether any of this means anything though. I’m looking forward to seeing how this experiment unfolds. And now, I’m going do to my best to completely ignore these investments until next month. See you then.