Early Retirement Portfolio Update – June 2014 Asset Allocation

I want to get back to doing quarterly updates to our investment portfolio, which includes both tax-deferred accounts like 401(k)s and taxable brokerage holdings. Other stuff like cash reserves (emergency fund) are excluded. The purpose of this portfolio is to create enough income on its own to cover all daily expenses well before we hit the standard retirement age.

Target Asset Allocation

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I try to pick asset classes that will provide long-term returns above inflation, regular income via dividends and interest, and finally offer some historical tendencies to balance each other out. I don’t hold commodities futures or gold as they don’t provide any income and I don’t believe they’ll outpace inflation significantly. In addition, I am not confident in them enough to know that I will hold them through an extended period of underperformance (and if you don’t do that, there’s no point).

Our current ratio is about 70% stocks and 30% bonds within our investment strategy of buy, hold, and rebalance. With low expense ratios and low turnover, we minimize our costs in terms of paying fees, commissions, and taxes.

Actual Asset Allocation and Holdings

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Stock Holdings
Vanguard Total Stock Market Fund (VTI, VTSMX, VTSAX)
Vanguard Total International Stock Market Fund (VXUS, VGTSX, VTIAX)
WisdomTree SmallCap Dividend ETF (DES)
WisdomTree Emerging Markets SmallCap Dividend ETF (DGS)
Vanguard REIT Index Fund (VNQ, VGSIX, VGSLX)

Bond Holdings
Vanguard Limited-Term Tax-Exempt Fund (VMLTX, VMLUX)
Vanguard High-Yield Tax-Exempt Fund (VWAHX, VWALX)
Stable Value Fund* (2.6% yield, net of fees)
Vanguard Inflation-Protected Securities Fund (VIPSX, VAIPX)
iShares Barclays TIPS Bond ETF (TIP)
Individual TIPS securities
US Savings Bonds

Changes
I joined the exodus out of PIMCO Total Return fund earlier this year after their recent management shake-up. It actually coincided with my 401(k) allowing a self-directed brokerage “window” with Charles Schwab that allows me to buy Vanguard mutual funds, albeit with a $50 transaction fee. But my 401k assets are finally large enough that the $50 is worth the ongoing lower expense ratios. I’m buying more REITs and TIPS in order to take advantage of this newly-flexible tax-deferred space. I’m still holding onto my stable value fund, but I may sell that position as well in the future.

I think I mentioned this elsewhere, but I am now accounting for my Series I US Savings Bonds as part the TIPS asset class inside my retirement portfolio. Before, they were considered part of my emergency fund. They offer great tax-deferral benefits as I don’t have to pay taxes until they are redeemed. I don’t plan on selling any of them for a long time, at least until my tax rate is much lower in early retirement.

Comments

  1. Will you be doing a percentage of expenses covered post soon? I’ve always enjoyed those and especially curious due to the hot stock market over the last year.

  2. Mikey B says:

    This update is no fun if you don’t tell us how close you’re getting to FIRE!

  3. I’m working on it now and I’ll post a update with overall progress tomorrow. ;)

  4. Jonathan,
    On a related note wrt Asset location I realized that I have substantial Small cap Value in a taxable account instead of 401K or IRA. Any ideas how to rectify this situation without selling because if I sell it will incur capital gains :(

    • I have Small Cap Value in taxable as well. I just don’t have room. It’s not too bad as long as the turnover is under control. You could keep your current holdings and buy additional shares in a tax-deferred account if the cap gains are significant.

  5. You’ve talked for some time about what you’re doing to save and your strategies. Have you also put together a strategy of what you’re going to do when you actually retire? Will funds shift? How are you dealing with 401k or IRA age requirements if you’re retiring before 65? Will you supplement your portfolio in other ways in retirement with part time work etc?

    Personally I am having a very hard time figuring out how to shift from growing ones portfolio to drawing down on’s portfolio and what is involved in that process.

  6. Be debt free says:

    Does this account for taxable assets as well? How are you calculating your funds based on needs before you can access your minimum age for retirement assets? Thx

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