Current Portfolio Snapshot and Thoughts

Well if you’re going to try and change your portfolio, you might as well take a ‘Before’ snapshot for comparison later. I entered our retirement account holdings as of today into Morningstar’s X-Ray tool and got the following asset allocation:

Current Asset Allocation

This is based on our current holdings of only two mutual funds:

Vanguard Target Retirement 2035 Fund (VTTHX) – $13,798

Vanguard Target Retirement 2045 Fund (VTIVX) – $35,543

With these All-In-One type of mutual funds, you should really only be holding that one fund, or a mixture of two like we have, or your asset allocation can tend to go out of whack. Right now it’s like we have a Vanguard Target 2042 Fund, since we stopped buying 2035 and switched to only buying the 2045. That’s not our planned retirement date or anything, I was just trying to tilt things more toward stocks and add more international exposure.

According to the X-ray, we have 85% Stocks and 15% Bonds, with the equities split about 80% Domestic/20% International. I know that many people say that if you’re young you should go 100% stocks, but I am a bit more realistic about my risk tolerance. From my previous investing readings, I remember that bonds can temper the volatility of stocks greatly, while hindering the overall historical performance only slightly. This balance will smooth out the bumps and keep me from bailing out if there is a massive drop in the stock markets, which I’m sure will happen again sooner or later.

A good point that was raised is that I’m leaving out all my $28,000 of cash not tied up in 0% APR offers. Since my cash is designated for a very short term (< 2 years) goal, a house, I do not consider it part of my overall long-term portfolio. It is also serving as my emergency fund. Whether I really need to keep all of it separate or devote some towards retirement is something I need to ponder some more…

So many options!

Comments

  1. A little lite on the foreign exposure, or are you worried that they’ve run up too much? I would consider at least 30% in foreign markets. And what is the break-down by market cap and the bonds by quality and duration? Why are you reworking the portfolio? I thought you were just going to stop buying individual stocks, but you don’t mention a cash position so where are those being bought?

  2. are you saying that you only have 1% of your money in cash? Or does that mean you have 1% of your RETIREMENT money in cash>?

  3. For a guy as young as you, bonds really don’t have a place in your retirement portfolio. What’s the difference if there are corrections in the stock market? It’ll even out (and more) by the time you’re ready to retire.

  4. Hi Jonathan, I’ve been lurking here for a while. Excellent blog.

    You’ve alluded to the fact that you’re about to “rebuild” your portfolio. I assume you’ll soon be sharing more details on what exactly you’re considering? :)

    I’m 28 and used to hold VTIVX exclusively in my Roth IRA, but I eventually went with something more like your “Option #2″ on your “Should I roll over my 401k? Part 3″ post.

    ===================
    78% (VTSMX) Vanguard Total Stock Market Index Fund

    22% (VGTSX) Vanguard Total International Stock Index – consists of (1) Vgd European Stock Idx, (2) Vgd Pacific Stock Idx, (3) Vgd Emerging Markets Stock Idx

    0% (VBMFX) Vanguard Total Bond Market Index, I’ll allocate into this fund over time as I need more bond exposure, I currently have limited bond exposure elsewhere.
    ===================

    These are more or less the same underlying funds use to “build” VTIVX (except that this portfolio also includes exposure to international Emerging Markets which I believe is a benefit).

    For me, it addresses the issues I had with the target retirement funds (e.g. VTIVX):

    - to little international exposure
    - too much bond exposure
    - inability “fine-tune” the domestic/foreign stock and stock/bond allocation as I see fit

    .. all while still being invested in broad indexes, which (I hope) means that I’m less likely to have the urge to tinker with it (and possibly hurt my overall returns). I view this as a long term solution. I feel that I have all my bases covered using just these three funds, and my expectation is that I need only adjust the allocation between these 3 funds as time passes and I move towards a more conservative outlook.

    I’m willing to (temporarily) pay the low-balance fee (currently only on the international fund) as a small price for having a portfolio that I can stick with over the long haul.

    I’ll be interested to see what you decide. Keep up the good work.

  5. Johnathan,

    I am a big fan of “Random Walk”. Their guideline for “mid-twenties” is 65% stocks (2/3 US, 1/3 int’l), 20% bonds, 5% cash, 10% REIT or Real Estate Funds.

    Now I wouldn’t run out and buy and REIT’s right now since I think they are overvalued (I discussed this with my fee based financial advisor and he agreed).

    Taking the above into account — you are not too far off of Random Walk. Maybe a bit high in domestic stocks, a bit low in int’l stocks and bonds.

  6. As outlined above, in my mind I have two separate portfolios – Short-Term and Long-Term/Retirement. I need a large amount of cash in less than 2 years, so I cannot risk it in even bond markets.

    Yes, I am reworking my Long-Term portfolio from only two all-in-one generic funds into a more slice-and-dice portfolio consisting of separate mutual funds for each asset class. In addition, I will be going over tax efficiency, as some asset classes do better in taxable account than others. I hope to do this with Vanguard, but am pondering an ETF-only portfolio as well.

  7. I would move money into overseas funds….especially those in asia, eastern europe, and india.

Trackbacks

  1. [...] – Should I Rollover My 401k and Where To? Part 1, Part 2, Part 3, Part 4. 2006 March – A Portfolio Snapshot; Decided a change was needed. March – Portfolio Options: Slice & Dice, Keep It Simple, or [...]

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