Here’s a mid-year update of our investment portfolio, including employer 401(k) plans, self-employed retirement plans, Traditional and Roth IRAs, and taxable brokerage holdings. Cash reserves (emergency fund), college savings accounts, and day-to-day cash balances are excluded.
Asset Allocation & Holdings
Here is my current actual asset allocation:
The overall target asset allocation remains the same, based on my own preferences and research:
I pick asset classes that are likely to provide a long-term return above inflation, as well as offer some historical tendencies to be less correlated to each other. I don’t hold commodities futures or gold because I am not comfortable with 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). Despite the market volatility, I still try to buy, hold, and rebalance.
Our current ratio is about 75% stocks and 25% bonds. Specific ticker holdings are below. I’ve shifted some money in the PIMCO Total Return Institutional Fund because it’s the only bond fund in our employer 401(k) and I’m running out of tax-deferred space for bonds. At least the expense ratio is 0.46%, not as bad as it could be.
Also, I’ve switched from Vanguard FTSE All-World ex-US ETF (VEU) to the Vanguard Total International fund (VXUS) for tax-loss harvesting reasons and also because VXUS is more complete as it holds more stocks, including small-cap international companies whereas VEU does not. Here’s a visualization:
Vanguard Total Stock Market Fund (VTI, VTSMX)
Vanguard Small-Cap Value Index Fund (VISVX)
Vanguard Total International Stock Market Fund (VXUS, VGTSX)
Vanguard MSCI Emerging Markets Fund (VWO, VEIEX)
Vanguard REIT Index Fund (VNQ, VGSIX)
Vanguard Limited-Term Tax-Exempt Fund (VMLTX)
PIMCO Total Return Institutional* (PTTRX)
Stable Value Fund* (3% yield on most, 1.25-1.8% yield on rest)
iShares Barclays TIPS Bond ETF (TIP)
Individual TIPS securities
The overall expense ratio for this portfolio is in the neighborhood of .20% annually, or 20 basis points, which is much lower hurdle to overcome than the average mutual fund expense ratio of over 1% annually. This is all DIY, so I don’t pay portfolio management or financial advisor fees.
Early Retirement Progress
To measure our progress towards total financial independence, I use a 3% theoretical withdrawal rate and compare that with our expected future expenses. This is lower than the common 4% withdrawal rate because we intend to retire early and our money may have to last much longer than most (50+ years). This results in a goal of 33 times our expected annual spending. Currently, our portfolio would theoretically cover 54% of our expected expenses.
The 3% withdrawal rate is simply a rule-of-thumb. In terms of actual implementation, I’ve been thinking about a more dividend-oriented withdrawal approach, but right now I’m just gathering information.